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June 18, 2001
The Downsizing May Not Be Over
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panies that have already downsized within the last 18 months have a 50-50 chance of doing so again in the coming months, according to a new study from a subsidiary of PricewaterhouseCoopers, the professional-services company.

The subsidiary, Unifi Network, reports that of the 114 companies it surveyed, approximately 50 percent have downsized within the past 18 months. Of those, 50 percent plan to downsize again within the next 18 months.

The manufacturing industry had the worst news to report, according to Unifi. Of the 38 manufacturing company respondents, 61 percent reported downsizing or plans to downsize in the next year and a half.

The not-for-profit industry was the most insulated, with only 8 percent reporting the possibility of downsizing again.

"This survey points to a unique trend in today's economic climate - additional employee layoffs at companies that have previously experienced one initial round of layoffs," said Todd McGovern, a director in Unifi Network's Compensation Practice.

He added this advice: "Executives and other employees need to educate themselves about their company's severance policies so that they are financially prepared if the ball drops and they are let go."

Unifi offered ways for executives and employees alike to protect themselves in severance situations:

For executives:

  • Maintain an employment contract that specifies a severance arrangement. Sixty-two percent of respondents offer employment agreements to their executives; of those who offer agreements, 92 percent have agreements for CEOs and 68 percent have agreements for senior management.
  • Have an excise tax provision in their contract. Seventy percent of respondents that do not limit severance payments provide executives with excise tax gross-up.
  • Try to waive the eligibility requirement if you do not have an employment agreement with severance protection. Forty-four percent of participants with a severance policy have a "minimum years of service" requirement in order to receive severance payments, and 77 percent of those that have a minimum years of service requirement include a minimum requirement for senior management.)

For employees:

  • Find out whether your company has a severance plan in place. Of the 114 participants in this year's survey, 88 percent of them have some type of severance policy or standard practice in place.
  • Figure out whether you are eligible. Severance eligibility typically extends to all positions in most of the organizations surveyed.
  • Figure out what your severance payment would be. Employees typically receive a minimum severance payment plus additional severance payment based on years of service. Ninety percent of participants with severance programs use a standard formula to calculate the severance pay package.

The survey found that severance eligibility typically extends to all positions in an organization - from senior management to non-exempt staff, with senior management less likely to have a service requirement. The most prevalent years of service requirement is 12 months; the second most prevalent requirement is six months.

Survey findings indicate that employees typically receive a minimum severance payment plus an additional severance payment based on years of service. The majority (77 percent) of participants base some or all of the severance payment on years of service at the organization. Not all firms utilize the years of service component to calculate severance payment; some utilize formulas based on salary grades or salary increments.
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