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August 15, 2001
Severance Policy: A Money Saver
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h employers in Texas, ike everywhere else, shedding workers, the Austin Business Journal is reminding readers of a 1996 study that shows employers with formal severance policies ended up spending less on packages than those that did not.

The research, published by Philadelphia-based Right Management Consultants Inc., shows that up to three-fourths of the 10 industry sectors surveyed across the country reported the existence of a formal or informal severance policy.

An equally large number of these respondents believed formal policies would be implemented within five years this year, 2001. Industries surveyed included manufacturing, service, health care, banking and financial, insurance, communications, chemical and pharmaceuticals, nonprofits, retail, energy and utilities.

According to the Journal, the study finds the amount of severance received by an employee is most commonly based on years of service. The most frequently used formula for calculating severance amounts is one week of pay for every year of service, with a minimum of four to eight week's equivalent pay.

The person's position in the company, whether an executive or hourly wage earner, also weighs heavily when figuring severances. The higher up the ladder, the more benefits offered, such as financial planning. An hourly person is more likely to be offered retraining-type services.

Furthermore, the study concludes companies with informal policies tend to incur higher administrative and severance costs associated with the packages than those with formal policies. Informal policy decisions tend to be made on a case-by-case basis, often resulting in more generous packages.

The study also finds companies offering career transition services, or outplacement, as part of a severance package to reduce the risk of litigation following job separation. Outplacement services typically include job fairs, help with assessing skills, preparing resumés and learning how to interview and negotiate salaries.

A consultant tells the Journal that professional grief counseling though an employee assistance program and up to six months of continued medical benefits are two other ingredients commonly offered with severance packages.

Communication of the policy is key when announcing layoffs. In particular, outplacement services send a message to the community: The company is still a good employer.

"We don't want to do damage control anymore," the consultant says. "When you don't involve the HR manager, you have problems. We can see it from the eyes of the employee."

"If you roll out a program without using HR, we just take care of people who line up outside the door with complaints about how [the situation] was handled."

To view the Austin Business Journal story, click here.

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