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April 20, 2009
Severance Practices Differ Markedly from Previous Recession
A recent study finds that many employers have significantly modified their severance practices since the 2001 recession.

Lee Hecht Harrison’s 2008-2009 Severance & Separation Practices Benchmark Study compared the separation practices between the 2001 economic downturn and the current one and gained insight on how severance packages have changed. For starters, an employee’s length of service used to be the most important factor in reaching a severance agreement, but it is not nearly as important today, since employees change jobs more often.

“Since 2001, employers and employees have become more sophisticated about separation best practices,” Barbara Barra, executive vice president--operations for Lee Hecht Harrison explained in a press release. “Employees have taken more control of the negotiation process and employers have diversified their severance offerings. Both sides are working to arrive at a mutually satisfying solution, which is good news.”

From an employee perspective, the study found that after the 2001 recession, employees “learned to dictate their own severance terms through clauses in employment agreements and strategic negotiation.” More employers are replacing boilerplate policies with individualized packages. As a result, the number of companies with formal severance policies dropped 24% from 2001 to 2008 according to Lee Hecht Harrison. And the number of employers who consider employment agreements when formulating severance packages increased 153% for executives and 100% since 2001.

Moreover, the number of employers who say that negotiation played a role in severance packages increased over 278% for officers and executives and by 520% for employees at the professional level, and 450% for employees at the administrative level since 2001.

Another significant change is that in order “to preserve their employer brand and reputation,” more employers are now offering outplacement services: For example, 39% of companies offered outplacement services to all exempt employees in 2001 compared to 55% in 2008--an increase of 41%.

“There is a strong correlation between how a company treats departing employees and its ability to attract and retain top talent now and in the future, particularly when the economy rebounds,” said Barra. “Providing a socially responsible and compassionate career transition service is more than the right thing to do, it's the smart thing to do.”

Finally, more employers are protecting themselves against litigation by requiring employee releases in exchange for severance packages—76% of surveyed employers used releases in 2001, compared to 93% in 2008, according to Lee Hecht Harrison.

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