A pre-pandemic survey found that more than two-thirds of companies have reviewed their severance policies within the last two years, and, 37% said they have made their policies more generous in the past three years. (Photo: Shutterstock)
The LHH Severance and Separation Benefits Benchmark Study surveyed nearly 700 human resource executives and business leaders. Although the survey was conducted January, before the pandemic began to disrupt economies, the upward trend of offering more generous benefit packages indicates broad support among employers of the value of such policies.
John Morgan, chief operating officer and vice president of LHH Americas, said that in the current climate, good severance policies are more important than ever. "Over the past several months, it has become clear that companies must have a fair, comprehensive and competitive severance and separation package in order to show respect to current employees and protect the organization's employer brand for future talent acquisition," Morgan said.
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"In the current environment, it's very important for employers to realize that how they navigate employee severance and separation can set them up for success when it comes to attracting new talent in the future," he added. "Today's candidates will remember how employers maneuvered this period and they are watching to see what happens next."
More generous plans, policies vary by industry
The survey found that more than two thirds (68%) of the companies surveyed said they had reviewed their severance policies within the last two years, up slightly from 2018 (67%). In addition, 37% of companies said they have made their policies more generous in the past three years.
The data also indicates companies are seeking to document and communicate their plans better–more than 80% of those surveyed in 2020 said they offer well-documented severance plans to employees—a significant increase from the 64% of companies that did so in 2018.
Severance plans are written out as separate documents for 51% of companies, the survey found—up from 36% in 2017. There was a slight increase in the number of companies saying their severance policies were communicated through general written guidelines for employees (31% in 2020 versus 28% in 2017).
Documentation of severance policies also varies a great deal among different industries. For example, nearly 40% of tech companies offer a defined severance policy for all employees (more than 50% said they offer such policies for top executives and/or others with an employment agreement). But among manufacturing companies, only 15% had severance policies for all employees; 37% reported no documented severance policies in their employment agreements.
One area that has also seen growth is the practice of providing continued medical coverage to employees who are terminated: 57% of companies said they continue to cover medical benefits— up from 52% in 2017. However, the period can vary significantly; one-quarter of these arrangements end at the end of the month when the employee is terminated. A slight majority of companies continue coverage for the duration of the employee's severance period (55%). And only 32% of employers pays for the continued coverage; in 48% of the cases, the expense is shared between the company and the former employee.
Some companies looking at "reskilling"
Most companies (73%) said they offer severance to employees terminated due to large layoffs or corporate restructuring. In addition, 50% said they offer severance for employees who terminated involuntarily. For disability, 27% of respondents said they have a severance policy. Severance in case of retirement and voluntary separation of employees was listed in both cases at 26%.
A majority of companies (76%) said they offer outplacement and training programs for their workforce. In addition, 65% said they also include "upskilling" or "reskilling" programs to try to redeploy talent before implementing layoffs. LHH said these types of programs can save employers $136,000 per person compared to traditional practices of layoffs and new talent acquisition. The report's findings suggest that companies could save money by retraining employees, rather than resorting to layoffs.
"Many companies today are not looking beyond traditional separation offerings and are therefore missing opportunities to invest in their people while reducing costs of both severance and recruiting," Morgan said. "Allocating time and resources toward an employee reskilling or redeployment initiative can help employers implement easier transitions for their employees and build a renewable workforce that's future-fit."
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