The Severance Package

Simply stated, a severance package is a payment given to an employee “severed” from the company, whether due to a downsizing, layoff, or termination without cause. Voluntary severance agreements are covered in Chapter 7. In that chapter severance payments are discussed as an incentive to leave the company. The severance package here relates to involuntary layoffs or terminations.

Table 9-3: Reactions of Employees to Layoffs

Layoff Process Element	Practices Associated with Positive Attitudes toward the Company	Practices Associated with Negative Attitudes toward the Company
Communication Method	One-on-one discussion	Phone call or voice mail
Communication of Reason for the Layoff	Company effectively communicated reasons	Company did not effectively communicate reasons
Security Measures Taken	None	Doors locked
Time Allowed to Remain	4 weeks +	Asked to leave immediately
LayoffConsistent with	Consistent	Inconsistent
Typical Practice ofCompany

Severance payments can include a few weeks of extended paid salary, allowing the employee to search for a new job, or a lump sum the company pays to apologize for the disappointment and inconvenience for being laid off. Severance packages can include unpaid bonuses, stock options, an extension of medical benefits, and a contract with an outplacement firm. (An outplacement firm is a professional organization that helps employees rewrite their r sum s, and practice interviewing, offers a phone number and fax number for potential employers to send important information, and provides a place for the employee to search the Internet for a position.)

Often companies will base the nature and size of the components of a severance package on the employee’s pay level, tenure, or hierarchical level in the company. Typically, it is standard to offer nonexempt employees a few weeks of pay, allowing the employee to search for a new position while having some income during the search. Senior managers typically can expect 1 to 3 months of a basic pay package as well as additional severance for each year of service to the company. Finally, an executive generally can expect to receive anywhere from 4 months to more than a year of pay as well as other bonuses and benefits.

Many people hear about thousands upon thousands of layoffs and tales of juicy severance packages. What many don’t realize is that companies don’t have to offer severance packages when they sever a relationship with employees. A company can simply downsize, lay off an employee, and say, “Pack your bags, we will escort you out the door, and as of right now, you no longer have a job or benefits.” Some employees do, at the onset of their employment with a company, inquire about the position a company takes regarding severance packages and will negotiate a package for themselves should they be a future candidate for a reduction in force. A well-thought-out severance package tells a great deal about a company and how it views its employees. Savvy employees will see through the flaws, holes, and inconsistencies in a company’s policy on severance.

It is important to communicate the specific components of a severance package when employees are laid off, including how pay is calculated, how many unused paid vacation days they have accrued, and the terms of benefits. Clarifying these issues for employees will not only make for an easier transition, but will demonstrate how valued employees are to the company. Enumerating these specifics will relieve many unresolved questions in the mind of severed employees.