Creating Equitable Severance Packages

Recent research conducted by a global human resources firm found that workforce reductions, mergers & acquisitions and reorganizations collectively account for over 70 percent of job losses. In today’s state of economic uncertainty, most people are not losing their jobs through any fault of their own; rather layoffs are based on business decisions to maintain profitability and competitiveness. Chandler Hill Partners recommends that employees and employers be prepared for uncertainty and be informed of the components of an equitable severance package; and that throughout negotiations both remember that the best severance agreements are those that are mutually beneficial to both the employer and the employee.
Severance is intended to bridge the gap between one job and the next. Nevertheless, on average, companies provide between one and two weeks pay for each year of service unless the employee has a negotiated employment contract or is at a senior level.

• Severance Pay – Although they are not legally bound to do so, most companies will provide severance pay to bridge the gap between jobs.
• Outplacement – Approximately 80% of employers in the US provide outplacement services to laid-off employees. This would be the biggest benefit as Outplacement services help with employees getting another position and stops the loss of income the fastest.
• Medical Insurance – Employers must, according to law, offer employees COBRA coverage for 18 months after they have left the organization. There is a period of time before COBRA coverage becomes available to employees; however, many employers continue company coverage through the period of severance before it becomes available. COBRA enables employees to pay a much lower premium that if they tried to get insurance individually.
• Vacation Pay – If a company allows its employees to accrue vacation time from one year to the next, employees who have been laid off should remember to account for their unused and accrued vacation time.
• Bridging to Retirement – Companies are often willing to grant time for bridging to retirement if an employee is within a few years of eligibility for wither early or normal retirement. This is usually in the form of adding years to age and service. If the company pension plan is funded, this costs little for a company to give.
• Stock Options – generally, departing employees have 90 days after they’ve been laid off to exercise vested stock options before they are lost. Employees can negotiate, however, to have this period extended and even have unvested options become exercisable.
• Non-compete Agreements – If employees are asked to sign one of these, they should not sign it immediately. This is a case where it is best to consult with an attorney.

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