Most Severance Policies Not Getting Updated

May 26, 2009 ( - A new Mercer survey has found 25% of responding organizations do not have a formal severance policy and seven in 10 who have severance plans do not intend to modify them in light of the down economy.

A Mercer news release about its April poll of more than 400 mid-sized and large U.S. employers, found most severance policy features are applied consistently to all employees and typically include benefits continuation and outplacement services in addition to severance pay.

class=”NormalIndent2″> According to the announcement, 74% of organizations provide continuation of benefits to executives as part of their severance policy, compared to 65% for professional/ technical employees and 61% for non-union/hourly workers.

class=”NormalIndent2″> Sixty-nine percent of organizations offer outplacement services to executives as part of their severance policy, compared to 57% for professional/technical employees and 49% for clerical/ technician workers

class=”NormalIndent2″> “Although most companies have taken a variety of initiatives to trim workforce costs, their severance policies have remained unchanged,” saidSteve Gross, global leader of Mercer’s broad-based performance and rewards consulting business, said in the announcement. “Severance pay helps preserve the future good will of employees which can be a difficult investment to measure over the short-term.”

class="NormalIndent2"> According to Mercer's survey, the majority of severance policies (52%) do not have a minimum length of service requirement for employees to receive severance if part of a workforce reduction. Of those policies that primarily use years of service as a key criterion for determining the length of severance payments, two to four weeks is the most common minimum period for the majority of employees.

class="NormalIndent2"> The minimum period of payments for most executives is more than 12 weeks. The maximum period of severance payments for the majority of employees is 26 weeks with the exception of executives which is one year, Mercer found.

class="NormalIndent2"> "In this tough economy, it's a good time for HR executives to either develop a policy if they don't have one or review existing policies to ensure they still reflect the company's compensation philosophy and expense control measures," said Gross, in the announcement.

Table 1: Severance policy features by employee group




align="center"> Professional/Technical

align="center"> Clerical/

align="center"> Nonunion/Hourly

Severance payment

align="center"> 98%

align="center"> 99%

align="center"> 98%

align="center"> 97%

align="center"> 95%

Benefits continuation

align="center"> 74%

align="center"> 68%

align="center"> 65%

align="center"> 63%

align="center"> 61%

Outplacement services

align="center"> 69%

align="center"> 63%

align="center"> 57%

align="center"> 49%

align="center"> 40%

Non-compete agreements

align="center"> 51%

align="center"> 28%

align="center"> 20%

align="center"> 13%

align="center"> 12%

Minimum service requirements

align="center"> 18%

align="center"> 21%

align="center"> 23%

align="center"> 23%

align="center"> 24%