Severance Benefits Uncut So Far

March 20, 2009 ( - A new survey by Hewitt Associates found that severance packages for most impacted employees at large U.S. companies have remained unchanged.

According to a Hewitt news release, more than half (51%) of companies offer a standard one-to-two weeks of pay for every year of service, and another third (33%) vary their payouts based on a formula that typically combines years of service, salary level, and/or grade. In addition to cash payments, most companies provide at least one benefit after separation, which may include health care coverage, retirement benefits, disability, financial assistance or life insurance.

Health care coverage is the most prevalent benefit offered, Hewitt said. Thirty percent of companies provide full health care coverage during the severance period and then offer COBRA at the end of the severance period. More than one quarter (26%) provide COBRA coverage immediately, with the employee paying the full premium.

Most companies (72%) also provide outplacement assistance to severed employees (see Severance Includes Outplacement, Financial Planning ).

Other survey findings include:

  • Most companies (80%) have minimum and maximum limits on the cash portion of their severance payments. The average minimum is 4.5 weeks of pay, and the average maximum is 40 weeks of pay.
  • The regularity with which organizations are reducing their workforces has meant that most (72%) now have formal, written severance policies in place for their broad-based employee populations. In the past, these practices varied more based on circumstances.
  • A majority of companies (87%) require severed employees to sign a waiver that includes specific conditions. Most waivers include a litigation waver and other conditions, such as nondisclosure and non-disparagement agreements.

While severance benefits for the most part have so far remained unchanged, Hewitt's survey indicated that as companies continue to make layoffs and to look for additional ways to lower costs, severance benefits are at risk of being cut back.

The survey of 228 large U.S. companies representing 4.5 million employees found that more than 80% of employers made layoffs in the past 24 months, and 45% intend to make further reductions in the next 12 months, according to a Hewitt news release.

One in five companies (20%) reported they plan to make changes to their severance plans and nearly a third (31%) are unsure. Of those making changes, 43% plan to reduce cash payments, and one in five (21%) plan to reduce benefits.