Severance Package Length on the Wane

Shorter severance, coupled with unemployed managers and executives taking 16 weeks to find new jobs, leaves many corporate officials without an income source for six weeks .   Since 1999, the average length of severance has fallen by almost 12 weeks from when the average was 21.8 weeks, according to outplacement firm Challenger, Gray & Christmas. The reduced severance period in 2002 represents the shortest period since Challenger began tracking such data in 1991.

Cause and Effect

The latest Challenger survey attributes the severance cuts to several factors:  

• the faltering economy
• less money to spend on long-term severance packages
• a rash of bankruptcy filings
• the ongoing fallout of corporate scandals.

A hesitating economy has left many companies contemplating bankruptcy with fewer dollars to provide the generous severance benefits seen in the later half of the 1990s when many lasted longer than five months.   Today’s cash-strapped companies do not have the money to spend on providing long-term severance packages.  A growing number of companies are not even offering employment agreements guaranteeing severance packages to their executives, Challenger said.

The reduction in severance may also be partly due to fallout from corporate scandals.   Companies are coming under increased scrutiny by shareholders and Wall Street analysts, many of whom are questioning the wisdom behind large severance packages for executives whose actions may have contributed to a scandal or, at the very least, to poor company performance, Challenger said.

As a result, companies may be cutting severance for everyone.  A survey of employers cited by Challenger found that less than half (46%) are now offering executive contracts spelling out severance terms.   That is down from 62% in 2001.