Ask an Expert: Creating the Ultimate Severance Package
Dan Phelan is among the foremost thought leaders in Human Resources. He has held key leadership roles in several areas of GlaxoSmithKline and is a member of RiseSmart’s Strategic Advisory Council. Here he answers questions in the continuing series of articles for RiseSmart called “Ask An Expert.”
What do you think are the essential ingredients of a good severance package?
It’s always a painful experience for people to lose a job. It happens because the business is in a downturn or, many times, it’s the result of a merger or acquisition. Exit packages are important in these situations, and good ones include a number of elements. The first thing is the severance.
What is included in a good severance package?
It’s all over the map, and it depends on the industry and what a company can afford.* Some companies give a week for every year’s service. Other companies offer two weeks per year of service up to a maximum of six months or a year. It’s hard to say what’s best. The more generous the better.
Money is obviously important. What else?
Increasingly, people are giving longer notice. When I was at GlaxoSmithKline we gave longer notice based on people’s job level. We were giving two months’ notice to people at the VP level, and we would keep them on the payroll during that time under the assumption that it’s much easier to find a job when you have a job. Then we gave managers and everyone else about a month of notice. That has been especially important over the last three or four years, after the Great Recession, when employers have basically been saying they really don’t want people who have been out of work for a long time. They think [that the long-term unemployed have] lost their edge, which I think is wrong and outrageous. But if you can be looking for a job while you’re still on payroll that is much better.
What can be done for people who might be too close to retirement to be looking for a new job?
Different companies have different criteria for qualifying for retirement benefits. Some say the person’s age plus their years of service must equal 70; others are different. But if you have the wherewithal to enhance someone’s pension credits and maybe help them qualify for retiree medical and other benefits, that is huge.
What about outplacement?
It’s critical. But even though outplacement is critical, high-quality services are especially important. By that, I mean outplacement that is both high-tech and high touch. It’s high touch, in that you can have as much time as you want with a career counselor and a resume writer. And then on the technology side, you want to have outplacement that can perform sophisticated data mining that will identify new job opportunities through corporate websites. Theoretically, an individual could do it. But you can’t do it because you don’t have the time. These days, outplacement is often high-tech and no touch. It’s a commodity. It’s still worthwhile, but a lot of employees go once or twice and say, “This is not for me. I’m not getting much out of it.”
Why should a good severance package matter to employers?
Obviously it’s important to the people who are being laid off. But it’s just as important for the people who stay with the company. These are colleagues, friends, in some cases relatives of people who are still going to be with the company. It says a lot about the company and how they treat people who are leaving. People will be saying to themselves, “I may be leaving one day, too, and this is how they will treat me.” If you want to be an employer of choice, you need to be great at attracting people, and you need to treat them well when they leave. Otherwise you’re not going to stay an employer of choice for very long.
*For recent and specific benchmarking information by industry and geography, download a copy of the Guide to Severance and Workforce Transition.