Why Companies Offer Severance and Outplacement (and You Should Too)
One of the western world’s most famous legal principles is ignorantia legis neminem excusat, or “ignorance of the law excuses no one.”
But if you are an HR professional dealing with an employee seperation, you don’t have to speak Latin to know the legal obligations when it comes to providing severance: an employer is only on the hook to pay an employee for time worked and accrued vacation, unless there is some other contractual agreement.
But, as with many things in life, doing only the minimum of what the law requires is not always the best choice for the health of your business. In fact, plenty of businesses already understand that offering severance pay and a robust outplacement package is the right thing to do for the employee and the company itself. According to our 2014 Guide to Severance and Workforce Transition (which surveyed 250 HR professionals across 16 industries, 34 percent of them from Fortune-ranked companies), 61 percent of respondents offer severance to all employees. Furthermore, the study also found that 70 percent of companies included outplacement services in their severance packages.
How severance impacts your company’s future (and present)
To be sure, there is a wide range of what constitutes severance and outplacement from company-to-company and industry-to-industry. But what is clear is that savvy employers understand that there is both an immediate and longer-term benefit to providing the means for a smooth career transition for their former employees, such as financial support, maintained access to benefits and resources for finding a new job.
While the companies that responded to the RiseSmart survey listed “taking care of an employee” and “limiting company liability” as the top two reasons for offering severance, not far behind was a motivation that highlights the importance of cementing goodwill among departing employees: protecting the brand reputation — something that is a lot easier to do when you have an ex-employee who feels well-treated and respected during a separation.
Other motivations for offering severance fall in line with protecting the employer brand: maintaining a positive relationship with someone you might want to rehire later and maintaining a good relationship with a potential future customer. Given the gyrating nature of business cycles, there is a good chance your company will want and need an employee to return one day — but whether that former employee will consider becoming a potential candidate again depends in large part on the circumstances of their departure. And when it comes to customer relations and employee separations, it is a small world —today’s separated employee may go on to be tomorrow’s decision maker for a desirable customer or client company.
See how you stack up
We have talked about how regular and open communication and the opportunity for internal mobility are important factors in turning employees into brand ambassadors. Based on the responses to the Severance Study and its resultant Guide to Severance, it is clear that most companies also grasp that the third part of that equation: offering a generous severance package.
To see how your severance and outplacement efforts compare to others in your industry, download the full Guide to Severance and Workforce Transition.