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by SixFigureStart | March 23, 2009

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In the past, severance was a fairly simple affair -- in most cases, it was calculated as a function of your seniority. The longer you were employed by a company, the longer your package would last.

Like the recession-related shrinkage now seen just about everywhere -- note the less-gargantuan cereal boxes and magical 14-ounce pints of ice cream at non-discounted prices appearing in grocery stores these days -- severance too seems to be suffering some downsizing. In a recent Hay Group survey of 180 firms (as reported by The Wall Street Journal), fully 37% of companies have either changed their policies or are considering altering them to save on costs. A Hewitt Associates poll conducted in December found that 51% were discussing or planning on such a change. (Another study, conducted by Watson Wyatt Worldwide in February, seemed to contradict these, though it depended on self-reported information. Over half of the companies that conducted job cuts said that they included better payment structures, improved benefits and/or search assistance.)

And while the "rules" on severance were often vague and/or nonexistent, now they are becoming more formalized. That's a necessity when layoffs hit a large chunk of a company's workforce. "When you are dealing with terminations one individual at a time, you can afford to be more flexible," says Laurence Stybel, the president of executive-outplacement firm Stybel Peabody & Associates Inc. "When a company is terminating 10% of its U.S. work force, policies have to be established and they need to be easily administered."

This all means that the wisdom about keeping at least six to nine months of salary in reserve for such emergencies needs to be revised even further upward. If you haven't already taken a more active stance on saving, this is yet another good reason to do so.

--Posted by Todd Obolsky, Vault News & Commentary

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