Today's HR Daily Advisor Tip:

Spending More on Separation May Cost Less

Topic: HR Policies and Procedures

Employers conducting layoffs often seek the least expensive way. After all, saving money is the whole purpose, right? But recent research suggests that spending some money to do it right may pay off way more than it costs.

DBM, a leading outplacement and career management firm, recently released the results of a study titled “Global Trends in Separation Practices.” Virtually all of the more than 1,200 respondents were HR professionals in a wide cross-section of industries in 45 countries in the Asia Pacific, Europe, Latin America, and North America regions.

Most Organizations Provide Severance

Despite some regional differences governed by both culture and local labor laws, the degrees of similarity in the responses are significant. For example, most responding organizations provide severance to at least some of their employees, with almost half offering it to all departing employees, including part-timers. And, most organizations (75%) with 100 or more employees provide outplacement services to at least some laid-off employees.

Problems with 'Survivors'

Virtually all organizations reported problems cropping up as the result of reductions in force. The two top problems were lower levels of morale among remaining employees (71%) and reduced loyalty among those survivors (62%). And 95% of HR pros around the globe responded that the most important indicator of a successful downsizing is the morale of the employees still with the organization.

Employees' Interests Trump Budget Concerns

Further, when respondent organizations create their separation policies, they place the greatest emphasis on the interests of departing employees (84%) and preserving the morale and commitment of remaining employees (68%)—as opposed to such financial considerations as budget and return on investment.

Better, Richer Benefits Have Beneficial Effect

Most organizations (81%) believe that providing better, “richer” separation benefits has a beneficial effect on the morale and productivity of the survivors. No doubt that’s because survivors worry about their departing co-workers’ welfare after lay off—and think better of their employers if they seem to share that concern.

Lump Sum Typical

Most respondents (66%) pay severance in one lump sum rather than continuing salary checks. About half of responding organizations offer bigger severance packages for terminations arising from mergers, acquisitions, plant/office closures, outsourcing of functions, and sale of the company. The most frequently used criteria for amount of severance are years of service (85%), followed by level within the organization (50%).

Senior Managers Get More

About half the surveyed organizations give senior executives 3 or more weeks of severance for each year of service, with managers and other lower levels being offered 2 or more weeks per year of service. The majority of companies say the maximum severance they provide is 12 or more months and the minimum is 2 to 4 weeks’ salary. (Local employment laws in parts of Europe and Latin America, where there’s lots of social legislation, are a big influence on severance formulas.)

Corporate Values Drive Outplacement Services

The most frequently cited reason for offering post-employment support is corporate values (76%), rather than labor relations or legal considerations (less than 10%). And, level in the organization is the favorite criterion for providing services (63%), compared to length of service (39%).

Globally, at least 90% of HR pros name these components as the most valuable outplacement services:

Commenting on the survey results, DBM CEO and Chairman Robert Gasparini said, “Separation polices are now viewed as integral to business strategy, helping to safeguard the company brand and reinforce relationships with employees, consumers, and stockholders."

In tomorrow's Advisor, we'll turn to BLR's popular website, Compensation.BLR.com, for information on the many pitfalls related to severance.