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Severance Pay Getting the Pink Slip as Cutbacks Become Commonplace

Layoffs: Packages for fired workers used to include 'a dollop of corporate guilt . . . but that guilt has run out,' an expert says.


Severance pay has become less generous as corporate America, and society, become more immune to companies trimming their ranks.

The idea of a paternalistic management that cared for workers like members of a family has receded into the myths of the golden age of prosperity. The new managers of the 1990s, eyes intent on the bottom line, won't be as understanding when they send you into the world looking for a new job.

"Originally, severance plans included a dollop of corporate guilt," said Alan Johnson, managing director of Johnson Associates, a compensation consulting firm in New York. "That dollop has run out now. Things are so matter of fact" when it comes to trimming payrolls.

"Companies that had multiple layoffs get stingier with each one," he said.

A blue-collar worker laid off these days might get one week per year of service, about one-third less than five years ago, according to Johnson. For the laid-off white-collar employee, the severance allowance is likely to be 1 1/2 weeks, compared with at least two weeks several years ago.

The median severance pay period for all workers--meaning half received more and half got less--peaked at 16.7 weeks in 1993, according to a report by outplacement specialists Challenger, Gray & Christmas. The median fell to 12 weeks in the first quarter of this year.


There is no legal right to severance, but it can't hurt to ask.

Companies often say the subject is not negotiable. "But it's always good to try," said Johnson. "If you don't ask, you never get it."

He recommends that you stress your value to the company and emphasize your personal situation.

When you take the value approach, try to convince your employer that you need to, and are willing to, complete that key project the company needs, and therefore you should stay on the payroll a few weeks more.

The needy approach: "I've got that last college tuition bill to pay and I really hope you can help me out."

Severance policies vary widely. Some heavily unionized industries have generous programs for blue-collar workers, which, in turn, drive the creation of better severance benefits for the salaried nonunion employees. Only a small fraction of workers are in companies with unions, though.

For most workers, severance is a sometime thing, depending on the industry, the size of the company and the goodwill of management. Benefits can range from zero to many weeks.

A client survey by Lee Hecht Harrison, a major outplacement and career development firm, showed that severance was virtually universal among companies in the fields of engineering, computers and software, insurance, media and entertainment. It was somewhat less common in aerospace.


Northrop, which has trimmed its work force to 16,500 at the end of July from 31,000 in 1990, offers no severance. Workers get 60 days notification that they will lose their jobs, and they are entitled to use "redeployment centers" at the company after they go off the payroll. These centers include offices where they can use telephones and computers for the job search, prepare resumes and take classes on resume writing and other topics to help them find a job.

Lee Hecht Harrison said its typical client offering severance calculates the benefit at the rate of one week for each year of service, with a maximum of 39 weeks for executives, 32 weeks for salaried workers and 30 weeks for hourly employees. The minimums were eight weeks for executives, 4 1/2 weeks for the salaried workers and four weeks for the hourly workers.

The biggest variation in the survey was linked to the size of the company. Only 66% of the firms with fewer than 100 workers provided severance pay. But the big enterprises, those with more than 1,000 workers, offered severance pay about 90% of the time, the survey said.

"Larger organizations also tend to provide more generous severance amounts, set higher minimums and maximums, continue medical benefits and provide outplacement," according to the Lee Hecht Harrison study.


The common pattern, a week of pay for each year of service, was confirmed in another report, a survey among members of the Society for Human Resource Management, the trade group.

Most companies will expect a worker who is taking severance to sign a statement agreeing to forego any further financial claims.

This is particularly true in states "like California and New York, which are very litigious," Johnson said.

"You might have a little more severance, but they will require you to sign a release promising you won't sue."

The fact that severance is becoming more stingy may be offset by one hopeful note: you are a bit less likely to be tossed on the street if you are a long-term worker.

The pace of downsizing appears to be slowing, the Labor Department reported recently.

From January 1993 through December 1995, about 3.8 million workers lost jobs they had held for three years or more, according to a survey by the Bureau of Labor Statistics.

A similar survey for the period 1991 through 1993, with some overlap, showed heftier losses of 4.5 million.

The new report showed that the workers had been dismissed because the company closed or moved (44%); the job or shift was abolished (31.9%), or there were insufficient orders for the business (24.1%).

If that trend continues, fewer people will be thrown on the streets, clutching increasingly smaller severance checks.

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