Softer Landings for Laid-Off Workers

Severance packages are growing more generous as companies position themselves for a recovery.

How many employees has your company laid off lately? The question, which was laughably irrelevant just over a year ago, is suddenly very relevant for most executives — at least those who still have jobs themselves.

In the first half of the year, U.S. companies announced plans for 770,000 layoffs, more than triple the 223,421 cuts announced in the same period of 2000, according to outplacement firm Challenger, Gray, and Christmas. The rate of layoffs has been the “heaviest we’ve ever seen since we started following the numbers [in 1989],” says CEO John Challenger.

Devastating to employees and their families? Of course. Yet thanks to some trends in the area of severance packages, layoffs today aren’t quite as bad as they used to be. While middle managers and blue-collar workers still don’t qualify for full-fledged golden parachutes, many of them are now getting better payouts and benefits to help provide a softer landing.

Some reasons for improvements in severance policies, experts say, relate to the peculiar nature of the current wave of cutbacks. For one thing, in more than a few cases the bloodletting extends from the lowest-income workers to senior management, including the very human-resources executives who are designing severance packages in the first place. For another, companies feel they must try to position themselves to rehire many of the laid-off employees once the economy recovers — something more than a few executives expect to happen fairly quickly. Having invested heavily in training many of these individuals, employers see the advantages of staying on good terms by making them grateful for the separation benefits they receive.

Finally, some executives are trying to spare their companies the damage of the so-called survivor effect, felt by the remaining workers when their dismissed brothers and sisters are perceived as being ill-treated.

Thus, even though there isn’t any legal requirement for companies to offer severance with a layoff, experts say the increasing commitment of companies to the dearly departed is smart business.

“It’s part of an ongoing strategy to cut jobs in times of slowdown and hire furiously in times of growth,” says Challenger. Executives now “think of their workforces on a just-in-time basis.” More than ever, “the people who lose their jobs are people that the companies would prefer to keep,” he adds. “Plus, everyone is in the same boat: The CFO knows that tomorrow it could be him or her. Everyone has a vested interest in seeing that there is a good transition safety net provided.”

JDS Uniphase Corp., which has announced plans to lay off a total of 16,000 employees this year, says its severance packages are generally “much more generous” than what predecessor companies Uniphase Corp. and JDS Fitel Inc. offered. (The two merged in 1999 to create the San Jose, California- and Ottawa, Canada-based telecom behemoth.)

Not only has the number of weeks of pay for terminated employees been liberalized, but certain laid-off employees involved with plants, sites, or product lines that are being closed or relocated have been offered a temporary “retention bonus”: a 50 percent lump-sum premium above their salaries for the period between the closure announcement and the date of actual closure. That’s if they agree to stay until their particular phaseout is complete.


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