2011 severance and separation practices benchmark study

Severance & Separation Practices Benchmark Study 2011

Severance & Separation Practices Benchmark Study 2011

Key findings ............................................... 1

Severance ..................................................4

Outplacement .......................................... 10

Outplacement program factors ................ 13

Decision making....................................... 14

Stay bonuses ............................................ 15

Change of control agreements................. 17

Redeployment .......................................... 18

Early retirement programs ....................... 19

As the U.S. economy struggles to recover from the Great Recession, the focus of C-suite and HR executives is shifting from workforce reductions to engaging and retaining the critical talent needed to remain competitive in today’s global economy.

The sixth edition of the Lee Hecht Harrison Severance and Separation Practices Benchmark Study is designed to help you strategize, plan and implement your own organization’s severance practices. The objective of the study is to provide insights on thought leadership and trends in the Human Resources field related to severance and separation benefits by comparing results collected in 2008 to results collected in 2011. Studies such as this one provide you with a clear sense of key benchmarks you can use to update or create your organization’s severance programs to remain competitive in today’s environment and ensure you are building and protecting a reputation as an employer of choice.

How organizations maintain positive relationships with their workforce during a downsizing has a direct correlation with protecting the employer brand. Survey respondents state outplacement benefits continue to be an important factor as the economy rebounds and employers compete for top talent to help them achieve aggressive revenue and

profitability goals. Indeed 56% of respondents said that the top reason for providing outplacement is to try to maintain positive relationships with their workforce and protect their employer brand.

Although companies surveyed were nearly twice as likely to have reviewed their severance policy in the past year, practices remain largely unchanged between 2011 and 2008. Employment agreements have become more influential in determining severance since 2008.

High on the strategic agenda of most successful organizations is employing effective recruiting and retention programs. Tactics, strategies and goals are regularly reviewed, adjusted and implemented to match changing market conditions and organizational goals. As the leader in Career Transition, companies turn to Lee Hecht Harrison for answers to their questions about the evolving world of severance policies and practices.

1

Key Findings

On the following pages, there are detailed results in several categories of severance policies and practices. However, we thought the following six findings indicated some interesting trends evolving from the current business and economic environment.

1. A majority of companies have reviewed their severance policy within the last year.Over the past few years organizations have been faced with the economic recession and the reality of trimming down their workforce. As a result, reviewing corporate severance policy, whether it be formal or informal, has been a top priority. 66% of respondents have reviewed their policy within the last year, a 31% increase since 2008.

Regardless of whether your severance policy is formal or informal, when was the last time your organization reviewed it?

2. Live human interaction in outplacement still necessary. According to 90% of respondents, in-person meetings, seminars and coaching are deemed to be the most important elements when designing a successful outplace-ment program — proof that human interaction is still important. Outplacement programs customized by level and title are also considered very important and programs tailored towards specific desired outcomes are also thought to be critical by organizations when reviewing the elements of a successful outplacement program. Overall, 98% of respondents feel that a blended learning program including in-person resources most closely describes their organization’s philosophy regarding outplacement programs. Only 2% of respondents prefer a technology- based program.

What is your organization’s philosophy regarding outplacement programs?

3. Outplacement is still considered a major component of severance policies.The majority of respondents indicate that their organization offers outplacement, either full or partial, to all levels of employee, with those at higher levels being more likely overall to receive it. The majority of Officers, Senior Executives and Executives receive at least six months of outplacement support, while the majority of Professionals and Administrative staff tend to receive three months of support.

Who do you provide outplacement to?

2011 (n=653)

2008 (n=991)

Past year 66% 35%

2 years ago 15% 39%

3 years ago 7% 9%

4 to 5 years ago 2% 5%

More than 5 years ago 1% 4%

Don’t know 9% 8%

Yes, all Yes, some No

Officers 67% 20% 13%

Senior Executives 69% 20% 12%

Executives 67% 20% 13%

Professionals 58% 23% 19%

Administrative/support staff 51% 22% 27%

A blend of technology & in-person resources are important to our organization’s outplacement program 79%

In-person meetings, seminars and coaching are the most important resources in our outplacement program 19%

Technology is the most important resource in our outplacement program 2%

2

Severance & Separation PracticesBenchmark Study 2011

4. Graduated scales are no longer as prevalent in severance calculation formulas. In 2008, 24% of respondents reported using a graduated scale as compared to the meager 19% who reported using one in the 2011 study.

Does your organization use a graduated scale (i.e., number of weeks of severance per year of service increases after individuals have met a certain length of service threshold, such as five or ten years)?

5. Employee agreements have a huge impact on severance calculations.Organizations typically consider several factors when calculating severance benefits for employees. Employee agreements have a huge impact and strongly influence the severance calculations for Officers and Senior Execu-tives of many organizations. Employee agreements help employees feel more secure and give the company a way to set boundaries for various employment situations. From the previous study in 2008 to the current 2011 study, we have seen a marked increase in the impact of employee agreements on severance calculations — 52% of respondents said they affect Officer level severance and 45% of respon-dents say they affect Senior Executive level severance calculations. Given the increased significance of employee agreements when severance calculations are made, it is becoming more important for executives to negotiate their agreements upon hire.

If your organization’s severance policy for Officers is not based only on years of service, what is it based on?

If your organization’s severance policy for Senior Executives is not based only on years of service, what is it based on?

2011 (n=653)

2008 (n=969)

Yes, also use a graduated scale 19% 24%

No, do not use a graduated scale 81% 76%

2011 (n=427)

2008 (n=644)

Employment agreement 52% 44%

Title/level 41% 33%

Negotiated on an individual basis 39% 39%

Years of service 38% 37%

Salary/grade level 37% 37%

Age 7% 6%

2011 (n=427)

2008 (n=644)

Employment agreement 45% 37%

Title/level 45% 37%

Negotiated on an individual basis 42% 39%

Years of service 39% 39%

Salary/grade level 39% 37%

Age 7% 6%

3

Severance & Separation PracticesBenchmark Study 2011

6. Change-of-control agreements covering future mergers or acquisitions tend to feature a more generous severance policy.As business strategies change and companies merge, implementing a more generous severance policy is important to attract and retain key employees in the event of a merger or acquisition. At organizations where special provisions are provided in cases of a merger/acquisition, over two-thirds of respondents (69%) indicate that their new severance benefits policies are more generous than their standard policies. This marks a sharp increase from 2008.

If your organization makes special provisions in the case of a merger/acquisition or change of control, does your policy specify:

These key six findings show us that:

• Mostcompanieshavereviewedtheirseverancepolicy over the last year.

• Companiesresoundinglypreferblendedlearning with personal touch to technology resources for their outplacement programs.

• Outplacementisstillkeyinseverancepolicies.

• Agraduatedscaleforyearsofserviceisnolonger as relevant when determining severance calculations.

• Employeeagreementsareamajorfactorinseverance benefits.

• Change-of-controlprovisionstendtoincludemore generous severance policies.

All of these may be key trends now, but may not continue to be in the upcoming years as we continue to recover from the economic recession. While companies begin to think towards their future, they will see where they can save costs in the long term while remaining cautious when negotiating employee agreements.

How to read the data. Historical data comparisons from the 2008 study are shown throughout this report where applicable. All percentages were rounded up or down to the nearest whole number, and, therefore, in some cases where respondents could choose only one answer, totals may not equal 100%. In other cases where respondents could select more than one answer per question, totals may be greater than 100%.

2011 (n=277)

2008 (n=395)

Severance benefits that are more generous than the standard policy 69% 53%

Immediate vesting of stock options 39% 38%

Additional health and supplemental benefits that are more generous than the standard policy 35% 32%

Additional outplacement benefits that are more generous than the standard policy 27% 21%

None of these 0% 25%

4

Severance

Similar to 2008, nearly two-thirds of organizations surveyed indicate that they have a written severance policy. Half of respondents also report that their organization has an informal policy. Formal policies are more common with larger companies and informal policies are more common with smaller organizations. Companies surveyed are nearly twice as likely as they were in 2008 to have reviewed their severance policy in the past year and, while the majority report that there has been no change in their severance policy over the past three years, the proportion of respondents indicating that severance benefits at their company have become less generous has risen slightly in the past three years, driven by larger companies with 5,000+ employees.

As in 2008, almost all respondents report their organization requires a release in exchange for severance, and the only noticeable change in this regard since 2008 is that fewer respondents indicate that they have a process by which employees can appeal or negotiate their severance package. Beyond these distinctions, respondents paint a picture of severance practices in 2011 that is largely unchanged from 2008 in relation to the method of severance payments, eligibility by title/level and the way in which terminated employees are handled in relation to severance. The proportion of respondents reporting that their firms base severance only on years of service is similar to that found in 2008 for each category of employee covered in the study. However, using graduated scales for calculating severance has decreased since 2008.

Respondents who indicate that severance at their organization is not based only on years of service are more likely in 2011 to indicate that an employment agreement or the employee’s title/level is taken into account when calculating severance for all job categories except for Administrative, and that the employee’s title/level is the factor given the most weight at these respondents’ firms. Employment agreements have become more influential in determining severance since 2008, while years of service has declined.

Nearly three-quarters of respondents report their organizations have both minimum and maximum severance amounts, with Officers, Senior Executives and Executives getting approximately twice as much minimum severance as Professionals and Administrative employees. The average number of weeks being offered has remained steady since 2008 for most job categories.

Similar to 2008, nearly a third of respondents indicate their organization has no specific policy related to severance

Does your organization have a written severance policy?

Does your organization have an informal severance policy?

Six out of ten organizations surveyed in 2011 have written severance policies, consistent with the 2008 findings. Approximately half of organizations also have informal severance policies, higher than the amount reported in 2008.

Organizations with over 1,000 employees are most likely to have a written severance policy in place in 2011, whereas organizations with under 500 employees most often report having an informal severance policy.

0 10 20 30 40 50 60 70 80

Yes 49%

Yes 43%

No 51%

No 57%

2011 (n=653)

2008 (n=1,018)

2011 (n=653)

0 10 20 30 40 50 60 70 80

Yes 63%

Yes 60%

No 37%

No 40%

2008 (n=1,065)

calculation for re-hires, and half admit that their organization has not compared the cost of redeployment to the cost of termination and, of those who have, roughly half (a quarter of the total) have still proceeded with the termination.

5

Severance

Does your company apply the following conditions to severance policies?

Who is eligible for severance? (n=653)

Nearly all respondents in 2011 (93%) indicate their company requires a release in exchange for severance, while 60% require a release in return for outplacement assistance. In both cases, this is consistent with 2008. However, fewer respondents in 2011 report having a process by which employees can appeal or negotiate their severance package.

The vast majority of respondents indicate that all Officers, Senior Executives, Professionals and Administrative support staff are eligible for severance. These findings are consistent with 2008.

Yes Yes, some No

Officers 89% 9% 3%





Part-time employees 39% 18% 43%

Temporary/contract workers 1% 1% 98%

0

20

40

60

80

100

2011(n=653)

2008(n=989)

Yes9%

Yes10%

Stop severance payments as soon as an individual finds new employment

No91%

No90%

0

20

40

60

80

100

Yes93%

2011(n=653)

2008(n=989)

Yes92%

No7%

No8%

Require a release (an agreement not to sue the organization) in exchange for severance

0

20

40

60

80

100

2011(n=653)

2008(n=989)

Yes60%

Yes60%

No40%

No40%

Require a release in exchange for outplacement

0

20

40

60

80

100

2011(n=653)

2008(n=989)

Yes21%

Yes23%

No79%

No77%

Enhance severance for employees who sign a release

0

20

40

60

80

100

2011(n=653)

2008(n=989)

Yes15%

Yes20%

No85% No

80%

Have a process by which employees can appeal or negotiate their severance package

Do you provide severance pay for employees terminated for performance reasons?

Consistent with 2008, approximately half of respondents in 2011 (48%) report that their organization rarely provides severance pay to employees terminated for performance reasons, indicating the decision is situation specific. Roughly one-third of organizations do not provide severance pay at all when termination results from performance reasons and less than one-fifth (15%) frequently provide severance pay in termination situations.

At the following levels, is severance based on years of service only? (n=653)

Slightly over one-third of respondents in 2011 state that severance is based on years of service only for Officers and Senior Executives. Years of service is the main factor for determining severance eligibility for approximately half of Executives and seven out of ten Professionals and Administrative Employees. These findings are consistent with 2008.

Severance

If severance is not based only on years of service, then what is it based on? Percent selecting each response

More than half of the respondents say Officers have their severance included in their employment agreement or it is based on their title/level, a change from 2008 when a determining factor in severance for Officers was their ability to negotiate it along with their employee agreement. For Senior Executives, the most common factors are the employment agreement and their title/level.

Employment agreement

Officers (n=427)Senior Executives (n=409)

Executives (n=338)Professionals (n=192)

Administrative (n=173)


Years of Service Salary/grade level Age

Title/Level Negotiated

0 20 40 60 80 1000 20 40 60 80 1000 20 40 60 80 100

0 20 40 60 80 1000 20 40 60 80 1000 20 40 60 80 100

52%45%

34%11%

9%

Title/level







0 20 40 60 80 1000 20 40 60 80 1000 20 40 60 80 100

0 20 40 60 80 1000 20 40 60 80 1000 20 40 60 80 100

41%45%45%

38%28%

Negotiated







0 20 40 60 80 1000 20 40 60 80 1000 20 40 60 80 100

0 20 40 60 80 1000 20 40 60 80 1000 20 40 60 80 100

39%39%

36%31%

35%

Years of Service







0 20 40 60 80 1000 20 40 60 80 1000 20 40 60 80 100

0 20 40 60 80 1000 20 40 60 80 1000 20 40 60 80 100

38%39%

42%53%

49%

Salary/grade level







0 20 40 60 80 1000 20 40 60 80 1000 20 40 60 80 100

0 20 40 60 80 1000 20 40 60 80 1000 20 40 60 80 100

37%42%45%

52%49%

Age







0 20 40 60 80 1000 20 40 60 80 1000 20 40 60 80 100

0 20 40 60 80 1000 20 40 60 80 1000 20 40 60 80 100

7%7%7%8%7%

6

Yes No

Officers 35% 65%

Senior Executives 37% 63%

Executives 48% 52%

Professionals 71% 29%

Administrative 74% 26%

Rarely provide 48%

Don’t provide 36%

Frequently provide 15%

If your organization makes special provisions in the case of a merger/acquisition or change of control, answer the following:

Who is eligible? (n=653)

Over half of respondents in 2011 (58%) report their organizations do not make special provisions in the case of a merger/acquisition or change of control, marking an increase from 2008 (51%). Among those whose organizations do offer special provisions in these instances, compared to 2008 fewer organizations provide them to each employee group. Organizations with under 500 employees are more likely than firms with over 1,000 employees to indicate that they do not offer special provisions in the case of a merger/acquisition or change of control.

Does your policy specify the following:

Marking a sharp increase from 2008, over two-thirds of respondents (69%) at organizations where special provisions in cases of a merger/acquisition are made report that their policies specify severance benefits more generous than their standard policies.

7

Severance

2011 (n=277)

2008 (n=395)






Does your company have minimum severance amounts?

Does your company have maximum severance amounts?

Seven out of ten respondents report that their organizations’ policies have minimum (74%) and maximum (71%) severance amounts. The percentages indicating that minimum and maximum severance amounts are in place have increased since 2008.

Yes 74% 2011 (n=653)

2008 (n=968) Yes 71%

2011 (n=653)

2008 (n=961)

Yes 71%

Yes 66%

No, do not offer special provisions 58%

Corporate officers only 23%

Senior management 17%

Full-time salaried 4%

All full-time employees 15%

Title/level 30%

Employment agreement 21%

Salary/grade level 19%

Years of service 16%

Age 1%

Other 16%

If severance is not based on years of service only, which of the following is weighted most heavily in your formula? (n=437)

If your company has a minimum number of weeks of severance pay, what is it? (n=653)

Severance

11%

14%

3%

7%

9%

22%

19%

15%

Officers

0 weeks

1–2 weeks

3–4 weeks

5–8 weeks

9–12 weeks

13–23 weeks

24–51 weeks

52 or more weeks

8%

15%

4%

9%

9%

22%

21%

11%

Senior executives

0 weeks

1–2 weeks

3–4 weeks

5–8 weeks

9–12 weeks

13–23 weeks

24–51 weeks

52 or more weeks

4%

11%

5%

12%

11%

25%

25%

8%

Executives

0 weeks

1–2 weeks

3–4 weeks

5–8 weeks

9–12 weeks

13–23 weeks

24–51 weeks

52 or more weeks

0%

1%

2%

4%

9%

31%51%

2%

Administrative

0 weeks

1–2 weeks

3–4 weeks

5–8 weeks

9–12 weeks

13–23 weeks

24–51 weeks

52 or more weeks

0%

2%

2%

7%

14%

32%

42%

1%

Professionals

0 weeks

1–2 weeks

3–4 weeks

5–8 weeks

9–12 weeks

13–23 weeks

24–51 weeks

52 or more weeks

0 20 40 60 80 100

O�cers

Professionals Administrative

SeniorExecutives Executives

0 20 40 60 80 100 0 20 40 60 80 100

0 20 40 60 80 100 0 20 40 60 80 100

Among firms whose severance policies designate minimum or maximum (see chart on page 9) severance amounts, Officers and Senior Executives enjoy both the highest average minimum and maximum amounts (an average of 14 weeks and 37 weeks respectively). Additionally, the average number of weeks of severance provided to each title/level increases as company size increases.

8

9

Severance

How is severance calculated for rehires? (n=653)

There is a lack of consensus among respondents regarding the calculation of severance for re-hires. Four out of ten respondents (42%) indicate their organizations use the original or an adjusted hire date in the calculation, one-quarter (26%) use the new hire date and 31% report their organizations have no specific policy to calculate severance for re-hires. These findings are similar to 2008.

Which of the following benefits are paid for by your organization throughout the severance period? Select all that apply. (n=4665)

Nearly all respondents report that their organizations pay medical benefits throughout the severance period (though this has decreased since 2008) while approximately one-fifth report their organizations continue to cover vacation accrual and pay life insurance.

If your company has a maximum number of weeks of severance pay, what is it? (n=653)

Officers

52 weeks or more 46%

40-51 weeks 2%

27-39 weeks 4%

14-26 weeks 21%

1-13 weeks 9%

0 weeks 19%

Medical 88%

Vacation accrual 22%

Life insurance 20%

Short-term disability 11%

Long-term disability 11%

Education/training reimbursement 8%

Other, including use of office, company car & club membership 7%

Senior Executives


40-51 weeks 3%

27-39 weeks 5%

14-26 weeks 25%

1-13 weeks 10%

0 weeks 13%

Executives


40-51 weeks 3%

27-39 weeks 7%

14-26 weeks 33%

1-13 weeks 12%

0 weeks 9%

Professionals


40-51 weeks 1%

27-39 weeks 0%

14-26 weeks 42%

1-13 weeks 21%

0 weeks 3%

Administrative


40-51 weeks 1%

27-39 weeks 4%

14-26 weeks 39%

1-13 weeks 27%

0 weeks 3%

Original/adjusted hire date 42%

No specific policy 31%

Starting from new hire date 26%

Outplacement

As in 2008, the majority of respondents indicate their organization offers outplacement, either full or partial, to all levels of employee, with those at higher levels being more likely overall to receive it. The majority of Officers, Senior Executives and Executives receive at least six months of outplacement support, while the majority of Professionals and Administrative staff tend to receive three months.

Who do you provide outplacement to? (n=653)

Two-thirds of respondents surveyed in 2011 report their organizations provide outplacement to all Officers, Senior Executives and Executives; approximately half provide outplacement to Professionals and Administrative employees. Organizations with over 5,000 employees are the most likely to provide outplacement.

Yes, all Yes, some No






10

11

Outplacement

2008

Results in 2011 were fairly consistent with 2008. The typical length of time offered for each outplacement depends on the size of the company. Larger companies (i.e., 5,001 or more employees) tended to offer longer lengths of time for outplacement while smaller companies (i.e., 1,000 or fewer employees) offer shorter lengths of time.

o�cers Senior executives Executives Professionals Administrative

9%

34%31%

17%

9%

Officers(n=651)


4%

39%

27%20%

10%

Senior Executives(n=859)


2%

41%

15%

30%

12%

Executives(n=863)


1%

16%

1%

48%

34%

Professionals(n=824)


1% 4%1%

24%

70%

Administrative(n=735)

What is the typical length of time offered for each outplacement program at each level of employee?

2011

In 2011, the majority of respondents whose firms offer outplacement support indicate that their organizations provide at least 6 months of outplacement support to Officers, Senior Executives and Executives. The majority of Professionals and Administrative Staff are typically provided with 3 months or less of outplacement support.

Unlimited

5%

31%32%

21%

11%


Officers(n=567)

12 months


4%

37%

26%22%

11%

Senior Executives(n=677)

6 months


2%

36%

16%

34%

12%

Executives(n=571)

3 months


1%

13%

1%

50%

35%

Professionals(n=527)

<3 months


1% 3%1%

24%

71%

Administrative(n=475)

12

Outplacement

What type of outplacement program do you typically offer to each level of employee?

Respondents whose firms offer outplacement programs report that the majority of Officers, Senior Executives and Executives receive comprehensive programs. Professionals and Administrative staff are more likely to be offered group workshops and online tools. However, compared to 2008, more respondents in 2011 report that Officers, Senior Executives and Executives are also offered workshops and online tools as part of their outplacement programs.

Are employees required to begin their outplacement services within a specific timeframe?

Consistent with 2008, four out of ten respondents (43%) in 2011 indicate that their organizations do not require employees to begin using their outplacement services within a specified timeframe. Slightly over one-quarter of respondents (27%) report there is a 30-day timeframe for the commencement of employee outplacement services. Organizations with less than 500 employees are more likely than firms with 500 to 5,000 employees to report that there is a 30-day timeframe requirement in which employees must begin their outplacement services.

2011 (=587)

No specific timeframe 43%

Yes, 30 days 27%

Yes, 60 days 10%

Yes, 90 days 9%

Other 10%

2008 (=900)

No specific timeframe 42%

Yes, 30 days 29%

Yes, 60 days 9%

Yes, 90 days 8%

Other 12%

Senior executives

Comprehensive (n=524) 95%

Group Workshops (n=422) 20%

Online tools only (n=97) 20%

Executives




Professionals




Administrative/support staff




Officers




13

While the most common reason respondents give for providing outplacement programs to employees is to maintain a positive relationship with their workforce, nearly a quarter also indicate that they feel that it is their responsibility as a company to take care of their workforce. Interestingly, this percentage has declined since 2008, but it should be noted that a new choice (“To minimize litigation”) was added to the survey in 2011 and that this response garnered 7% of responses to the question.

What is the chief reason your company subscribes to outplacement programs? (n=653)

Over half of respondents indicate that the chief reason their organizations subscribe to outplacement programs revolves around an effort to maintain positive relationships with their workforce and to protect the brand itself. Compared to smaller firms, organizations with over 1,000 employees more often subscribe to outplacement programs in order to maintain positive relationships with their workforces.

Please tell us which of the following is important to designing a successful outplacement program. (n=653)

*Indicates new choice in 2011

According to respondents, in-person meetings, seminars and coaching are deemed to be the most important elements when designing a successful outplacement program. Outplacement programs customized by level or title are also deemed very important and programs tailored towards specific desired outcomes are considered critical by organizations when taking into account the elements of a successful outplacement program. Organizations with over 5,000 employees are the most likely to view technology resources as an important element in a successful outplacement program.

In-person meetings, seminars, coaching 90%

Customized by level/title (e.g., administrative professional vs. manager level executive) 85%

Desired outcome (career change, entrepreneurial behavior, school, active retirement, etc.) 85%

Technology resources 82%

Sufficient workspace in the office for program participants* 37%

Outplacement program factors

Try and maintain positive relationships with our workforce and protect our employer brand 59%

It’s our responsibility to take care of our workforce 26%

To minimize litigation 7%

Reduce unemployment insurance 0%

Other 10%

The Human Resources department almost always leads the outplacement efforts at the organizations surveyed, particularly at medium- and large-sized companies.

Who in your organization leads the decision making on outplacement? (n=653)

HR

CEO

CFO

Procurement

Other

Nearly nine out of ten respondents indicate that Human Resources is the group within their organizations charged with leading the decisions on outplacement, marking a decrease from 2008. Three out of ten respondents report that the CEO is responsible for outplacement decisions. Compared to larger firms, organizations with less than 500 employees are more likely to report that their CEO is responsible for making outplacement decisions.

Decision making

87%

29%

8%

3%

6%

14

15

Consistent with the findings of the 2008 study, approximately half of respondents indicate that their organization does not offer stay bonuses. Among those whose firms do offer them, nearly six out of ten say that employees can begin receiving outplacement support prior to actually leaving the organization and the most common methods of arriving at the stay bonus amount for all levels of employee are individual negotiations, determining an amount based on the level of the employee’s position or offering additional severance. Interestingly, respondents in 2011 are more likely than in 2008 to indicate that 1-2 months of additional severance is used as a stay bonus.

Does your organization offer stay (retention) bonuses? (n=653)

Yes, as a percentage of salary

Yes, as additional severance

Yes, we use other formulas

No, do not offer stay bonuses

Slightly under half of organizations surveyed offer stay (retention) bonuses to ensure continued employment until a specific date, with one-quarter using formulas other than additional severance or a percentage of salary bonus. Organizations with less than 500 employees are more likely than those with over 1,000 employees to not offer stay bonuses to employees. When compared to organizations with less than 1,000 employees, organizations with over 5,000 employees are more likely to offer stay bonuses as a percentage of salary to their employees.

Stay bonuses

If your organization calculates the stay bonus as a percentage of salary, how much does it give?

Among respondents whose organizations calculate the stay bonus as a percentage of salary, the amount offered for the bonus is relative to title. Those who have a higher title get a higher percentage of salary as a stay bonus.

Officers (n=290)

Less than 10% of salary 3%

11%-20% of salary 7%

More than 20% of salary 12%

Senior executives (n=285)




Professionals (n=289)


11%-20% of salary 12%


Administrative staff (n=268)




Executives (n=286)


11%-20% of salary 10%


15%

24%

52%

10%

0.00000013.33330026.66659939.99989953.33319966.66649879.999798

How much additional severance does your organization give as a stay bonus?

Among respondents whose organizations calculate additional severance as part of a stay bonus, the additional severance is, again, relative to the recipient’s title. Those who have a higher title qualify for more months in severance pay as a part of their stay bonus.

Does your organization allow employees who have accepted stay bonuses to begin receiving outplacement prior to the date they officially leave the organization?

Consistent with 2008, six out of ten respondents in 2011 report their organizations allow employees who have accepted stay bonuses to begin to receive outplacement prior to the day they officially leave the organization.

What is the amount of stay bonus that your organization gives to officers?

In 2011, over one-third of respondents report that Officers’ stay bonuses are negotiated on an individual basis and roughly one-sixth receive bonuses based on position/level or in the form of 1 to 2 additional months of severance. Additionally, the number of Officers receiving 1 to 2 months of additional severance has more than doubled since 2008; all other types of bonuses remain consistent with the 2008 findings.

Stay bonuses

2011(n=290)

2008(n=336)

Less than 10% of salary 3% 2%

11%-20% of salary 7% 7%

More than 20% of salary 12% 11%

1-2 months of additional severance 17% 8%

3 months of additional severance 6% 3%

More than 3 months of additional severance 12% 11%

Amount negotiated on an individual basis 37% 43%

Amount based on position/level 16% 20%

Amount based on years of service 4% 6%

Amount based on performance 4% 7%

2011 (n=311)

2008 (n=497)

0.00000013.33330026.66659939.99989953.33319966.66649879.999798

Yes 58%

No 42%

No 41%

Yes 59%

Officers (n=290)

1 - 2 months

3 months

More than 3 months

0.00000013.33330026.66659939.99989953.33319966.66649879.999798

17%

6%

12%

Senior Executives (n=285)

1 - 2 months

3 months

More than 3 months

0.00000013.33330026.66659939.99989953.33319966.66649879.999798

16%

7%

10%

Executives (n=286)

1 - 2 months

3 months

More than 3 months

0.00000013.33330026.66659939.99989953.33319966.66649879.999798

18%

6%

8%

Professionals (n=289)

1 - 2 months

3 months

More than 3 months

0.00000013.33330026.66659939.99989953.33319966.66649879.999798

21%

6%

2%

Administrative Staff (n=268)

1 - 2 months

3 months

More than 3 months

0.00000013.33330026.66659939.99989953.33319966.66649879.999798

26%

3%

1%

16

17

Change-of-control agreementsThe proportion of respondents who report that their organization does not make special provisions regarding severance eligibility during merger and acquisition activities has risen since 2008 to nearly six out of ten, driven largely by smaller companies with less than 500 employees. Among those whose organizations do make special provisions, the most common provision is to increase severance benefits beyond the standard policy. The percentage of respondents indicating this has risen to approximately seven out of ten.

If your organization makes special provisions in the case of a merger/acquisition or change of control, who is eligible?

Over half of respondents in 2011 (58%) report that their organizations do not make special provisions in the case of a merger/acquisition or change of control, marking an increase from 2008. Among those organizations that offer special provisions in these instances, compared to 2008 fewer provide them to each employee group.

If your organization makes special provisions in the case of a merger/acquisition or change of control, does your policy specify:

Marking a sharp increase from 2008, over two-thirds of respondents (69%) at organizations where special provisions are provided in cases of a merger/acquisition indicate their new policies specify severance benefits that are more generous than their standard policies.

2011(n=653)

2008(n=933)

Do not offer special provisions 58% 51%

Corporate officers only 23% 28%

Senior management 17% 23%

Full-time salaried 4% 7%

All full-time employees 15% 19%

2011(n=277)

2008(n=395)






During the economic recession, companies forced to restructure due to revenue declines, focused more on reducing costs rapidly in the short term rather than reducing costs of turnover for the long term. More than half of the respondents report their organizations have not compared the cost of terminating an employee to the cost of redeploying that employee elsewhere within the company. Apparently, one-quarter (26%) of organizations have implemented a redeployment initiative and roughly one-fifth have considered the cost comparison between termination and redeployment but have not executed redeployment. In the long run, companies that employ redeployment initiatives improve retention therefore keeping their highly trained employees and reducing costs of turnover for the long term.

Has your organization compared the cost of terminating employees to the cost of redeploying them (moving employees elsewhere in the organization where their skills can be utilized)?

Redeployment

2011(n=653)

2008(n=954)

No, did not compare costs 52% 51%

Implemented redeployment 26% 28%

Considered cost of terminating to cost of redeployment but did not implement redeployment 22% 21%

18

19

Early retirement programs

The strong majority of respondents reported, as they did in 2008, that none of the categories of employee asked about in the survey are eligible for early retirement programs, though this is somewhat less true of Officers, Senior Executives and Executives. Among those whose organizations do offer this benefit, the packages most often consist of salary continuation beyond the standard policy and additional health and supplemental benefits (though somewhat less than in 2008).

Among respondents whose organizations offer voluntary reduction or retirement packages, nearly two-thirds offer salary continuation beyond the standard policy, half offer additional health and supplemental benefits and approximately one-quarter offer additional outplacement benefits as part of the package. Since 2008, the number of organizations offering additional health and supplemental benefits has decreased.

What are the elements of the packages offered? (n=199)

Who is eligible for voluntary reductions/voluntary retirement packages? (n=653)

In 2011 as in 2008, approximately three-quarters of respondents report that Officers, Senior Executives, Executives and Professionals (and nearly all part-time employees and temporary/contract workers) are not eligible for voluntary reductions or voluntary retirement packages. Organizations with over 5,000 employees are the most likely to report they provide voluntary reductions/voluntary retirement packages to all Officers, Senior Executives, Executives, Professionals and Administrative/support staff.

Yes Yes, some No






Part-time employees 7% 7% 87%

Temporary/contract workers 2% 2% 97%

Salary continuation beyond standard policy 65%

Additional health and supplemental benefits 52%

Additional outplacement benefits 28%

Immediate vesting of stock options 7%

20

Conclusion

ORC International conducted this study on behalf of Lee Hecht Harrison. The objective of this study is to provide comparative metrics to the 2008 study conducted on thought leadership and trends in the Human Resources field related to severance and separation benefits. The main topics explored in this study include severance, outplacement, stay bonuses and early retirement programs.

ORC recruited participants from a list of HR executives provided by Lee Hecht Harrison and screened them to ensure that their organizations currently have either a formal or an informal severance policy in place.

Data collection for the 2011 wave was conducted online between March 7-25, 2011 and a total of 653 HR executives completed the survey. Where applicable, historical data comparisons are shown throughout the report.

All percentages were rounded up or down to the nearest whole number, and, therefore, in some cases where respondents could choose only one answer, totals may not equal 100%. In other cases where respondents could select more than one answer per question, totals may be greater than 100%.

Categories of organizations that participated

Firmographics

What is your title?

2011(n=653)

2008(n=958)

Aerospace/Defense 2% 2%

Banking/Brokerage, Investment & Financial Services 13% 9%

Computers, Software & Peripherals 3% 4%

Consumer Products & Electronics 3% 3%

Energy, Mining, Natural Resources & Petrochemicals 2% 1%

Food, Beverage, Tobacco 2% 3%

Hotels, Travel & Tourism 1% 1%

Hospitals/Healthcare Services 10% 9%

Industrial Manufacturing, Products & Services 16% 21%

Insurance 6% 5%

IT Services 1% -

Media, New Media/Dot-coms & Entertainment 3% 3%

Medical Products & Pharmaceuticals 7% 6%

Not-for-profit/Education, Government & Associations 8% 6%

Professional Business Services 6% 5%

Retail & Wholesale 5% 5%

Telecommunications 1% 2%

Utilities 1% 2%

Other 10% 13%

2011(n=653)

2008(n=967)

EVP/SVP 11% 10%

VP 22% 24%

Director 30% 32%

Manager 24% 24%

Other 13% 10%

As the dynamic between employers and their workforces evolves, companies are providing clear and fair severance and outplacement policies and practices to help protect their employer brands. With more people changing jobs frequently, and often returning to previous employers, these clear and consistent severance and separation policies can help protect and maintain relationships with talent who may one day return to their original organizations.

Based on this sixth edition of our severance and separation study, it’s clear that organizations understand the value of clear and consistent severance and separation practices. At Lee Hecht Harrison, we believe that severance will continue to be an important part of the employer-employee relationship and hope that the 2011 Severance & Separation Study provides your organization with insights that will help you define and enhance your own organization’s programs.

Which best describes the region in which your office is located?

How many employees does your organization have?

Is your organization in the Fortune 1000?

2011(n=653)

2008(n=958)

Central 27% 33%

Northeast 32% 23%

West 23% 21%

Southeast 10% 19%

Southwest 8% 4%

2011(n=653)

2008(n=933)

More than 25,000 9% 10%

10,001-25,000 9% 11%

5,001-10,000 8% 11%

1,001-5,000 27% 25%

501-1,000 11% 12%

101-500 29% 23%

100 or fewer 7% 7%

2011(n=653)

2008(n=951)

Yes 22% 28%

No 78% 72%

21

Lee Hecht Harrison enables you to turn your talent development challenges into business improvement opportunities. We deliver innovative programs that work for your people at a cost that works for your organization, providing the right mix of technology and people — depending on your needs. Lee Hecht Harrison offers more options and we deliver better results.

With over 270 offices worldwide, Lee Hecht Harrison is the global talent development leader in connecting people to jobs and helping individuals improve performance. LHH assists organizations in supporting restructuring efforts, developing leaders at all levels, engaging and retaining critical talent, and maintaining productivity through change.

Lee Hecht Harrison is part of Adecco Group, the world leader in workforce solutions with over 6,000 offices in over 70 countries and territories around the world. For more information, please visit LHH.com.

©2011 Lee Hecht Harrison LHHMK7018

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2011 severance and separation practices benchmark study

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