While companies have been slashing payrolls in recent years, a new study finds that at least they haven't been trimming their severance packages. Severance and change-in-control plans have survived the recession fairly intact, according to a study released this week by WorldatWork and Innovative Compensation and Benefits Concepts LLC (ICBC), an HR consulting firm.
Many organizations still maintain a formal written severance plan as they always have for the CEO, one for key executives, and one for everyone else. Years of service, position, pay level, and employment agreement still seem to be the most important determinants of severance status.
"One finding that may come as a surprise is that severance and change-in-control plans are being reviewed less frequently by companies today than two years ago," said Don Lindner, CCP, executive compensation practice leader for WorldatWork. "But that doesn't diminish their importance as employee benefits and tools to ease the job transition.”
Most organizations still provide one or two weeks' severance pay per year of service, with many providing a tier of benefits up to the maximum. In addition, in spite of the difficult economy, 44% of organizations continue to subsidize COBRA (full or partial) for all employees, though federal subsidies will end August 31.
"Because of the size and importance of executive severance and change-in-control plans, annual reviews should be conducted by Compensation Committees," said the study's author, Bob Jones, JD, CPA, CEBS. "This is best done by making this topic an agenda item that is covered on a regular basis."
Nearly half of surveyed employers provide outplacement benefits to all affected employees while 36% provide it on a case-by-case basis, up from 27% two years ago. Tax gross-ups — the practice of increasing the amount of a cash payment to offset the tax impact on the individual resulting from the cash payment — continue to decline. Six percent of respondents said they provide full or partial gross ups of their executives' severance pay, down from 8% in 2009.
The Severance and Change-in-Control Practices 2011 survey was conducted from May 18-June 3, 2011. 567 members participated in this survey, generating an 11% response rate.
