Benchmarks: Severance Pay

Nearly all businesses offer some form of severance pay to workers. Recently, 44% of 1,500 HR professionals polled by RiseSmart said their organization offers several benefits to all laid off workers – not just executives and senior managers.

Importance for your Company
Why offer severance pay? Leadership is likely to site the importance of promoting an employee-first culture and to protect the employer brand. In fact, many companies place importance on severance as it is still part of the employee journey. The use of severance is also often used to prevent employees from filing legal charges.

More tenured companies are more likely to create and adhere to a severance policy. Other companies may consider severance on a case-by-case basis. In fact, 91% of the largest companies are said to typically have a set formula, while 24% of small companies don’t have a formula.

Current Trends
COVID-19 layoffs have placed a strong importance on severance. A survey before the pandemic found that more than two-thirds of companies had reviewed their severance policies within the last two years. Another 37% said they made their policies more generous within the last three years.

Outplacement firm, LHH US, recently released a Severance & Separation Benefits Benchmark study. Researchers looked at 685 HR representatives in the U.S., including a total of 20 industries and organizations ranging from fewer than 100 employees to more than 25,000 employees.

Here are some main takeaways from the study:

  • 31% of respondents say their severance is not defined in employment agreements.
  • Over 80% of respondents say some form of written material is available regarding their severance plans.
  • More than one-third of respondents report increasing severance benefits.
  • Technology companies (58%) were most likely to report that their severance policies are becoming more generous.
  • The healthcare industry was the least likely to report more generous severance policies (31%).

The survey also found that most companies use a standardized formula to calculate how much an employee will receive for severance. For example, 44% of respondents applied a flat number of weeks to their severance calculations, while only 6% of respondents applied that same flat number of weeks across all position levels.

Other studies show how severance pay declined during the height of the COVID-19 crisis. For example, 28% of companies worldwide that laid off workers did not have a pre-existing severance plan. Another 4% of those companies that let people go actually decreased the monetary payout of severance plans.

In determining the amount of severance an employee receives, tenure, local labor laws, base salary, and job level typically play a factor. The country or state where you live and work in can also play a factor. See our Benchmarks: Severance Pay by Country guide for more.

Here are some benchmarks from global companies that we compiled for severance pay:

IBM
In 2016, IBM was said to potentially be starting a new trend of “reduced severance.” In 2016, the company laid off U.S. workers and left them with a month of severance, as opposed to previous policies which granted 26 weeks of pay.

The company’s severance practices continue to fluctuate though with recent 2020 layoffs including a 30-day notice to employees and 90 days of severance pay. IBM currently employees 350,000 people worldwide.

Salesforce
In August 2020, Salesforce cut 2% of its workforce. Employees affected by the cuts were given 60 days to find a new job within the company. They also gained access to internal resources to help them with their job search. For those unable to land new positions, Salesforce offered pay and benefits for six months. The layoffs were part of the company’s efforts to re-prioritize and shift areas of focus in the business. Salesforce employees an estimated 56,606 people worldwide.

WarnerMedia
In many cases, corporations will offer buyouts to employees, when their organization is undergoing a merger. After buying Turner in 2019, WarnerMedia offered a package to all Turner employees, 55-years and older who had worked there at least 10 years. The package included four weeks of pay for every year of service, with payouts capped at two years.

Southwest Airlines
In June 2020, Southwest Airlines employees were given the option to take a voluntary layoff and severance or to gamble on whether they’d be affected by expected October layoffs or not asked back from furloughs. The layoffs affected everyone from flight attendants to mechanics to marketing managers.

To be flexible, Southwest offered employees the opportunity to take Extended Emergency Time Off (ExTO). Under ExTO, the employees received healthcare, travel privileges, and partial pay each month.

The other option, voluntary separation, offered a cash payment, travel privileges for four years, and one year of company-paid health coverage through COBRA.

The compensation benefits varied based on job classification. For example, contract employees and frontline supervisors of 10+ years received 12 months of base pay. Employees of less than 10 years received two weeks of base pay, plus an additional two weeks pay (up to a maximum of 16 weeks) for each completed year of service.

In contrast, pilots received 67 total factor productivity (TFP) monthly for five years or until the age of 65. They also received healthcare options based on their age and continued travel privileges for 48 months or a retiree pass if over the age of 65.

For noncontract employees, Southwest offered the following, based on their tenure:

  • 0-4 years: 1 month of pay per year of service
  • 5-9 years: 6 months’ pay
  • 10+ years: One year of pay

Noncontract employees also received one year of COBRA medical and dental, along with the same travel pass privileges as the pilots’ separation agreement.

In addition, the company also took great care to define a “final date of employment” for all positions.

Cineworld
Ex-Regal executives with Cineworld drew some hefty payouts, with Regal Entertainment’s CEO receiving $14.6 million. This, after she and other top executives resigned in March 2018.

Meanwhile, fast forward to March 2020 during the start of the COVID-19 crisis, and hundreds of thousands of employees were laid off as theatres shutdown. Employees in the UK reported getting one weeks of “notice pay” with some employees who’d been hired on for three years or longer keeping their jobs at 40% pay.

The company later faced challenges in the UK as zero hour contract workers weren’t eligible for redundancy pay in the UK.

Exxon
The global oil giant recently cut 1,900 U.S. jobs as oil prices dropped in October 2020. The job cuts may not be over; Exxon is reported to plan around 14,000 more layoffs by the end of 2022, amounting to around 15% of Exxon’s 2019 workforce.

Prior to the Fall 2020 layoffs, Exxon faced scrutiny over unpaid severance packages in March 2020. Around 70 members of the Petroleum and Natural Gas Senior Staff Association said they didn’t receive their promised severance from as far back as 2009.

American Airlines
During COVID-19, American Airlines offered “redundancy packages” for higher-level employees at the director level and above included at least nine months of pay and a little over 2.5 years of healthcare coverage.

Deutsche Bank
In terms of banking worldwide, Duetsche Bank is known for paying some of the highest employee severance packages. The London bank allocated $667K (£470k) average severance payments to four people in 2014.

Shell
Severance at Shell typically consists of three weeks’ pay for every year of accredited service, up to a maximum of 78 weeks of pay.

Disney
The Walt Disney Company has adopted its own severance pay program. Titled “Disney Severance Pay Plan” – the company started the plan in 2001. Evolving over the years, employees in 2020 received the option to stay on employer’s health insurance plans for up to 18 months through COBRA.

Despite the streamlined severance plans, due to the nature of COVID and the shutdowns of Disney parks/limited occupancy, last year some Disney cast members were reported to be at risk for not receiving severance pay.

Carnival Cruise Line
Laid off workers at Carnival Cruise Lines reportedly received severance packages based on their age and the number of years they spent working for carnival, with severance packages falling under three tiers.

Kohl’s
Laid off workers at Kohl’s reportedly receive a severance payment of 50% of the employee’s base salary for one year following termination not caused by an employee’s own actions.

Ford
Automaker, Ford, cut 1,400 U.S. jobs last year, offering severance with the following benefits:

  • Employees up to 7 years of service: three months’ pay.
  • 8-15 years of service: six months’ pay.
  • 16+ years: nine months’ pay.

The company also offered a “Voluntary Incentive Program” to pay-out employees who served at least 30 years or were ages 55 and older with 10 years of experience, or ages 65 and older with five years of service.

MGM Resorts
After a rough year due to COVID, MGM had to layoff 18,000 once furloughed employees. The move came as U.S. federal law requires workers to be given a separation date if they are furloughed for longer than six months. During the time of furlough, MGM continued to offer all employees health coverage.

Prior to COVID, in 2019, MGM also had a round of layoffs with workers reportedly getting at least two weeks of severance pay.

Coca-Cola
The Coca-Cola Company Severance Pay Plan was established in 1993 to provide benefits for certain eligible employees upon termination from the company. The company doesn’t release severance information, but it did say it forecasted its overall global severance program for 2020 to cost $350-$550 million. Coke has around 86,200 employees worldwide.

Boeing
The aircraft maker slashed 12,000 jobs across the U.S. during the start of COVID-19. The employees received an undisclosed severance pay, COBRA health care coverage, and career transition services.

AT&T
The telecommunications giant is reported to typically pay employees a severance of 4% of their salary per year of employment, up to 50% of a current salary.

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