3 keys to a top-notch severance package

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Whenever I talk to a new client about making a change to their severance plan, I always get asked the same question, “What do other companies in my industry do?”

This is not a question that can be easily answered, because very much like medical records, details about a company’s severance plan are typically confidential. While information about salary, benefits and culture are easy enough to uncover through a quick Google search or a visit to, you are unlikely to come across any information about a company’s severance or offboarding policies.

That said, having worked with a sizeable number of companies on their separation plans, I can provide some insight by saying that there is no magic formula for separation benefits. In my experience, a company’s offboarding policies more closely reflect the culture of the company than align with an accepted “norm” of the company’s size or industry.

Benchmarking against competitors or trying to prevent an employment dispute will be of little help when working on creating the right severance plan. The most important aspect of a severance plan is that it be a fit for the company’s values, culture and employee experience. This is the real heart of the matter: recognizing the employees and honoring their contribution.

Also see:Severance agreements — three tax traps for the unwary.”

Not only is employee satisfaction of critical importance during a reduction in force, but it also goes hand in hand with protecting a company’s brand.

Making a difference

Following are three themes that are consistent in all the plans I’ve worked on with high participant satisfaction, and consequently the things that make the greatest difference in maintaining an employer’s reputation as an organization that cares about its employees. These themes consistently result in high participant satisfaction across industry, job type and company size.

1. Make payments over time. From a purely HR perspective, it may seem like a generous option to make a lump-sum payment at the time of separation. This, however, can create a stressful situation for departing employees.

Most people are paid every two weeks, and budget themselves on a monthly basis. Receiving all the cash up front and knowing they need to make it last can be overwhelming. Many people find themselves unable to allocate the money properly, and fear not being able to pay the bills in the coming weeks.

2. Pay fairly. Say, for example, your company has offices in Connecticut and New York, and you need to perform a layoff in your accounting department which spans both offices. You plan to pay all employees $1,000 a week for six weeks.

The employees in Connecticut will be able to receive the $1,000 a week from the company — plus $613 a week in state unemployment benefits for a total of $1,613 per week. If a New York employee attempts to file for state unemployment benefits, their claim will be denied, as New York prohibits the receipt of severance and state unemployment benefits at the same time.

In this example, the Connecticut employee is taking home 60% more than the New York employee during the unemployment period. Establishing a supplemental unemployment benefits (SUB) plan creates benefit equity for employees across multiple states.

3. Offer support. Being laid-off is invariably a stressful event, and the benefit process complex. It can be very frustrating to have questions and nowhere to go for answers. Make sure separated employees know where to get support and answers to their questions.

When evaluating a new or existing severance strategy, don’t rely on industry to set the bar — the best separation strategy is one that honors the contribution of the impacted individuals, considers the experience from their vantage point and aligns with an organization’s culture, values and the employee experience.

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Employee terminations Employee turnover Employee relations Benefit management Benefit eligibility Benefit communication