Non-executive Severance Policies

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As many as 18% of U.S. companies do not offer severance for regular non-executive employees, according to a new poll. A news release said the study by WorldatWork and Innovative Compensation and Benefits Concepts LLC (ICBC), an HR consulting firm, found that of those employers with a severance plan, 71% use years of service to figure the amount of severance payments. Nearly one-third of companies (31%) offer a week’s salary per year of service, while one out of every five employers (20%) provides two weeks of salary for every year.

Employers also consider an employee’s position (21%) and pay (17%), according to the announcement.

Of the companies paying severance, 42% offer a three-tiered structure focusing on the top executive, all other employees. The poll found that only 37% of surveyed companies have detailed severance plans and policies in writing.

Also, annual reviews of non-executive severance plans are rare. In fact, 69% of organizations have not reviewed their severance plans in at least the past year, while 13% reported having never reviewed their plans.

Study author Bob Jones asserted in the news release that annual reviews of an organization’s severance and change-in-control plans, especially because of the size and importance of these plans, should be conducted by Compensation Committees. “This is a best practice in general in conjunction with a tally sheet analysis of the top executives’ Total Rewards ┬áin order to ensure that plan costs are being prudently monitored,” said Jones. “This is best done by making this topic an agenda item that is covered on a regular, recurring basis.”

The Severance and Change-in-Control Practices 2007 survey was conducted in June 2007. Surveys were sent electronically to 4,590 WorldatWork members with a response rate of 11% (523 responses).

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