By ANNA PRIOR
As companies continue to lay off workers, here’s another reason for people to worry about joining the ranks of the unemployed: They may find a smaller severance package than they expect.
The unemployment rate fell to 9.4% last month, but 247,000 jobs were still lost in that period. And the more people laid off by companies, the larger the chunk of change being paid out in the form of severance pay, continued health benefits, retraining and other services. So companies are beginning to put such payments under the microscope.
Smaller severance packages will add to the financial strain of laid-off workers. And state unemployment benefits only get you so far. People who have been jobless for an extended period — a max of as many as 79 weeks in some states — will soon face the end of their state benefits.
“There is less money on the table and people are essentially doing the least that they have to do in terms of taking care of exiting employees,” says Wendi Lazar, an employment lawyer and partner at Outten & Golden in New York. “We used to see benefits where companies would pay for [the continuation of health coverage at group rates under] Cobra or give the employee six months to a year of health care, and we aren’t seeing that anymore.”
Separate surveys of several hundred companies, conducted within the past few months by consulting firms Mercer and Hewitt Associates, show that many employers say they don’t plan to modify severance policies, if they have one.
Still, consultants and employment lawyers say anecdotal evidence suggests that some cuts in severance packages should be expected and negotiating better terms is becoming harder to do.
Meantime, a few companies have turned to more fundamental changes in the way they compensate laid-off employees. Media company Gannett, for instance, is now offering supplemental unemployment benefit plans, which allow the company to share part of the cost of severance pay with the states.
On the Chopping Block
In this economic environment, the first thing to likely get cut back is employer-paid continuation of medical benefits, says Ed Rataj, managing director of compensation consulting at CBIZ Human Capital Services.
Instead of providing benefits such as health insurance for the same length of time as severance payments, as has traditionally been done, says Lori Wisper, a senior consultant at Hewitt, some companies are looking to either share the cost of continued coverage or shift the full cost of coverage to the former employee. Health benefits under Cobra typically cost about $400 per month for an individual and more than $1,000 per month for a family. (A federal subsidy that covers 65% of Cobra premiums is available for those who have lost or who will lose their jobs between Sept. 1, 2008 and Dec. 31, 2009.)
There also could be changes to the cash side of a severance package, usually the most expensive part of a deal, Ms. Wisper says. For instance, two weeks of pay for every year of service might fall to one week of pay for every year worked.
In addition, some maximums for how many weeks of severance pay an employee can receive are shrinking to 26 weeks, from highs of 40 to 52 weeks.
The one area still holding steady, says Mr. Rataj, is outplacement services — mostly because it’s the cheapest thing to provide.
The amount of services offered tends to vary based on employment level. People in senior-level positions usually get access to full services provided by an outplacement firm, such as an office to use while job hunting, résumé preparation and administrative assistance. Lower-level employees are typically given résumé preparation and access to group seminars on job-search skills, says Ms. Wisper.
These services “provide goodwill among employees,” says Mr. Rataj. “It can create a good public image at a pretty low cost.”
Given the tighter purse strings, negotiating the terms of a severance package is becoming an even more awkward dance these days. This is especially true when a company has widespread layoffs, says Scott Hill, a financial adviser and senior vice president at Kanaly Trust, a wealth-management and financial-planning provider in Houston.
In the past, a rank-and-file employee could expect employers to be open to negotiating higher severance pay, extended health benefits or compensation for unused vacation days. “An employer would be open to trying to make it a palatable and amiable exit,” Ms. Lazar says.
But now, she says, “a lot of companies are taking a hard line.” They say, “this is the package — take it or leave it.”
Still, negotiating isn’t a complete waste of time. If you are leaving a senior-level post, you could have some leeway, especially if you’re asked, as a condition of the package, to sign a noncompetition agreement or nondisparagement clause.
By signing such an agreement, “you are giving the company something of value,” says Mr. Hill. That means you may be able to squeeze out something of value for yourself in return.
As for lower-level employees, they should think of things that can be of value to them, says David Cashdan, an employment lawyer and vice president of public policy for the National Employment Lawyers Association.
Some examples: flexibility in choosing an outplacement services firm, assurance that a person will be placed on a rehire list, a letter of recommendation and assurance that nothing negative will be said about the person to a prospective employer.
And if such things don’t cost the company a lot of money, that’s another plus.
In the end, take your time reviewing any package. Typically, companies will give you a deadline. But “take no more than half of that time to come back with some sort of counter proposal, says Mr. Hill, “because the company will want some time to consider that deal as well.”
Also, Ms. Lazar recommends having a lawyer look at the package to ensure you aren’t waiving any rights that could make it difficult for you to find another job or prevent you from suing the company for an existing claim.
Write to Anna Prior at firstname.lastname@example.org