Hi bjpang,
As you mentioned, severance pay at the executive level is negotiated
on a case by case basis in the United States, and it's a bit tricky
trying to find hard numbers on exactly what is being payed out because
there are no US Federal laws that directly regulate severance pay.
However, thanks to the internet, we can get a pretty good picture of
current trends.
Briefly (using data that I picked up from the websites below):
What would be a typical early retirement/severance package for a
59-year old exec who had 17 years of service with the company at that
senior level?
* 2 weeks base pay x 17 years or 34 weeks (depending on the maximum
number of weeks) + health and dental insurance.
A. Is it generally common to receive approx 1mo. severance pay for
each yr of service (eg 18 years) or more common to receive les than
that, eg, something closer to 12 mos?
* Two weeks per year of service seems to be most common, the maximum
number of months seems to be the most variable, going up to 36 weeks
or possibly a bit more.
B. When receiving such a package, is it generally more common to
calculate the payment (the base to which the 12 or 18 months
calculation is applied) including base pay + cash bonus or only base
pay w/o annual cash bonuses? (Since most senior execs have a bonus
which may be as large or larger than their base pay, the difference as
to what is utilized for the base of either 12 months or 18 is
significant).
* Base pay w/o bonuses.
"Your "base pay" is defined as your regular, straight-time pay for
your normal work schedule. It does not include overtime pay, bonuses,
commissions, fees, incentive allowances, or Company-provided
benefits."
"11 years or more: 2 month's pay plus 1/4 month for each additional
full year of service."
http://www1.y12.doe.gov/benefits/employee/severance/04howdetermined.shtml
* CEOs at large corporations typically receive median severance of
24 months of salary with health and dental benefits continuation
throughout the severance period.
* The method by which bonuses are given as part of a severance
payment varies considerably by contract. Generally speaking, a
multiple (most commonly three times), is applied to one of several
possible ways of calculating the bonus.
* In change of control situations, the median severance CEOs receive
is 36 months, and 80% are paid out in a lump sum.
http://www.lhh.com/knowledge/html.cfm?kcid=12
>>>>>>>>>>>>>>>>>>>>>
One of the best websites that I visited turned out to be that of Lee
Hecht Harrison. They did a study in 2001 titled "Severance and
Separation Benefits: Bridges for Employees in Transition". A summary
of the study can be viewed on their website, but I contacted them by
email about obtaining a copy of the complete study, which is broken
down by:
* Overall Survey Results
* CEO Severance
* Severance By Industry
* Severance By Organizational Size
* Fortune 1000 Profile
* Compliance Considerations
* Gloval Severance Practices
* Study Methodology
It's not available electronically, but you can ask for a copy of the
bound book form of the study (it's free) by sending them an email.
They are very nice and responded to all of my emails promptly. If you
want, you can mention that you are following up on your researcher's
recommendation to contact them concerning the study. They'll get you
in touch with the office nearest to you.
Email: research_request@lhh.com.
http://www.lhh.com/knowledge/html.cfm?kcid=12
>>>>>>>>>>>>>>>>>>>>
Executives Still Getting Good Severance Pay:
"Survey shows average executive gets four weeks of pay for every year
of service. U.S. companies least generous of all."
Lisa Yoon, January 29, 2003
http://www.cfo.com/email/1,5316,8733%7C%7C,00.html?f=options
>>>>>>>>>>>>>>>>>>>
Severance: The Seven Factors:
The following factors should be taken into consideration when
designing severance packages for terminated executives:
http://www.jerryadel.com/3e-.htm
>>>>>>>>>>>>>>>>>>>
CFO Magazine: Softer Landings for Laid-Off Workers:
Severance packages are growing more generous as companies position
themselves for a recovery.
Kris Frieswick, CFO.com
October 01, 2001
"This year has been the first for major layoffs at Compaq Computer
Corp., headquartered in Houston. Even before it accepted
Hewlett-Packard Co.'s $25 billion (at press time) acquisition offer in
September, it had slashed 8,500 jobs, or about 12 percent of its
employee base. To reduce the pain, though, under that severance
package workers are eligible for two weeks of salary for each year of
service, with partial years rounded up. There's an additional week's
pay for each $10,000 of salary, with amounts in excess of the last
$10,000 also rounded up. Maximum cash severance is 39 weeks of salary,
and the minimum is 12 weeks, according to the company. Employees
receive medical, dental, and life insurance benefits for 9 weeks after
termination, and three months of outplacement assistance."
"To meet the severance needs of this new job-jumping generation, some
companies are switching over from years of service to a different
formula that may be more relevant and potentially more lucrative for
the employee. "Severance is a bridge to something else," says Hollett,
"and your years of service have nothing to do with the time it takes
to bridge." Some companies are structuring severance packages that
incorporate other factors such as age, job level, and salary, with
less weight given to years of service."
"To compensate for vested options that were largely worthless at
current stock prices, and which employees would lose anyway when they
left the firm, Schwab granted 500 to 1,000 stock options to employees.
Their price was based on the market value at the time of the layoffs
(about $30 a share), and the options vested immediately and could be
exercised within 15 months.
Schwab's severance packages topped out at 10 months of salary, on top
of a two-month notice period with full pay and benefits, says
Mathison, and the company also gave employees cash payments to offset
their costs for COBRA coverage for the number of weeks used in their
severance calculation.
As an extra incentive to stay tuned for possible economic turnarounds,
Schwab added a little farewell zinger. It offered a $7,500 bonus to
any employee from the April round of layoffs who is rehired during the
next 18 months."
"Somewhere between the extremes are old-line companies like Polaroid Corp."
"In the first round of 950 job cuts, in February, says Polaroid
spokesman Skip Colcord, the company gave employees one week's base
salary for each year of service, with a minimum of four weeks, and
medical, dental, and life insurance benefits for a maximum of one
year."
Round two developed differently. The outplacement continued, but
severance was cut to four days for each year of service, and medical,
dental, and life insurance were capped at three months for employees
with less than 10 years' service. For employees with 10-years-plus,
the cap was put at six months, or until they got a new job. Says
Colcord, "We had to balance our concern for individuals...who have
been loyal, hard-working employees" against Polaroid's need to
assemble 'a package we could afford to offer'."
TABLE: The fewer weeks of severance paid reflect shorter tenure of workers:
POSITIONS 2001 AVERAGE SEVERANCE 1997 AVERAGE SEVERANCE
Officer level 45 weeks 47 weeks
Senior executives 37 weeks 42 weeks
Exempt managers 28 weeks 33 weeks
Nonexempt employees 24 weeks 30 weeks
"Cisco Systems Inc. unveiled a unique severance program: laid-off
employees could choose between the regular termination package and a
voluntary program that pays employees 33 percent of their salary, with
full benefits, if they work full-time for one year at one of a number
of nonprofit organizations with which Cisco is affiliated."
Company officials plan to evaluate the new program's effectiveness in
six to nine months based on how much more effectively the nonprofits
function ? as measured by increases in donations, projects completed
year over year, and so on ? and will then decide whether to expand
participation."
TABLE: Across the various levels of employment, severance benefits are
gradually increasing.
OFFICER LEVEL 1997 2001
Health insurance (other than COBRA) 67% 77%
Outplacement 75% 74%
Access to employee assistance program 42% 51%
SENIOR EXECUTIVES
Health insurance (other than COBRA) 67% 80%
Outplacement 75% 77%
Access to employee assistance program 42% 52%
EXEMPT MANAGERS
Health insurance (other than COBRA) 64% 77%
Outplacement 70% 72%
Access to employee assistance program 39% 46%
NONEXEMPT EMPLOYEES
Health insurance (other than COBRA) 59% 76%
Outplacement 50% 55%
Access to employee assistance program 38% 45%
"The company is now offering its nonexempt employees who are laid off
two weeks of salary for each year of service, with a maximum severance
of 26 weeks--if they sign a release document agreeing not to challenge
the dismissal. Health benefits continue throughout the severance
period. (Employees who don't sign get 2 weeks of severance.)"
http://www.cfo.com/article/1,5309,5220|||4,00.html
>>>>>>>>>>>>>>>>>>
How to Negotiate A Fair Severance Package
Know What to Expect
"Knowing what a "standard" separation package includes can help you
decide on how much severance you'll accept. A rule of thumb is to
expect a month's salary for every $10,000 in annual pay. The following
outlines some recent standard packages:
Senior executives -- 12 months' salary or more
Mid-level executives -- six to 12 months' salary
Junior executives -- as little as three to six months' salary
Mid-level managers -- six months' salary and not less than a week's
pay for each year of service
http://home.att.net/~triagesolutions/NegotiateSeverance.htm
>>>>>>>>>>>>>>>>>>
Most CEOs get modest severance packages.
HR Magazine , May, 2003, by Steve Bates
"Fifty-seven percent of U.S. companies and 55 percent of firms
worldwide limit severance to a few weeks of pay for each year of
service, and only one-fourth of employers offer such sweeteners as
financial planning, retirement planning, secretarial support or use of
office space."
http://www.findarticles.com/cf_dls/m3495/5_48/101568974/p1/article.jhtml
>>>>>>>>>>>>>>>>>>>
The average severance package for executives showed a one-week
decrease in 2003 (20 weeks) from the previous year.
http://www.certmag.com/common/newscenter/newsdisplay.cfm?id=2702
>>>>>>>>>>>>>>>>>>>
Preparing for Layoffs: Tips for Creating
Equitable Severance Packages
from Drake Beam Morin
"Severance is intended to bridge the gap between one job and the next.
According to Bill Hollett, senior vice president and an expert in
severance consulting with DBM, "The two most significant factors in
the length of time this takes are the age of the individual and
his/her salary level, not the length of service, which most companies
use to create a severance policy.'' Including age and pay level in the
overall formula creates a more equitable policy. Nevertheless, on
average, companies provide between one and two weeks pay for each year
of service unless the employee has a negotiated employment contract or
is at a senior level."
"DBM has worked with thousands of companies to create equitable
severance packages. Based on its more than 30 years of experience, the
comapny has identified the following seven items that are typical
components in severance packages:
1. Severance Pay - Although they are not legally bound to do so
(unless by an employment contract or union agreement), most companies
will provide severance pay to bridge the gap between jobs.
2. Outplacement - Approximately 80% of employers in the U.S. provide
outplacement services to laid-off employees.
3. Medical Insurance - Employers must, according to law, offer
employees COBRA coverage for 18 months after they have left the
organization. There is a period of time before COBRA coverage becomes
available to employees; however, many employers continue company
coverage through the period of severance before it becomes available.
4. Vacation Pay - If a company allows its employees to accrue
vacation time from one year to the next, employees who have been laid
off should remember to account for their unused and accrued vacation
time.
5. Bridging to Retirement - Companies are often willing to grant time
for bridging to retirement if an employee is within a few years of
eligibility for either early or normal (full) retirement. This is
usually in the form of adding years to age and service - Eg. 3 + 3
(three years added to age, three years to service). If the company
pension plan is funded, this costs little for a company to give.
6. Stock Options - Generally, departing employees have 90 days after
they've been laid off to exercise vested stock options before they are
lost. Employees can negotiate, however, to have this period extended
and even have unvested options become exercisable.
7. Noncompete Agreements - If employees are asked to sign one of
these, they should not sign it immediately. This is a case where it
is best to consult with an attorney.
In addition, here is a list of other benefits that might be included
in a severance package:
* Long-term disability Temporary disability
* Life insurance conversion privileges Long-term care
* Accidental death and dismemberment 401K plan conversion
* Employee loan Employee Assistance Plan (EAP)
* Tuition refund plan
* Relocation
http://www.relojournal.com/may2001/layoffs.htm
>>>>>>>>>>>>>>>>>>>>>>
"As it announced in January, Marconi is cutting 4,000 jobs worldwide,
including 1,000 in the U.S. Most of those losing jobs, however, aren't
as fortunate as the VPs, who receive 28 weeks of base pay plus an
additional week of pay for each year they've worked at Marconi."
"Director-level employees get 18 weeks of their salary paid, plus a
week of pay per year of time served. Other managers start with 12
weeks of salary"
"Nortel Networks Corp. both provide for a set number of weeks of
severance pay based on seniority, plus additional pay per year of time
served."
"In Lucent's case, a spokesman says the most severance given out is 30
weeks for 25 or more years of service. This general rule, however,
does not apply to officers of the company, who have often negotiated
individual employment contracts. Also, Lucent pays health insurance
costs for its managers for up to six months, based on years of
service, the spokesman says."
"Nortel's typical severance package includes 60 days notice plus four
weeks of pay and an additional week of pay per each year of service,
according to a source close to the company. It also provides
healthcare coverage for the entire severance period, the source says."
"As a rule, Alcatel doesn't disclose details regarding its severance
plan. However, a public filing on its most recent layoff showed that
it gave employees at least nine weeks of severance pay and 90 days of
health benefits in lieu of advanced notice."
"Cisco Systems Inc. has only endured one layoff, and it gave all the
employees it let go six months of severance pay and six months of
company-paid health insurance, a Cisco spokeswoman says."
http://www.lightreading.com/document.asp?doc_id=19248
>>>>>>>>>>>>>>>>>>>>
"National outplacement firm Challenger Gray & Christmas said the
average severance package in the second half of 2001 was three months'
pay, with health insurance."
http://www.bizjournals.com/boston/stories/2002/04/08/focus1.html
>>>>>>>>>>>>>>>>>>>>
"According to Mike Maher, a Dell spokesman, the average severance
package for an employee who was laid off in February was two months of
pay and benefits."
"We supplied them with full placement and career counseling. Bonus and
profit sharing was given where applicable. Additional weeks pay were
based on service, if they signed waivers," Maher says.
http://austin.bizjournals.com/austin/stories/2001/05/14/focus3.html?page=3
>>>>>>>>>>>>>>>>>>>
Another good website is FindLaw Corporate Counsel Center.
Pick your state and you'll be able to plow through lots of severence agreements.
http://corporate.findlaw.com/local.html
>>>>>>>>>>>>>>>>>>>
Additional Links:
FIRECalc:
http://early-retirement.org/fire/
Severance pay:
"Compensation paid because of the termination of an employee?s
employment due to circumstances beyond the employee?s control."
http://www.benefitsessentials.com/Lite/BenefitsGlossary/GlossarySSS.cfm
Cashless Severance:
"Here's a relatively new way to pay off departing employees.
Be aware that in some cases, benefits may have to be paid out of
company cash. The IRS sets a ceiling--currently $170,000--on the
salary to which a pension formula is applicable. (This figure changes
from time to time to account for inflation.) To illustrate, if an
employee earns $200,000 and his company's pension formula allows for
40 percent of salary, the company can only pay 40 percent of $170,000;
the remaining $30,000 is subject to the company's severance formula,
to be paid in cash."
http://www.cfo.com/Article?article=4368
The Riley Guide: Executive Severance Packages:
http://www.rileyguide.com/execpay.html
Executive Law Group: severancefaq.com:
http://www.severancefaq.com/
"There are a number of conventions as to how much severance is
appropriate. None of them necessarily means anything. Some employers
think that a week of severance for every year of service is
"standard." Some executives believe they are worth at least one month
of severance pay for every year worked. An old rule of thumb, that
occasionally receives some attention, is the notion that for every
$10,000 in salary sought, it will take one month to find a job. On
that, some executives argue that they should be paid severance that
will cover them for the entire period during which they are likely to
be looking for a job."
http://www.severancefaq.com/4.htm
Severance Pay Headlines:
http://www.benefitslink.com/framed/severancepay.shtml
What If You Lose Your Job:
http://www.wokr13.com/extras/whatifyouloseyourjob.pdf
Layoff Research Report North Texas 2003:
http://www.nttc.ws/utasurvey/Layoff%20Research%20Report%20-%20FINAL.pdf
MyEmploymentLawer:
Employment Law FAQs: severance agreement FAQs:
http://www.myemploymentlawyer.com/severance-agreement-faqs.htm
Get Answers: Severance pay:
http://www.myemploymentlawyer.com/mel/action.php3?action=search_answers&keylist=severance+pay
Search results page from FindLaw other legal websites:
http://lawcrawler.findlaw.com/scripts/lc.pl?entry=negotiating+severance&sites=wlegal
CareerJournal: negotiating tips - how to negitiate a better salary:
http://www.careerjournal.com/jobhunting/negotiate/
EMPLOYEE SEPARATION SURVEY RESULTS (Australia):
http://www.lhh.com/au/research/research_separation_survey.html
>>>>>>>>>>>>>>>>>
I hope I've been able to give you enough data to go on. If you need
further assistance, please post a clarification request before
closing/rating my answer and I'll be happy to respond.
Thank you,
hummer
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