Severance Packages: What You Need to Know

Severance Packages: What You Need to Know

Severance packages aren’t just for CEOs and executives anymore.

Last year, Lee Hecht Harrison, an outplacement firm, released a survey showing that the number of employees who successfully negotiated their severance packages skyrocketed during the past decade. In 2008, nearly a third of professional workers and 22% of administrative employees had negotiated their severance packages. By comparison, only 5% of professionals and 4% of administrators managed to do so back in 2001.

And this trend is only likely to continue in the future.

“Severance packages are the norm,” says Bob Morlot, Managing Director for Lee Hecht Harrison. “I think we will see the policy increase in the coming years.”

Morlot notes that many businesses have been motivated in recent years to introduce formal guidelines for severance packages in order to avoid potential litigation and to help protect their brand.

“Companies don’t like lawsuits and recognize that we now have a fairly litigious society,” Morlot says. “They are also worried about branding. Most companies view ex-employees as consumers as well, and want to be seen as treating them fairly.”

Yet, even as severance packages become more common, they are still far from universal, and in fact, a company is not legally required to offer severance.

“There is no law that you’re going to find that says when an employee is terminated, they have to get one week of severance or two. That just doesn’t exist,” says Joshua Zuckerberg, a labor lawyer at Pryor Cashman.

According to a 2009 survey from the American Society of Employers, one out of every four business organizations does not offer severance packages to their employees. Of those that do, ASE found the most common policy is to provide employees below the executive level with one week’s worth of severance pay for every year they have worked at the company.

Of course, the average severance policy does vary by company and by position, but according to Lee Hecht Harrison, the outsourcing firm, the average mid-level professional who has worked at a company for three to five years typically receives between 14 and 26 weeks of severance. By comparison, nearly half of all senior executives surveyed by LHH received a year or more of severance.