Companies That Have Recently Downsized May Not Be Finished.

Unifi Network announced the findings of the Severance & Retention Practices: 2001 survey that examines executive employment agreements and company-wide severance pay practices across an array of industries and company sizes. The findings indicate a strong likeliness that companies will downsize again if they have already done so once within the last 18 months.

Of the 114 companies surveyed, approximately 50 percent have downsized within the past 18 months. Of those companies that have downsized, 50 percent plan to downsize again within the next 18 months. The manufacturing industry had the worst news to report on the subject of downsizing. Of the 38 manufacturing company respondents, 61 percent reported downsizing or plans to downsize within the 18-month timeframe. The not-for-profit industry was the most insulated with only 8 percent reporting the possibility of downsizing again.

“This survey points to a unique trend in today’s economic climate — additional employee layoffs at companies that have previously experienced one initial round of layoffs,” said Todd McGovern, a director in Unifi Network’s Compensation Practice. “Executives and other employees need to educate themselves about their company’s severance policies so that they are financially prepared if the ball drops and they are let go.”

Unifi Network’s survey results point to several ways for executives and employees to protect themselves in severance situations.

Executives and Senior Managers should:

Maintain an employment contract that specifies a severance arrangement. (62 percent of respondents offer employment agreements to their executives; of those who offer agreements, 92 percent have agreements for CEOs and 68 percent have agreements for senior management.)

Have an excise tax provision in their contract. (70 percent of respondents that do not limit severance payments provide executives with excise tax gross-up.)

Try to waive the eligibility requirement if you do not have an employment agreement with severance protection. (44 percent of participants with a severance policy have a “minimum years of service” requirement in order to receive severance payments, and 77 percent of those that have a minimum years of service requirement include a minimum requirement for senior management.)

Employees should:

Find out whether your company has a severance plan in place (of the 114 participants in this year’s survey, 88 percent of them have some type of severance policy or standard practice in place.)

Figure out whether you are eligible (severance eligibility typically extends to all positions in most of the organizations surveyed. However, as stated previously, 44 percent of the participants with a severance policy have “a minimum years of service” requirement to receive severance payments.)

Figure out what your severance payment would be (employees typically receive a minimum severance payment plus additional severance payment based on years of service. 90 percent of participants with severance programs use a standard formula to calculate the severance pay package.)

“Additionally, many ex-dot-com employees are now finding jobs in mainstream industries. As newly hired first year employees, they face greater risk of being laid off than employees who’ve been at a given company for a longer period of time,” added Todd McGovern. “Our survey findings point out that first year employees are usually not eligible for severance packages. Ex-dot-com employees who have experienced pay driven severance packages may be dismayed to find out that in the industries we surveyed, severance is determined primarily by years of service.”

The survey findings found that severance eligibility typically extends to all positions in an organization — from senior management to non-exempt staff, with senior management less likely to have a service requirement. The most prevalent years of service requirement is 12 months and the second most prevalent requirement is 6 months.

Survey findings indicate that employees typically receive a minimum severance payment plus an additional severance payment based on years of service. The majority (77 percent) of participants base some or all of the severance payment on years of service at the organization. Not all firms utilize the years of service component to calculate severance payment; some firms utilize formulas based on salary grades or salary increments (i.e. For every $10,000 of pay, employees receive a weeks worth of severance.).

For more information at http://www.unifinetworksurveys.com.

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