why it's time to re-evaluate your severance practices

The realm of HR and talent management is undergoing a profound transformation, influenced by economic forces, technological strides, and the evolving expectations of the modern workforce.

Last year, the OECD countries witnessed an unprecedented low in the unemployment rate, nearly touching 5%, showcasing the strong demand for labor, it continues now at 4.8%. However, as the global economy signals a slowdown and firms scale back job advertisements, the focus is shifting towards retaining existing talent amidst fears that when economic conditions do improve it might make talent acquisition more challenging. While unemployment in America remains lower than anticipated, given the current economic growth rate, it conceals the ongoing global downsizing trend. Our recent research underscores this, revealing that a staggering 96% of surveyed organizations initiated downsizing actions in the past 12 months, driven by various factors, including over-hiring, AI and automation, strategic shifts, business downturns, and merger and acquisition activities.

In the backdrop of these transformative shifts, the re-evaluation of severance practices emerges as a strategic necessity for organizations navigating the complexities of the current work environment. The impact of remote work and global workforce dynamics further influences the design and execution of severance policies, requiring a nuanced and adaptable strategy.

This reassessment goes beyond a mere response to evolving norms; it represents a strategic imperative. As businesses acclimatize to the changing workplace dynamics, the role of severance extends beyond a transactional process, becoming integral to the overall employee experience, talent retention and management, and ultimately a stronger talent culture.

This article explores the evolving landscape of severance policies, highlighting their indispensable role in talent management. Additionally, it delves into the nuances of the perception gap between HR leaders and employees, offering actionable best practices to enhance severance packages. In essence, it serves as a comprehensive guide for CHROs and HR leaders to navigate the intricate terrain of re-evaluating and optimizing severance practices.

the changing landscape of severance policies

In understanding the evolution of severance policies, it's essential to grasp their historical context and traditional role. Traditionally, severance served as a financial cushion for departing employees. However, recent economic shifts, technological advancements, and changing workforce expectations have prompted a reevaluation of its purpose and potential.

Economic shifts on a global scale necessitate a rethinking of traditional severance structures. Currently, just 25% of U.S organizations offer severance to all employees, with most providing minimal support to exiting employees, primarily driven by labor laws. Other countries typically saw a response of 40-50% of organizations doing so. 

These days, severance has evolved beyond a simple cash payout. Our survey reveals that businesses intending to enhance their severance benefits are considering various options, with the majority planning to include bonuses for eligible employees (31%), continuation of health insurance benefits (30%), cash payouts (29%), and outplacement services with education or retraining opportunities (26%). Interestingly, for large organizations across all surveyed countries, the most favored addition to severance packages is outplacement services.

Neglecting to provide adequate support to departing employees can harm your company's reputation and hinder your ability to attract new talent. Even if an employee is leaving, their experience and perception matter. Word-of-mouth travels fast, and negative experiences during layoffs can have lasting consequences. Your brand as an employer is closely linked to your actions, and mistreating outgoing employees can impact your hiring efforts and business relationships. Moreover, for those who stay, witnessing poor treatment of departing colleagues creates a negative workplace atmosphere. Therefore, offering meaningful severance and career transition support is not only an ethical choice but also a strategic investment. Positive exits contribute to brand advocacy and overall organizational success. Prioritizing a positive employee experience, from entry to exit, builds long-term resilience for your company.

downsizing in a competitive job market

Globally, the level of unemployment has dropped since 2017, meaning that competition for jobs has never been as rife. Getting laid off for the foreseeable future comes with the distinct possibility that even a high-performing talent could be unemployed for many months, if not longer. 

Add into the mix technological advancements, particularly in automation and AI, that influence workforce dynamics and the importance of how severance is shaped, perceived and implemented has never been more important. 

As a result, with its diverse expectations, the modern workforce seeks more than financial support during transitions; employees require personalized assistance finding a new role and opportunities for growth that set them up to succeed. 

Despite the prevalence of downsizing, loyalty remains unrewarded in U.S. organizations, as only 25% offer severance packages to all exiting employees. Additionally, U.S. organizations tend to be less generous in their severance offerings, with 37% providing a payout of 3-4 months of salary, compared to other countries, more likely to offer 5-6 month pay. 

the essential role of severance in talent retention and management

Severance has transcended its traditional role as a mere transactional process linked to employee departures. It has transformed into a strategic tool with profound implications for talent retention and overall organizational health. More than just a financial safety net for departing employees, severance now plays a pivotal role in broader talent management strategies. Leading organizations recognize its potential as a tool to retain and engage employees throughout their entire journey within the company.

A well-crafted severance strategy sends a powerful message of organizational empathy and responsibility, fostering a culture of trust and support even in challenging times.

Moreover, severance acts as a linchpin for maintaining positive employer-employee relationships. A thoughtfully designed severance package demonstrates an organization's commitment to its workforce's well-being, showcasing that employee contributions are valued, even in the face of workforce adjustments. This, in turn, enhances the likelihood of departing employees becoming advocates for the company, mitigating potential negative impacts on employer brand reputation.

In the broader landscape of talent management, severance extends its influence beyond the departure of individual employees. It intertwines with workforce planning, succession management, and skill development initiatives. Forward-thinking organizations recognize that the manner in which employees exit can significantly impact the motivation and engagement of those who remain.

Severance becomes a strategic lever for organizations seeking to align their talent management strategies with evolving business needs. It allows for the cultivation of a resilient workforce, capable of adapting to changing circumstances. By providing a supportive exit process, organizations pave the way for departing employees to potentially return in the future, either as boomerang employees or as part of an extended professional network.

addressing the gap: HR leaders' perception vs. employee sentiment

Despite HR leaders' beliefs in competitive severance packages, there often exists a significant gap between these perceptions and the dissatisfaction expressed by departing employees. 

This dissonance, a recurring theme in organizations worldwide, raises crucial questions about the effectiveness and alignment of existing severance strategies with the evolving expectations of the workforce.

The gap between HR leaders' confidence in the adequacy of severance offerings and the dissatisfaction expressed by employees is a multifaceted challenge. Employee expectations, shaped by an era of increased transparency and awareness, extend beyond traditional financial considerations. 

While HR leaders may emphasize the financial components of severance packages, employees often yearn for a more comprehensive support system. This includes personalized career transition assistance, upskilling opportunities, and transparent communication throughout the entire process. Understanding and bridging this gap requires organizations to adopt a holistic view of severance, recognizing it not merely as a financial transaction but as a critical touchpoint in the overall employee experience.

Delving deeper into the causes of this misalignment unveils potential systemic issues within organizations. The discrepancy may arise from a lack of communication channels between HR departments and the workforce, resulting in unmet expectations and a sense of undervaluation among departing employees. 

Additionally, historical norms and traditional approaches to severance may no longer resonate with the diverse and dynamic expectations of the modern workforce. The consequences of this misalignment are far-reaching, impacting employer brand reputation, employee morale among those who remain, and the potential for rehiring or future collaboration with departing talent. Addressing this gap necessitates a reevaluation of not only the tangible components of severance but also the intangible aspects that contribute to a positive and supportive employee departure experience.

reevaluate severance practices today

The reevaluation of severance practices is not merely a response to changing times; it's a proactive strategy for organizations to thrive in the dynamic talent landscape. This strategic approach extends beyond ensuring employee satisfaction and retention; it weaves into the very fabric of the organization's employer brand.

In an era marked by complex challenges for People leaders, prioritizing the employee experience from recruitment to departure becomes paramount. Treating individuals with the utmost care during layoffs is not just an ethical choice; it's a strategic imperative, considering departing employees as potential future contributors to the organization.

To review and enhance their severance policies, People teams should implement the following tactics into their severance strategy:

  1. Conduct Employee Surveys: Gain insights into employee needs and preferences by conducting surveys. Understand the expectations and areas of improvement in your severance policies directly from the employees.
  2. Holistic Collaboration: Foster cross-departmental collaboration to ensure a comprehensive approach. Involve legal, HR, and other relevant departments to align severance practices with overall organizational goals.
  3. Stay Informed about Industry Trends: Keep abreast of current industry trends and best practices in severance policies. Regularly benchmark your severance processes against industry standards and competitors. Identify areas for improvement and adjust policies accordingly.
  4. Redeployment and Reskilling Initiatives: Invest in programs that focus on reskilling and upskilling employees. Redeployment initiatives can help match existing skills with available opportunities within the organization. Leading organizations in a range of sectors operate a mindset that a layoff is a last resort. Getting your leadership to subscribe to this view should be imperative. 
  5. Employee Experience Prioritization: Prioritize the employee experience throughout the employment lifecycle, including departures. Positive exits contribute to a favorable employer brand and can turn departing employees into brand ambassadors.
  6. Ethical and Fair Layoffs: Ensure layoffs, if necessary, are carried out ethically and fairly. Provide meaningful exit packages and career transition support. This not only aligns with ethical considerations but also serves as a strategic investment.
  7. Develop Communications Plans: Recognize the impact of severance practices on your employer brand. In partnership with communications, organize your communications for outgoing and remaining employees with care. Craft a positive narrative around how the organization supports departing employees, reflecting a commitment to long-term success.

Implementing these tactics empowers People teams to build severance policies that are competitive and respectful, aligning with workforce needs, and creating positive employee experiences that make an impact to sustain a positive employer brand.

How organizations handle employee exits influences public perception and future relationships. Future-proofing involves retaining talent, providing new opportunities, and recognizing the value of skills in the talent pool.

Download our eBook for insights to benchmark processes, uncover areas for improvement, and guide your organization toward redeployment and reskilling. Let us support your organization in making informed decisions, and creating a future where severance practices reflect compassion, care, and commitment to sustained success.

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