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November 29, 2007
Nearly One in Five Employers Don't Pay Severance

Nearly one in five of U.S. companies do not provide severance pay for non-executive employees. This was among the findings of a new study of employer practices regarding severance pay.

The study, Severance and Change-in-Control Practices 2007, found that about 18 percent of 4,500 employers surveyed did not offer severance to regular employees. Nearly half (42 percent) of companies that pay severance have a "three-tiered" structure, according to the study, in which one tier focuses on top executives, another on senior executives, and a third for the rest of employees, according to the study, released jointly by WorldatWork and Innovative Compensation and Benefits Concepts LLC.

"Companies, both large and small, would be wise to have a formal severance plan in place for all employee levels," said Jim Stoeckmann CCP, compensation practice leader for WorldatWork, in a press release.

Of those that do offer severance pay, most companies (71 percent) use the number of years of service as the basis for determining the amount. Thirty-one percent of companies provide one week of salary for each year of service, while 20 percent provide two weeks of salary for each year of service.

Other criteria considered by respondents in terms of determining severance pay were the employee's position and the employee's pay, taken into consideration by 21 and 17 percent of the respondents, respectively. But the study notes that only 37 percent of respondents have detailed severance plans and policies in writing.

Meanwhile, the study found that 69 percent of respondents had not reviewed their severance plan in the past 12 months and that 13 percent had never reviewed their plans since they were put in place. The study's author, Bob Jones, JD, CPA, CEBS, asserted that "in order to ensure that plan costs are being prudently monitored," companies should review their severance plans on a regular basis.

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