Friday, October 10, 2008

How Safe Is Your Severance Package?

Anxiety has become the great common denominator among corporate executives.

“What if I lose my job?” is the question many ask as fear about how well they can withstand a job loss steadily grows.

Their fear is warranted.

Many have seen their net worth fall rapidly as the stock market freefalls, investments plummet and property values continue to decline.

Add in the frozen credit markets and the buzz about an impending global recession and you have a recipe for unprecedented stress that is being felt in all sectors around the world and in virtually every household in America.

The rules keep changing

Not too long ago, when an executive was fired, they could anticipate a healthy severance that would tide them over until they found their next job. No matter how short their stay with a company, it was widely felt that providing attractive exit packages was a good investment.

Severance packages mitigated the disruption felt by terminated executives, reduced the potential for litigation and improved the odds that those leaving retained positive feelings towards their former employer. Plus, they helped ensure that remaining employees perceived the company as a fair, concerned and responsible corporate citizen and, in spite of layoffs, a desirable employer.

But as the number of fired executives grows and future layoffs loom larger on the horizon, generous exit packages will be among the casualties of the economic meltdown.

Less is not more

In an article entitled Lehman Staff Gets the Shaft in Severance, the NY Post told the story of one Lehman employee who left in March, after 16 years with the firm.

Her severance package included salary and benefits continuation for 13 months. A safety net designed to last through April 2009.

But on September 30, she along with other former Lehman employees, was informed by letter that the company was ”no longer able to provide salary continuation or other benefits and as a result you will not receive payment on October 3 or thereafter.”

Totally unexpected ... and, unfortunately, completely logical.

Lehman Brothers, having been forced into bankruptcy, simply does not have the funds. And today, many companies are in a survival mode that will force them to alter their severance policies.

The new reality

So what’s an executive to do? Prepare for the worst case scenario.

Proceed as though you will be given a zero separation package and plan and act accordingly.

Ensure your cash reserves are adequate to support an extended job search and as I've written previously, develop Plans B & C.

The marketplace will be shedding many more jobs in the upcoming quarters as companies retrench to remain viable. Many will just not have the cash - or credit - for severance payouts.

The saying, "It's not in the bank until it's in the bank" has never been truer.

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