Why You Should Offer Severance to Terminated Employees

How Pay Inequality Extends Beyond Salaries and Into Severance Pay

Pink Slip Termination Notice
Copyright : Carolyn Franks

The Inequality of Corporate Severance Packages

When low-wage workers are laid off they are not usually offered a severance package to help until the terminated employee can find a new job.  Conversely, employees in general are likely to get at least some form of severance our job assistance when lay offs are done in groups or are wide spread. By offering severance to employees that are let go, it shows a compassionate employer who cares about its employees, which helps retain other employees who might otherwise panic and also start looking for a new job in fear of being let go.

Another noteworthy inequality is that women are more likely to be laid off than men because men are still seen as the traditional 'bread winner' and women are still undervalued in the workplace.  And, because women (on average) make less than their male counterparts, if they do get severance it will likely be less than a man would get.

"There's a lot of evidence that historically when jobs are scarce, employers favor men because they feel that it's up to men to earn a family wage and support their families," said Myra Strober, a professor of education and economics at Stanford University. "That is still true, but it's also true that women need to support their families." (Source:  ABC News)

CEOs Who Make 1000 Times More Than Workers They Lay Off

Corporations often treat high-level employees (executives and upper management) with greater concern than they do their lower-level employees when it comes to making decisions about employee salaries and benefits -- and when it comes time to cut backs, lay offs, and even when offering severance packages.

 

Although the average CEO salary is now $13.8 million dollars (in the United States), there still seems to be too little accountability when decisions made by upper management lead to a financial downturn and the 'little' people are the ones to get the axe.  Yet,when a low level employee makes a serious mistake they are likely to lose their job while a CEO who makes decisions that have a negative impact on the entire corporation won't.

 

Chipotle

Management often protects its own, and despite their exorbitant salaries (Chipotle's CEO makes 1,000 times the salary of the average worker) low-level employees are often more likely to be the ones who get the boot than CEOs and management.

"The Glassdoor study found the average CEO received $13.8 million, while the median worker at those CEO's companies made an average of $77,800. Glassdoor's findings were in line with other studies, said Todd Sirras, managing director of compensation consulting firm Semler Brossy." (Source: New York Post August 25, 2015)

CVS and Discovery Communications

CVS' CEO also makes more than 1,000 times the average salary of the giant chain of pharmacy stores, but the biggest disparity in CEO salary and worker wages comes from Discovery Communications (DSCA), a cable network operator.  As the company struggles and faces a decline in subscriptions and revenue in 2015 (the company's value had decreased by nearly 15% during the first two quarters of 2015) its CEO, David Zaslav, remains in charge and in 2014 earned more than $156.1 million dollars which also earned him the distinction of one of the highest paid CEOs in the United States.  In 2007 (the year Zaslav joined DSCA) he let go 3% of their global staff, firing 200 employees in one fell swoop, followed by even more layoffs and downsizing.

Harpo Studios Shutdown

In 2011, The Oprah Winfrey Networking (OWN), a venture between Oprah Winfrey and Discovery Communications resulted in Harpo Studios (Chicago) being shut down in 2015.  In March 2015, Harpo Studies handed out nearly 200 pink slips.  15% were given 30 days to find a new job, but nearly two thirds of employees who were let go were given until the end of the year.

OWN offered 20 employees full-time jobs -- but the rest were all let go. 

In fairness or Harpo Studios, Winfrey did offer severance packages to those who were let go and attempted to stagger termination dates somewhat, however, with nearly 200 employees working in the television industry in Chicago being all let go together, jobs will be hard to come by for many former Harpo employees.

Why do the people who make the least money often get the worst severance packages?

The line of thinking is that higher-paid positions are harder to come by and result in a larger loss of income, thereby causing more hardship to executives that lose their jobs than to lower-wage workers.

  For example, companies have only one CEO so when a CEO is laid off there are fewer jobs available at his current status level and salary threshold in other companies.

Sprint Layoffs

When Sprint offices in Reston, VA laid off hundreds of employees in the mid 1980s they gave one week severance to support and administrative staff for each full year of employment with Sprint up to a maximum of 6 weeks because six weeks was (supposedly) the average time it would take someone at this level to find another similar jobs or to start collecting unemployment benefits.  Sprint gave its upper level executives got one month of severance pay for every ten thousand dollars the executive earned.  Vice presidents earning $120,000 per year would get 12 months of severance because that was how long (again, supposedly) it would take their laid off VPs to find another similarly paying position.

Why You Should Offer Severance to Low-Wage Workers, Too

Whether or not Sprint's severance package philosophy is true, lower-wage earners are more likely to be living “paycheck-to-paycheck” and have fewer resources to draw on than do higher paid employees. The average pay of just one middle management (male) employee can be equal to the costs of 4-10 lower wage workers.

I am not suggesting that higher paid workers be specifically targeted, only that the main consideration for letting someone go should be based on sound business decisions not on “political correctness” and unwritten industry employment practices. Your layoff goal should be to make decisions that will benefit your business.

It is disloyal  to employees to offer good severance when letting upper management go, and offering little or nothing to lower wage workers who are laid off.

Ask yourself if your goal is to cut overall employee costs or the overall number of employees. If your goal is to layoff as few employees as possible, while cutting the most expenses, the business fact is, retaining your lower-wage workers might make the most business sense.

As an employer, you should take some responsibility for those you let go, especially employees who have helped your business grow -- they may have made their own sacrifices (working overtime, late, weekends, etc.) and it is time for you to make sacrifices for them.

On the other end of that pink slip is someone who has bills to pay, mouths to feed, and who will now need to replace lost income.