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United States
New York , 26 May 2009

Over the past year and a half, two-thirds of organizations have had to reduce their workforces as a result of the recession. Despite this prevalence, one in four organizations does not have a severance policy and 70 percent of employers with a policy do not plan to modify it, according to Mercer’s US Severance and Strategy Survey.

Mercer’s survey, conducted in April, assesses organizations’ severance policies and workforce reduction measures. It includes responses from more than 400 mid-size and large employers across the US.

“Although most companies have taken a variety of initiatives to trim workforce costs, their severance policies have remained unchanged,” said Steve Gross, global leader of Mercer’s broad-based performance and rewards consulting business. “Severance pay helps preserve the future good will of employees which can be a difficult investment to measure over the short-term.”

According to Mr. Gross, most organizations update their severance policies about every five years. “As companies closely examine every facet of their talent investment during these unprecedented times, it’s important to include a review of their severance policy as well.”

Severance policy features

Mercer’s survey shows that most severance policy features are applied consistently to all employees and typically include benefits continuation and outplacement services in addition to severance pay. These features, however, differ slightly by employee group. Nearly three-quarters (74 percent) of organizations provide continuation of benefits to executives as part of their severance policy compared to just less than two-thirds (65 percent) for professional/ technical employees and 61 percent for non-union/hourly workers. Moreover, 69 percent of organizations offer outplacement services to executives as part of their severance policy compared to 57 percent for professional/technical employees and 49 percent for clerical/ technician workers. See Table 1.

Table 1: Severance policy features by employee group*

Source: Mercer

*Responses based on organizations with a severance policy.

“It’s important for organizations to implement fair severance policies for its workforce because it helps uphold an employer brand they’ve worked hard over the years to build,” explained Mr. Gross. “A severance policy – and how well it’s implemented – contributes to maintaining positive relationships with employees that may return to the company some day and supports the company’s employment brand within the marketplace.”

Severance periods

According to Mercer’s survey, the majority of severance policies (52 percent) do not have a minimum length of service requirement for employees to receive severance if part of a workforce reduction. Of those policies that primarily use years of service as a key criterion for determining the length of severance payments, two to four weeks is the most common minimum period for the majority of employees. The minimum period of payments for most executives is more than 12 weeks. The maximum period of severance payments for the majority of employees is 26 weeks with the exception of executives which is one year.

“In this tough economy, it’s a good time for HR executives to either develop a policy if they don’t have one or review existing policies to ensure they still reflect the company’s compensation philosophy and expense control measures,” said Mr. Gross.

About Mercer

Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefit outsourcing. Mercer’s investment services include investment consulting and multi-manager investment management. Mercer’s 18,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago and London stock exchanges.

For more information, visit www.mercer.com.

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