If you lost your job today and received severance, what type of payout would you prefer?

A one-time lump sum payment, or a continuation of salary and benefits for a defined period of time?

In Canada, according to a survey by Right Axmith Management Consultants, 48 per cent of companies offer a one-time payment. But 52 per cent of organizations offer continued salary and benefits, often with a clawback clause if the ex-employee finds new work before a defined period expires. It was one of dozens of interesting findings that the HR firm found in a worldwide survey of 1,500 primarily senior HR executives. The survey was conducted last summer, and included 110 Canadian firms.

“The trend toward salary continuance is something I’ve been seeing a lot more of in the last six to eight months,” says Dianne Bond, Right Axmith’s VP business development in Calgary. “At Right Axmith, this is an approach that we don’t agree with.”

Mike Dempster, Business Edge
Dianne Bond, VP Business Development for Right Axmith.

Bond made the comments earlier this month during a series of informal presentations and roundtable discussions in Edmonton and Calgary.

The trend toward salary continuance – though Bond says it’s not common in the oilpatch – caught some industry people by surprise.

Why has it become a popular trend?

In one sense, companies might see themselves as altruistic. In the case of a terminated employee who is the sole breadwinner supporting a family, the benefits and guaranteed salary are likely welcome in the short term.

From a more practical viewpoint, it may be a means of helping a cash-strapped company maintain its balance sheet by spreading out salary payments.

More cynically, in cases where companies use a clawback clause, employers may be rolling the dice that the employee will quickly find a new job – and the company won’t be on the hook for the entire settlement package.

As an example, Bond says that a company may offer to pay salary and benefits for 12 months. But if the employee finds a job in four months, then the company only pays a percentage on the balance of the remaining eight months.

In most cases, Bond doesn’t like this practice.

“The problem is that employees are still on the payroll. They are still connected to the company. There is no incentive for them to start looking for a job, to begin moving forward.”

Right Axmith works with people on salary continuance, and many simply aren’t motivated in the career-transition planning process.

“If there’s a clawback, they don’t want to get a job,” she says. “They’d rather wait until they are near the end of the payments. Then they find themselves in a panic.”

Meanwhile, others go “missing in action.” These are people who find another job, maybe a contract position. But they don’t tell anyone because they want to double-dip, receiving both severance and their new salary.

Overall, the survey found that lump-sum payments were made by 58 per cent of the organizations surveyed, which included a broad range of companies in the private, public and not-for-profit sectors as well as educational institutions and government agencies.

Practices around the world vary. In some countries, including Germany (50 per cent) and Norway (44 per cent), companies said government legislation played a major role in how employees were terminated. In Canada, only 10 per cent of companies reported any form of legal impact – instead relying on company policies and common law.

Some of the findings included:

* Thirty-four per cent of companies provide severance to employees even though they’ve been terminated for cause. In Canada, the number is 43 per cent.

* Sixty per cent of all organizations require departing employees to sign a waiver of release; in Canada it’s required by 90 per cent of companies.

* Organizations in Japan (91 per cent) and Australia (83 per cent) have formal written policies. In Canada, it’s 37 per cent.

* Seventy-seven per cent of companies, even when not required by law, provide some form of outplacement help.

Right Axmith says the survey was intended to help gain a better understanding of termination processes worldwide, especially as companies become more integrated.

The roundtable discussions helped break the statistics into something more meaningful.

For example, one Calgary participant noted that her own company had a written termination policy. “It’s just not published,” she said. “We don’t want people clamouring for a package.”

Another added: “We don’t publish ours either. We’ve been doing severance for so many years. People know what we do. It’s pretty straightforward.”

Bond believes that Canada, and certainly the West, is probably ahead of the curve when it comes to severance packages.

“Because we’ve been doing mergers and acquisitions in the energy sector for so long, it’s just become part of the job for human-resources professionals,” she says. “Companies probably provide a bit more in the way of severance. They do it well. And they do the notification process well.”

If there is an encouraging statistic, it is that more than three-quarters of companies provide some form of outplacement help, even if it’s just learning to write a resume.

In the survey, 83.5 per cent of companies said outplacement help was the right thing to do. Organizations (78 per cent) also said the practice sent a positive message to remaining employees, reduced the threat of litigation, was good for the company image,and provides older employees with special transition help.

This is all good. But what about the trend to continue salary and benefits, especially with a clawback clause? According to a Globe and Mail web poll this month, 7,507 people answered the question of whether or not companies should be able to claw back severance payments. Eight per cent of the respondents said yes. Ninety-two per cent said no. They agreed with the statements that the practice is immoral and unfair – and that severance is small compensation for losing a job. How would you vote?

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