Severance: Math vs. Reality

Welcome to The Shift, a weekly newsletter where I provide thought-provoking ideas to help you think differently about your career and money.

Last Week + This Week = It’s All Connected

I’ll make this quick.

Last week I was inspired by a viral tweet, which led to writing about why giving two weeks notice is outdated. Read here if you missed it. That tweet kicked-off a series I am calling “Tug of War” to talk about the push and pull between employees and employers. This week we dive into who severance policies really benefit.

Tug of War: Part 2

Severance. Most of us don’t think about it until we are being forced to.

Ya know, when you are being laid-off.

It almost always comes as a shock. Even for the people that suspect something is up or can see the writing on the wall.

The worst part of it is when they present the package. The conversation almost always starts with something like “you know we aren’t legally obligated to pay you severance, but…”

Do they learn that phrasing in business school? Or is it a corporate culture thing?

It’s like they genuinely believe they are doing you a favor or giving you a gift. Or maybe it’s just their way of flexing their power over you one last time, for fun?

The truth is: severance comes at a cost.

Mental Breakdown

I’ve been through the process of being laid off before. I was 30. Still young and free, but I didn’t have a back-up plan. Which made it scary.

After my brain got past the pure shock of it all, it went into a spiral with all the thoughts. I think my internal dialogue went something like this:

“You just blindsided me with a termination notice, I don’t have my resume together, how do I even get in touch with recruiters? You tell me I have a strong network so I’ll be fine, but how do you have any clue about my network? Should I go to a competitor to try and get the same job? I guess that would be the fastest way to become employed again, I mean that is assuming the competitor isn’t downsizing too. Maybe I should really think about what I want to be when I grow up? What’s my money situation, how long can I survive? Will I have to leave NYC and move back in with my parents?!”

A bit of a mental breakdown for me. But don’t worry, I lived to tell the story. 😊

I was always a saver and was able to endure a year off. I took time to travel and reset before looking for a new gig. I didn’t have a family to care for or other major fixed costs.

Not everyone is in that position.

Math vs. Reality

Financially, severance is supposed to buy you time.

Time to cover expenses while you job search. Yet, it rarely does.

Most companies offer one to two weeks of severance per year worked, it’s like an unspoken and unwritten rule. I’d call it a standard, but HR people and lawyers will tell you there is no real standard.

I understand the math: Based on average years worked¹ and average time to find a new job² most people should get somewhere between 6 to 8 weeks of severance. Sounds decent. The problem is those are just “average” numbers.

Experienced workers take about 11 weeks to find a new job² . Again, that is also an average. Candidly, I know a few people going through the process now, and I can tell you it is taking them more than 11 weeks to find new jobs.

Not only are the opportunities limited at that level, the competition is fierce. Did you know the number of people making over $150k that lost their job in the past four weeks is up more than 11% from last year³ ?

As much as we want to believe severance will genuinely support you through a real transition period. It likely won’t.

Financial Quid Pro Quo

Companies show their real hand when they give you all the paperwork you need to sign to finalize the separation.

What you find is that in most instances the money they give you is in exchange for your silence. You may not disparage the company in anyway and you usually sign away your rights to bring any legal action against them in the future. That can include your right to participate in a class action lawsuit.

Oh and if you get a job before the severance is up, some companies require you to stop receiving the benefit.

It quickly becomes obvious that severance is less goodwill and more a PR stunt that also protects the company.

Fair Treatment

Look, no one is a fan of downsizing.

Not even the executives making the call to pull the trigger.

I am a capitalist. I can understand a need to downsize because the company’s profitability is taking a hit for economic reasons or changing industry dynamics. But don’t ignore the individual’s financial position when taking action to improve yours. Be fair.

Workers of different statures should be treated differently. As should those that underperform the benchmark. Current severance policies too often are one size fits all.

I don’t expect a struggling company to pay excesses in a time like this, but there should be better analysis and transparency connected to severance payouts.

The good news is: severance is negotiable.

Let’s make The Shift!

Lindsey

P.S. I’m adding severance negotiating to my list of topics to cover in upcoming newsletters.

P.P.S. This is not to say that there aren’t companies out there that do the right thing in situations like this. Unfortunately, the vast majority take the approach above, which makes even the good look bad.

Sources:

1. Bureau of Labor Statistics, Employee Tenure Report 2022.

2. Bureau of Labor Statistics, Current Population Survey, September 2023.

3. US Census Bureau, Household Pulse Survey, Sept. 20 – Oct. 2, 2023.