America the Scrooge of world over redundancy pay

Dec 04 2008 by Nic Paton Print This Article

When the going gets tough, U.S companies reward the loyalty and hard work of their employees with the lowest severance payments of anywhere in the world, according to new research.

In fact it doesn't matter what level they are at or how long they have devoted to their employer, compared with workers around the globe, U.S workers get a raw deal when they are let go, the research from consultancy Right Management has concluded.

Its poll of some 1,500 workers, HR professionals and managers in 20 countries found that US-based employees consistently earned less severance per year of service than those in other countries.

Top executives earned as little as 2.76 weeks of severance per year of service, compared with a world average of 3.39, with the disparity increasing as you move down the career pole.

When it came to top executives who had been forcibly laid off, the difference was 3.04 weeks against 3.52 weeks.

For senior executives, the next level down, the difference was 2.23 weeks against 3.29 globally for voluntary severance and 2.49 versus 3.33 for involuntarily severance.

The study also found that more than two thirds of U.S employers enforced a cap on severance payments, compared with around half elsewhere in the world.

The vast majority Ė 96 per cent Ė of U.S workers were also required to sign a waiver before they received their severance benefits, a reflection of the litigious culture of this U.S, said Right Management.

More positively, more than six out of 10 U.S firms tended to offer severance right away, with no minimum tenure required, against four out of 10 elsewhere.

But while it may seem like just another cost burden, severance payments can be an important tool that can help preserve your employer and reputational brand in an economic slump, pointed out Right Management president Douglas Matthews.

"Severance benefits should be consistent with the values and culture an organization espouses," he said.

"Companies in the United States lead the way with regard to the practice of waivers and releases Ė meant to cut down legal claims against employers by separated employees," he added.

"Countries outside the United States do not require releases as frequently, due at least in part to their cultures not being as litigious and the rights of terminated employees are more defined by statutes and regulations," he suggested.

And the principle of a severance payment has changed considerably from the days when it was simply used to provide compensation for a loss of position, he argued.

"As organisations are challenged to attract and retain the needed talent to compete effectively, separation agreements may not mean a complete separation from the employee, but rather serve as a means to continue the relationship on an as-needed basis," he said.

But managers also need to be clear that severance is a complex issue, no matter where in the world you operate, he cautioned.

"It is an essential responsibility to get right because it has a dramatic impact on the lives of the individuals who have been in your employ or remain in your organization, as well as those who might be attracted to your company in the future," he said.