Severance packages for successful downsizing.

In these tough economic times, downsizing through voluntary severance packages has increasingly become a means of cost containment. Whether a result of increased competition or recession-induced belt tightening, downsizing ("rightsizing," "reorganizing," etc.) is a very real process in the U.S. workplace. Before a company embarks on a voluntary severance program, and to ensure that the program meets its goals, certain critical questions should be answered:

* How does the company hold on to the employees that it wants to keep?

* How does the company manage the tarnished image that often

results from announcements of downsizing?

* How much do outplacement services and attractive severance

programs really cost?

* What does a company with a prior history of voluntary severance

programs do if it wishes to offer new or different incentives?

* What can the company do to prevent too many employees from

electing the severance package?

* How will the company respond if employees complain to the

Equal Employment Opportunity Commission (EEOC) or bring

lawsuits based on the severance package? The reality is that very few severance initiatives go without a hitch. Severance programs displace workers, and very few workers are looking to be unemployed. The process of separating employees is in most cases difficult, sometimes controversial, often painful, but many times profitable. As U.S. companies strive to become "leaner and meaner," the potential profit from voluntary severance programs continues to drive their utilization.

There is no question that one of the most telling actions a company takes, which exemplifies its values, ethics, and commitment to excellence, is how it manages itself in tough times, particularly when staffing reductions may equate with business survival. It is now an everyday occurrence to learn that yet another well-known company is announcing a closure, a consolidation, a downsizing, or a significant layoff. The fact that it happens does not surprise us anymore. However, how it happens and the way that it is managed are important, as these actions are indicators of how well a company will maneuver through many politically and economically sensitive survival situations in the 1990s.

This article addresses a comprehensive approach to the history, development, and management of severance programs. It highlights the role that human resources managers have in designing severance programs and guiding the process to maximize their effectiveness while retaining employee confidence and loyalty. In addition, the article outlines the legal ramifications relating to severance programs as a company undertakes the development, communication, and implementation of these programs.

VOLUNTARY SEVERANCE PACKAGES

Voluntary severance programs are a relatively new phenomenon in corporate cost containment. In the past, as U.S. businesses were expanding, many workers had the option of choosing risk or reward in employment. A worker might choose a paternalistic "cradle to grave" company. In that case, there might be very limited upside potential, but the employee knew that he or she had a virtual lifetime guarantee of employment. Alternatively, individuals could seek employment in smaller firms with less job security, but with hopes of reaping potentially greater economic rewards.

As U.S. businesses began to downsize, employee expectations also began to change. In the past decade alone, over one million managers have lost their jobs. Previously paternalistic employers have begun offering "golden handshakes" to eliminate tens of thousands of jobs. For example:

* In 1985 DuPont reported savings of $230 million when it

reduced its work force by 11,200.

* Chevron reported savings of $200 million with downsizing.

* Union Carbide reported savings of $250 million withdownsizing.

* Hewlett-Packard trimmed its work force by 3,500 with estimated

savings between $100 million and $200 million.

* Since 1984 up to 12,000 General Motors salaried workers have

opted to take voluntary severance packages.

* In 1991 Chrysler targeted a reduction of 3,000 salaried workers

in a $3 billion cost-reduction campaign and reportedly expects

to trim more white-collar jobs in 1992.

* To make operations more efficient, Norfolk Southern

Corporation offered severance bonuses of $35,000 to

approximately 550 workers hired before April 15, 1986.

New Incentive Programs

Voluntary severance incentive programs ("golden handshakes") target a wide spectrum of employees and encompass many different benefits. For example, key executive-level employees may receive outplacement …