LINCOLNSHIRE, Ill. — With many economists predicting a bleak outlook for near-term economic recovery, the possibility of continued layoffs are a likely reality for thousands of Americans. While losing a job is not welcome news, a new survey by Hewitt Associates, a global human resources consulting and outsourcing company, found that severance packages for most impacted employees at large U.S. companies have remained unchanged. However, as companies continue to look for additional ways to lower costs, those benefits — like many others — are at risk of being cut back.

Hewitt's survey of 228 large U.S. companies representing 4.5 million employees found that more than 80 percent of employers made layoffs in the past 24 months, and 45 percent intend to make further reductions in the next 12 months. The good news for those impacted employees is that severance programs have remained virtually unaffected by the economic downturn. More than half (51 percent) of companies offer a standard one-to-two weeks of pay for every year of service, and another third (33 percent) vary their payouts based on a formula that typically combines years of service, salary level, and/or grade.

In addition to cash payments, most companies provide at least one benefit after separation, which may include health care coverage, retirement benefits, disability, financial assistance or life insurance. Not surprisingly, health care coverage is the most prevalent benefit offered. Thirty percent of companies provide full health care coverage during the severance period and then offer COBRA at the end of the severance period. More than one quarter (26 percent) provide COBRA coverage immediately, with the employee paying the full premium. Most companies (72 percent) also provide outplacement assistance to severed employees. But as companies look to make additional cost reductions in response to ongoing economic conditions, many say they will take a closer look at their severance packages. According to Hewitt's survey, one in five companies (20 percent) plan to make changes to their severance plans and nearly a third (31 percent) are unsure. Of those making changes, 43 percent plan to reduce cash payments, and one in five (21 percent) plan to reduce benefits.

"Amidst employers' cost-cutting efforts, employee severance programs have largely been untouched, in part because these benefits are viewed as a way to maintain the goodwill of affected employees. In addition, most companies simply do not understand the true cost impact of these programs on their bottom lines," said Lori Wisper, senior compensation consultant at Hewitt Associates. "Organizations now have to dig even deeper into their cost drivers — forcing many employers to take a closer look at the cost and competitiveness of their severance programs. In doing so, they realize they may be able to make changes that not only better align to those of other employers, but also help them reduce costs."

Other Key Findings

• Most companies (80 percent) have minimum and maximum limits on the cash portion of their severance payments. The average minimum is 4.5 weeks of pay, and the average maximum is 40 weeks of pay.
• The regularity with which organizations are reducing their workforces has meant that most (72 percent) now have formal, written severance policies in place for their broad-based employee populations. In the past, these practices varied more based on circumstances.
• A majority of companies (87 percent) require severed employees to sign a waiver that includes specific conditions. Most waivers include a litigation waver and other conditions, such as nondisclosure and non-disparagement agreements.

About Hewitt Associates

Hewitt Associates (NYSE: HEW) provides leading organizations around the world with expert human resources consulting and outsourcing solutions to help them anticipate and solve their most complex benefits, talent, and related financial challenges. Hewitt consults with companies to design and implement a wide range of human resources, retirement, investment management, health management, compensation, and talent management strategies. As a leading outsourcing provider, Hewitt administers health care, retirement, payroll, and other HR programs to millions of employees, their families, and retirees. With a history of exceptional client service since 1940, Hewitt has offices in 33 countries and employs approximately 23,000 associates who are helping make the world a better place to work. For more information, please visit www.hewitt.com.

Maurissa Kanter

,  Hewitt Associates,  (847) 883-1000

MacKenzie Lucas

,  Hewitt Associates,  (847) 883-1000