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Tuesday, June 4, 2013

What Is A Fair Severance Policy?



Sooner or later each of us will be faced with negotiating for severance.  It is a sad fact of life in business today.

Over the years, I have met employees from many different companies who have been downsized or otherwise terminated.  I have met employees who have left almost every advertising agency.  I have also met terminated employees from many, many different companies.  There is a huge difference between the way ad agencies end an employee’s term and the way most corporations do the same thing.

The difference between the two is that ad agencies are, for the most part pretty stingy.  Companies generally have decent severance packages which include, among other things, out placement services. Rarely do I hear from people from companies who say that their packages were not fair.  But people from ad agencies say just the opposite because ad agencies offer almost nothing.  If one is lucky enough to have a termination clause in their original letter of agreement/offer letter, severance may be better than normal “policy”.

Severance is not just salary and vacation. It also includes healthcare, outplacement, use of office and other elements, but to keep this post simple, I am only going to deal with salary issues.

Many agencies have a policy which calls for a week’s severance for every year of employment. These policies date back to decades ago when the economy and the business was different.  Once upon a time, the rule of thumb was that it used to be it would take one month to find a job for each $10,000 in salary.  In those days, that was probably a fair formula.  Today, given the high unemployment rate in the country, 7.6%, and given that it is probably higher in advertising, the rule of thumb is that it takes two or three months to find a job for each $10,000 in salary.

Somehow I think it is wrong for a person who has been employed by the same company for many years to simply be cast aside with a week a year.  That means that if you are somewhere for most of your career, say twenty years, you would get about five month’s severance.  Now I fully understand a week a year for the first couple of years, but someone who gives their all for a long period of time should not be cast aside with meager severance.  The problem is that the holding company agencies are so overly governed by rules that it is very difficult to get around them, although I have heard that it can be done, but not without hassle.

Every case is different and should not be governed by mere “policy.”  Following is a good example.

I recently met an account person who was sixteen years at one of the big agencies.  They transferred him around the country to various offices to handle troubled accounts.  They finally put him in an office that they knew was in big trouble; they transferred the account he had been running into that office to help stabilize it.  It was too little, too late for the office.  Since each office governs itself, once he was turned over to that office, he was in their jurisdiction.  The office was losing business and ultimately decided that his big salary was too much for them to bear, despite running a successful and profitable account.  Since the account was under contract, they figured they could safely replace him with a less expensive person.  He was downsized only a few months after he arrived at the office.  The headquarters office knew nothing about it, but even worse, would and could do nothing for him and allowed his severance to stand at one week a year.  They did not even want to pay his relocation back to New York.  I told him to get a lawyer.

Sticking to the corporate policy may be okay in many cases, but not all.  It certainly wasn’t in the above cited instance.  Someone beyond HR who actually knows the individual should be in charge of evaluating circumstances with the ability to make adjustments.  The answer that. “If we do it for one, we have to do it for all” is just wrong and unfair.

While the need for governing policy makes sense, there has to be common sense applied to those policies.  Suppose the person was in the job for forty years, an entire career.  Would it be fair to terminate him or her with less than a year’s payment after a whole life of employment?  Or how about the person who is recruited and chased by a company and hired away from a good and secure job and then six months later, because of account losses is terminated for financial reasons.  I have seen last in first out situations where the person is given only their accrued vacation time, patted on the head and said goodbye to.  I knew one person who started at the old Lintas two days after they lost Burger King on one of their package goods accounts.  He was terminated on day three of his employment with no apology and no severance despite taking him out of a perfectly good job.

The point is that every circumstance is different.  Every employee has a different story.  Each has to be looked at.  The rule of thumb should be fairness and not corporate convenience.  I know it is far more work, but we are dealing with human lives and careers so that an extra effort is called for.

The best severance is the one you negotiate before accepting an offer..

11 comments:

  1. Great article Paul. I, like many, have learned the hard way. Investing five years at a major NYC agency, to get a few weeks on the way out. But I learned. My current severance WAS negotiated prior to accepting the role (four months severance) and was agreed to without question or hesitation by the Agency. As my dad says, your most powerful negotiating position is always right before you accept the offer.

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    1. @Anonymous: Perfect comment. I have always said, and have posted it many times, the leverage to negotiate is in the offer.

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  2. That is true, but contracts of that nature are becoming more and more rare unless they're for a very senior niche role.

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    1. @anonymous. You are correct. However, these things can be negotiated at all but the most junior levels. And it certainly does not hurt to ask.

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  3. Thanks for writing this Paul. I know someone who made the mistake of not watching out for this and got a week for each of near 20 years (many in very senior position). So much for loyalty. No wonder it is an industry in decline.

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  4. I work in HR and have been in the ad industry for nearly a decade at major firms. It is extremely rare for severance at anything less than the 150k level to be put into an offer agreemtn. I've actually never seen it. Also, any place that's giving one week per year is indeed, very stingy. It may not be much better, but everywhere I've worked have always offered at least two weeks per year plus a notice period.

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    1. @Anonymous: It may be rare to have severance in an offer letter for people under $150, but I have seen it.

      I am glad that you work somewhere where they do two weeks for every year, but, believe me, that is really rare.

      Thanks for your comment.

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  5. Paul, I thought this was timely given your post:
    http://www.mediabistro.com/agencyspy/martin-agency-cuts-some-staff_b49240#disqus_thread

    Sounds like Martin is one of the few agencies that strives to do the right thing when they downsize valued employees.

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    1. I am sure you are right. While short term people will be angry and disappointed, they will have nice things to say about Martin in the future. Good for them. Thanks for sharing this with me and my readers. I am glad that there are agencies out there that do the right thing. Good for the Martin Agency.

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  6. This was many years ago now, but for a top five global NYC headquarters. My boss running an International CPG business, 16 years in, Germany, Japan, and NYC for the Global Group. Laid off with 12 weeks because it was a week for every year, but CAPPED at no more than 12 weeks. Shameful. And it has colored my perception of that Global Group ever since.

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  7. This comment has been removed by a blog administrator.

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I would welcome your comments, suggestions or anything you would like to share with me or my readers.

 
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