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Separation Agreements: How Much Severance is Appropriate in Exchange for a Release?

Posted in Human Resources (HR) Compliance

With all the talk about layoffs, separation agreements have moved front-and-center to the discussion on how companies can reduce their liability exposure.

But how much severance should a company offer to its employees when laying them off?

There is, of course, no set rule in Connecticut — or the United States — on how much severance is warranted under the circumstances. But one study released last week suggests some benchmarks.  (H/T to Pennsylvania Labor & Employment Blog and Compensation Force).

The survey, by Right Management, found that U.S. employees typically earn the following amounts of severance (which represents mean weeks of severpublic domain - from wikipedia common imagesance for each year of service)

Voluntarily Separated:

  • Top Executives – 2.76
  • Senior Executives – 2.23
  • Department Heads/Managers – 1.55
  • Professional/Technical – 1.39
  • All other employees – 1.23

Involuntarily Separated:

  • Top Executives – 3.04
  • Senior Executives – 2.49
  • Department Heads/Managers – 1.78
  • Professional/Technical – 1.60
  • All other employees – 1.44

In advising employers, several seem to have adopted the one week or two weeks per year of service formula.  But in doing so, the employers provide the severance only in exchange for a full release of claims by the departing employee. 

Just be sure that when setting up the release, that you comply with the various rules associated with such agreements, including the OWBPA.  

  • http://www.rtlitigation.com/2008/12/articles/employment-law/useful-information-about-severance-agreements-from-celb/index.html Rogers & Tartaro Business Litigation Blog

    Useful information About Severance Agreements from CELB

    A recent post on the Connecticut Employment Law Blog reports some useful information about the number of weeks of severance pay being provided by employers upon the termination of employment (“Separation Agreements: How Much Severance is Appropri…

  • http://evilhrlady.blogspot.com Evil HR Lady

    Thanks for the advice. I’m a huge fan of severance in exchange for a release. If you are terminating someone, you want him to go away. Giving a little money to do so goes a long way in making that happen smoothly.

  • http://www.californiaemploymentlawreport.com/2008/12/articles/best-practices/what-is-the-appropriate-amount-for-severance/index.html California Employment Law Report

    What Is The Appropriate Amount For Severance?

    While severance is not required under the law, many employers who are terminating or laying employees off voluntarily offer severance to employees. Usually, the severance is tied to a release of claims that the employee may have against the employer….