Some guidelines for establishing a severance pay policy.
The almost universally accepted rule of thumb on severance pay is a week's pay for every year a worker has been with a company. But that formula may not accomplish what you want. In establishing your policy, consider --
Your objective. The rationale for providing severance pay is to bridge the gap between a worker's employment in your company and his or her next job.
The remaining workers. You want them to feel secure that the person fired was treated fairly. The great fear -- that they will be next -- should be mitigated by the reassurance that they'll be treated well if it does happen to them.
Who's neediest. In theory, the more elevated a worker's position and pay, the longer it takes to find another job. Ditto for aging workers. Reexamine those conventions. A lower-paid worker may have fewer resources to fall back on. In today's economy, it could take just as long for a clerk to find a job as it does for an office manager.
Noncash aid. Cash isn't the only thing out-of-work employees need. They may also need health benefits, job counseling, life insurance, or retraining guidance. Consider creating a package of options on which terminated employees can "spend" their severance.
Flexibility. There are many reasons to make your policy responsive to individual cases; there's one big reason to make it rigid: avoiding lawsuits. Seek a balance between protecting yourself and taking care of your former employees during a tough time. -- Ellyn E. Spragins