If It's Not Required, Why Do Companies Offer Severance Pay?
Even though there is no law that requires a company to pay severance, many companies do pay severance for these reasons:
Avoid Disruptions Caused by Departing Employees. If an employee who is leaving is paid severance, the employee is more likely to be helpful and cooperative, and have a better attitude, while duties are completed or shifted to other employees. This avoids workplace disruption and keeps things on track for the company.
Fairness and Goodwill. For the same reasons that the saying "Don't Burn Your Bridges" exists, companies who terminate employees for reasons other than misconduct understand that fairness requires sometime of financial support for a limited period of time, since the terminated employee presumably will suffer a financial loss due to the termination. Further, a terminated employee who has received a fair severance package is less likely to express negative opinions regarding the company, and this protects the goodwill of the firm.
Seniority (Years of Service). It is customary to reward employees who have provided a significant number of years of service to the company with severance benefits. The longer the period of employment, the larger the benefit package.
Highly Placed Executives Are Nearly Always Paid Severance. It is generally the rule in the corporate culture to pay highly placed executives severance. In fact, it can be assumed that the company officers who make the decisions on whether to pay severance to another officer who is leaving the firm will keep in mind that they too someday may be in a similar position. For this reason, highly placed executives nearly always obtain the largest severance packages of all employees.
Release of Claims. Probably the single most common reason for a company to pay severance is to obtain the departing employees signature on a release of claims. In fact, whatever the reason for the decision to pay severance, the actual payment of the benefit is nearly always conditioned on the signing by the employee of a release of all claims against the company. This is because companies know that the cost of defending a legal claim brought by a terminated employee can be very substantial, regardless of whether or not the employee has a valid grievance or not. If the employee actually has a valid legal claim against the company, the severance will usually be greater by way of compensation for the claim.
If you have questions regarding Severance Benefits, please feel free to give us a call at 1-800-306-6010 or contact us online.
Avoid Disruptions Caused by Departing Employees. If an employee who is leaving is paid severance, the employee is more likely to be helpful and cooperative, and have a better attitude, while duties are completed or shifted to other employees. This avoids workplace disruption and keeps things on track for the company.
Fairness and Goodwill. For the same reasons that the saying "Don't Burn Your Bridges" exists, companies who terminate employees for reasons other than misconduct understand that fairness requires sometime of financial support for a limited period of time, since the terminated employee presumably will suffer a financial loss due to the termination. Further, a terminated employee who has received a fair severance package is less likely to express negative opinions regarding the company, and this protects the goodwill of the firm.
Seniority (Years of Service). It is customary to reward employees who have provided a significant number of years of service to the company with severance benefits. The longer the period of employment, the larger the benefit package.
Highly Placed Executives Are Nearly Always Paid Severance. It is generally the rule in the corporate culture to pay highly placed executives severance. In fact, it can be assumed that the company officers who make the decisions on whether to pay severance to another officer who is leaving the firm will keep in mind that they too someday may be in a similar position. For this reason, highly placed executives nearly always obtain the largest severance packages of all employees.
Release of Claims. Probably the single most common reason for a company to pay severance is to obtain the departing employees signature on a release of claims. In fact, whatever the reason for the decision to pay severance, the actual payment of the benefit is nearly always conditioned on the signing by the employee of a release of all claims against the company. This is because companies know that the cost of defending a legal claim brought by a terminated employee can be very substantial, regardless of whether or not the employee has a valid grievance or not. If the employee actually has a valid legal claim against the company, the severance will usually be greater by way of compensation for the claim.
If you have questions regarding Severance Benefits, please feel free to give us a call at 1-800-306-6010 or contact us online.
