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It is a compensation offered to an employee leaving a company, which may include extended benefits, such as health care, and job placement assistance or resources
UNEMPLOYMENT INSURANCE
SICK LEAVE
PARENTAL LEAVE
SEVERANCE PAY
CALCULATIONS
In India, severance pay is calculated as per law as 15 days of basic pay for every completed year of service. For senior members or those who have contributed significantly and to ensure their goodwill, you could do 15 days of gross pay (instead of basic) for every completed year of service.
It can enhance the company's image as a fair employer. A severance package is a way of telling the employees that the company cares for its people.. DISADVANTAGES OF SEVERANCE PAY: Financial Difficulty: A severance arrangement that is in writing in employment contracts can sometimes make a bad financial situation worse for a struggling company. If the company is trying to reduce payroll to avoid bankruptcy, the severance agreements may make layoffs a poor short-term financial solution.
DISADVANTAGES OF SEVERANCE PAY Amity Business School Administrative Costs: The health and life insurance benefits offered in a severance package, while mostly paid for by the terminated employee, are still administered by the company. The company bears the financial burden of processing payments and administering insurance plans for employees who are no longer with the organization. This can become an issue with terminated employees who are late on payments or do not notify the company they intend to cease using severance benefits.
ONE OF THE FIRST DOCUMENTED CASES OF THE USE OF SEVERANCE PAY (1889)
Amity Business School
Carl Zeiss, a famous German firm, was among the first companies to provide employee benefits, such as PAID VACATIONS,SICKNESS BENEFITS,PENSION FUND at the time of dismissal. The firm and worker both faced a challenge of establishing long term employment relationship. The firms success depended on the implementation of highly technical and continuous training, which in turn required a long term relationship with employees. As Zeiss workers were sought after by competitor firms and labor was becoming more mobile, it made them more attractive to be poached by other employers who might offer higher wage and so the stability of a long term employment relationship was threatened indeed. But uncertainties in this new market also implied that Zeiss
So both sides were interested in future cooperation and have incentives to terminate the relationship opportunistically. Thus the sole owner of the firm guaranteed social obligations such as severance pay and pensions. The pension fund helped commit Zeiss workers to the long term employment relationship, especially as their pensions grew the longer they remained employed with the firm (the Zeiss pension fund grew almost tenfold between 1895 and 1905). With severance pay equal to a half years salary, it also served as a significant deterrent to firing workers, since the costs incurred would be especially high for skilled workers (with more experience).
Ford Motor Co, On Tue, Sep 25, 2012 which expects to lose more than $1 billion in Europe this year, is offering severance packages to "a few hundred" white-collar European workers as the automaker struggles to rein in costs amid plunging vehicle sales.
Co-CEOs of Wipro, Girish Paranjpe and Suresh Vaswani, each received Rs 7 crore as their golden handshake.
CEO HIRING: ITS ALL ABOUT SEVERANCE Amity Business School PACKAGE
Severance packages, rarely discussed till recently, are now common in pre-hire negotiations. "The increased conversations around severance are a change of business norms," says Purvi Sheth, CEO of executive search firm Shilputsi Consultants. A company recently offered six months' salary as severance pay when it hired the top three executives for its Indian ITES subsidiary. CEO of an Indian manufacturing company- "Severance may not be the first thing to be discussed, but is an important element before closure". It made peace with a severance package equal to three months' pay plus benefits , says Varda Pendse, director at Cerebrus Consultants, an HR consultancy.
A lot depends on level of position, years in organization, size of organization, budget and a sometimes...how badly the company wants the person gone.
Hewlett-Packard's former CEO Mark Hurd is walking away with severance and other grants worth an estimated $34.5 milliona number that could rise to more than $40 million, according to compensation experts.
Along with $12 million in cash severance, Hurd gets to keep $8.9 million in stock options, $12.7 million in performance-based stock units and, more than $600,000 in restricted stock units.
CONCLUSION
To provide severance pay to departing employee is a kindness on part of the employer , the departing employee receives pay that will supplement his or her unemployment compensation and cushion his or her standard of living while job searching. Since many times a persons employment is terminated through circumstances external to their work, the provision of severance pay is a positive and supportive gesture.