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Wednesday, January 14, 2009

how to determine severance when firing an employee

A reader writes:

I have just finished reading what you've written on how to fire an employee. Excellent advice. I do have one question. The employee who will soon be “let go” has certainly had many chances to improve, been given objectives and not met them, etc. However, because this person is still human, has a family, is the bread winner, I do not feel right just severing the ties without some sort of departure package. I do have to take into consideration that this person was an under-performer who had plenty of chances and did cost many other employees a lot of time.

Can you make a recommendation as to what I could do as far as pay, if any? We operate based on the hire date so all of the sick time and and vacation time has been used so I can’t use that to “pay out.” Would I just pay two weeks salary and wish them well? Any suggestions, recommendations, words of wisdom would be greatly appreciated at this point. By the way if it is any help, we are a work at will state that has no requirements with the exception of the standards like COBRA.

There's a wide range of standard practice here -- some companies give no severance when someone is fired for cause, some give a couple of weeks, and some are more generous. In deciding what you'll do in this case, here are some questions to consider:

- What precedent, if any, has your company set in similar situations? Legally you're on safer ground if you don't violate an existing precedent (unless you're more generous than that precedent and willing to do that in similar situations in the future).

- How much warning has the person had? Have they had the chance to see the writing on the wall and start job-hunting? Or are they likely facing a long job search that they haven't had any notice to start yet?

- Are you worried about the employee retaliating in some way, such as through (hopefully frivolous) legal action? If so, severance can be a good incentive for him not to do that -- since to receive severance, employees typically have to sign a general release, releasing the company from any future claims.

- What can you afford to do? This is the biggest one. I tend to think that if you can afford to be generous, you should be. (Without knowing factors like the length of employment and nature of the problems, I'd consider two weeks' pay to be reasonable and one month or more to be generous. I'd also consider zero to be defensible in many circumstances.) If you can afford to be generous, it's the compassionate thing to do.

Advice from anyone else?


Evil HR Lady said...

I'm a huge fan of severance. I'm also a huge fan of sticking to policy.

I can't say what your company's financials are, but I recommend creating a policy for a non-willful non-performer (when someone just isn't capable of doing the job--not that he is stealing office supplies) and then sticking to it.

I like 2 weeks for every year of service if at all possible.

Also, even though you've had meeting after meeting and the writing is clearly on the wall, don't be surprised if the employee is so deeply in denial that he is shocked when he's finally terminated. You'd be amazed how deep denial can run.

Anonymous said...

I don't give severance to an employee who is fired for cause. That's my policy. If they have had many chances to improve and haven't, have cost my employees a lot of time, and have even taken all of their vacation time, I figure the person has already cost my company what I would pay out in severance. I would make an exception if it was a situation where someone just clearly wasn't capable of doing the job - a five foot tall, 90 lb person being asked to move 100 lb boxes or something...
But in my experience, it's been less about capability and more about work ethic or lack thereof.

ErinMTaylor said...

I wouldn't give this person severance pay, nor would I give severance to anyone else who was fired for cause.

The reason for giving this person severance appears to be that they have a family and are a breadwinner (both non-work related reasons). So, if they didn't have a family and/or they had a spouse who made more money then they wouldn't be given a severance? Other employees probably will find out about this and if they ever find themselves in a similar situation they will expect the same treatment. Remember, no good deed goes unpunished.

So my recommendation would be to not give a severance in this situation. BUT if one is given, I'd recommend creating a policy wherby all employees who are terminated for performance reasons are eligible for the same payout.

Rebecca said...

ErinMTaylor nailed it. Think about the kind of precedent you'd like to set as you let this person go. But do not give the fired employee money just because s/he's the breadwinner and has a family. It's the employee's responsibility to take care of the family, not yours. It's the employee's fault for flubbing that responsibility, not yours.

Patrick said...

I would follow the same path as the others. If you are firing someone for cause and you have really counseled them, giving warnings, trained, etc., then I do not believe you should provide severance.

The one exception to that is where I feel like "we" as a company made the mistake by hiring the wrong person in the first place or putting them in a new role where they can't be successful. In those cases I would provide severance in return for a release of claims.

As far as an amount goes, I would focus on generosity if you can afford it, what precedent you are going to set, and then being consistent after you offer severance to this person.

It sounds like in your case you use Date of Hire for most things, so I would look at something like 2 weeks of severance for each completed year of service to the company. If someone is there less than a year, they would get two weeks.

Rachel - I Hate HR said...

If you fired them for cause then you've already given them undue money while you waited for them to show they improved and they didn't.

Stop the bleeding heart stuff. They didn't care enough about their families or the business to change or improve.

Melanie said...

Oooh, I like Rachel-I hate HR's comment. I can't believe that EHRL said to pay severance! When an employee is not doing their job and has been coached and talked through the scenarios, then it is time to cut the strings. It is unfortunate that it didn't work out, but it has to be a business decision. Being the breadwinner should have no impact on a termination decision. As long as HR has the documentation supporting the cause, then so be it. Most states are at-will employment states anyway. What most people don't realize is that people who are fired will be fine, they will move on and find another job. Why is it our responsibility as a company to support this person after termination?? The other thing to look at is where can this person be successful in our organization? If the answer is nowhere, then a bad hiring decision was made and you move on. I know I am rambling, but I was slightly irritated with the fact that companies want to pay someone after they terminate for cause! Excuse me, but isn't HR supposed to be cold and heartless?!?!?! :)

Ask a Manager said...

Weighing back in. I agree you can't give severance just because someone in the breadwinner, simply because you need to treat employees the same (both out of fairness and because you otherwise open yourself up to a disparate treatment lawsuit).

I also agree that it's acceptable not to pay severance when someone is fired for cause, although I don't think we should have a punitive take on it. Plenty of people are fired for cause not because they are lazy or didn't care but because they really weren't able to do what the job required -- "miscast," as Marcus Buckingham calls it. So they need to be let go, but it's reasonable to feel compassion for what is unquestionably a terrible outcome for them.

If a company can afford to pay severance, it's a kind thing to do. Not obligatory, but kind. And kind is good, for its own sake, for the message it sends to other employees, etc. (And it also lets you get a signed release from the employee, which is never a bad thing.)

Evil HR Lady said...

I guess I see a "you just don't have what it takes" term very differently than a "you were stealing office supplies, revealing company secrets and looking at naughty pictures on your office computer" term. The former, I would offer severance--with a release of course. (I love releases!) The latter--well, you're lucky I haven't arrested you/called your wife.

Anonymous said...

Ouch, many of these comments are cold and heartless.

I agree that a company should have a policy and stick to it.

But, I also think it is not always a case of the employee didn't care or had a poor work ethic. Many times the company did a bad job at hiring someone for a job who was not qualified for a postion that the company wasn't able to fully describe to HR or pehaps the supervisor didn't really understand what all was going to be involved in this position.

I have seen many cases where someone was let go because they weren't able to perform the job duties within a timely manner. Then to see the company hire two people to complete the job after they let the person go!

That being said I totally agree with Evil HR Lady's last comment - "well, you're lucky I haven't arrested you/called your wife."

Anonymous said...

And then there are companies who set their employees up. They don't give the training, have bulleys for supervisors who withhold knowledge, scream, yell and abuse their employees. I have seen supervisors borrow money of their coworkers who make far less then they do. If you have intimidated your employee, made it a hostile enviroment for them, never appreciated them and just want to get rid of them, then you should do everything possible, including counseling. Also could the possibility that you might not like the way they look have something to do with firing them?

Anonymous said...

I have seen employees literally steal and they still have their positions. I have seen supervisors swear and use profanity and they still have their jobs. What kind of a company do you own? How large of a company? What is this individuals salary and has this individual brought any thing good into her position. Is she liked by others? Is she honest? Does she stay extra hours to get the job done? Has she asked for additional training? Does she take excessive sick days? Can you send her to school? Have you thought about all options before putting another unemployed person into this world?