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New Study Finds Nearly Half of U.S. Companies With Severance Policies Have Separate Plans for CEOs.

WASHINGTON -- While many U.S. companies are striving to adapt a uniform approach to severance plans, 51 percent of companies with severance policies still have a separate plan for the top executive, according to a study released this week by WorldatWork and Innovative Compensation and Benefits Concepts LLC (ICBC), an HR consulting firm.

The study, Severance and Change-in-Control Practices 2009, reveals that an increasing number of companies are trying to move toward a one-size-fits-all approach for severance plans: 27 percent said they have one severance plan for all employee levels. And, compared to previous years, fewer companies (32% in 2009 versus 42% in 2007) today offer a three-tiered structure for severance that isolates the top executive, senior executives and all other employees.

"While there have been some notable examples of excessive CEO severance packages, our research shows that these cases are not indicative of the vast majority of companies," said Don Lindner, CCP, executive compensation practice leader for WorldatWork.

When it comes to paying severance to CEOs, more than half (54%) of companies defined cash compensation as salary plus bonus and the other half (46%) defined it as salary only. Paying 6, 12 or 24 months of cash compensation in a lump sum payment appears to be the norm. Only one percent of companies pay more than 36 months.

Of those companies whose severance plans for CEOs include a bonus, a majority (53%) pay based on the target, not actual, bonus.

Tax gross-ups - the practice of increasing the amount of a cash payment to offset the tax impact on the individual resulting from the cash payment - are declining. 92 percent of respondents said they do not gross up their executives' severance pay. In the 2007 survey, only 79 percent said they did not apply a gross-up.

In regard to Change-in-Control (CIC) plans, 44 percent of organizations have reviewed their CIC policies within the past 12 months, compared to only 27 percent in 2003. Of those companies that conducted a review, nearly 3 out of 4 (72%) reported that their severance program did not change in the past two years. Of those that reported a change, 15 percent said they are offering more generous benefits while 13 percent offer less generous benefits.

"This survey more than any other that we have completed shows good progress in the area of prudent and careful review of these plans on the part of compensation committees and their HR liaisons in general," said Bob Jones, JD, CPA, CEBS, of ICBC. "We are especially pleased in the uptick in numbers for recent reviews of both types of plans."

Finally, benefits continuation in CIC plans rose significantly in 2009: 82 percent of respondents stated they offer their top executive one or more benefits (outplacement, health insurance, dental insurance, etc.) for a continued period of time in the event of an involuntary termination, non-CIC severance or not-for-cause situation, compared to only 57 percent in 2007.

About the Survey

The Severance and Change-in-Control Practices 2009 survey was conducted in April 2009. Surveys were sent electronically to a random representative sample of 4,986 U.S. WorldatWork members. A total of 750 members participated in this survey, generating a 15-percent response rate. This high response rate and a similar demographic profile between survey respondents and the general WorldatWork membership provides a high level of confidence regarding the validity of the data. The survey has been conducted every two years since 2003.

About WorldatWork[R] The Total Rewards Association

WorldatWork is a global human resources association focused on compensation, benefits, work-life and integrated total rewards to attract, motivate and retain a talented workforce. Founded in 1955, WorldatWork provides a network of more than 30,000 members and professionals in 75 countries with training, certification, research, conferences and community. It has offices in Scottsdale, Arizona, and Washington, D.C.

About Innovative Compensation and Benefits Concepts, LLC

Innovative Compensation and Benefits Concepts, LLC is a global human resources consulting firm specializing in compensation and employee benefits. It provides objective consulting advice to Compensation Committees, Boards of Directors, senior management, and human resources clients of public, private, and not-for-profit companies worldwide. It is headquartered in Bryn Mawr, Pennsylvania, just outside Philadelphia.
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Publication:Business Wire
Article Type:Survey
Date:Jun 2, 2009
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