Companies & Industries

Ready to Be Fired -- Before You're Hired


With the U.S. economy in a lingering funk, the chances of getting the sack seem to rise every day. That's why a growing number of job seekers say they want assurances when they're hired that they'll be taken care of if the day ever comes when they are told to take a hike. Indeed, 63% of some 1,100 prospective hires polled in September and October, 2001, by TrueCareers, an e-cruiting business, said negotiating severance agreements at the outset is an important consideration when taking a job.

Before the economy turned south, "a large part of the workforce never realized that they needed a safety net," says Michael Caggiano, CEO of TrueCareers, a unit of federal student loan company Sallie Mae. "They're now seeing people take much longer to find another job -- without a safety net."

How much good it does to haggle over severance before you come on board is still an open question. With the national jobless rate at 5.4% and rising, employers in many cases can afford to call out "Next!" if a candidate makes too big a fuss. "Companies do have their pick of people right now," Caggiano says. And there's no law requiring employers to provide severance, even if it's generally considered the right thing to do.

PARACHUTE PRECEDENT. Even so, there is plenty of precedent for "pre-nup" severance agreements, thanks largely to the folks who would be most alarmed about granting them: top execs. So-called "golden parachutes" have spread quickly since they first showed up in executive compensation in the early 1980s, and thousands of managers now have them. About one-quarter of some 641 members of the Society of Human Resources Management, which represents some 65,000 HR professionals, responded in a recent survey that the companies they work for negotiate golden parachutes.

The percentage is much higher at the top companies that make up the Standard & Poor's 500-stock index, says Bill Hollett, vice-president and senior consultant at outplacement firm Drake Beam Morin. Middle managers have less luck lining up such deals. Still, adding one part precedent to three parts fear of the unemployment line has seen demands for such treatment working their way down the chain of command. "It has gone down the ranks a bit," Hollett says. "We're seeing silver parachutes and bronze parachutes."

Up-front requests for severance packages reflect another, more worrisome trend: the growing cynicism of America's workforce. What else can you call it when job-hunters are planning for their dismissal even before they accept a new gig? The TrueCareers survey found that 40% of respondents research a company's severance and outplacement policies before they apply.

A HARD LESSON LEARNED. Mike Mullarkey, CEO of ecruiter.com, an Internet recruiter that works with some 2,800 companies on a regular basis, says he's hearing from clients that new hires' demands for guaranteed severance are on the upswing. "The concept of lifetime employment is gone," says Mullarkey. "I think negotiating severance packages up front will become more commonplace as more employees who have been cycled out of the workforce come back in."

The volatile labor market is the main reason some 59% of the TrueCareers respondents said they want up-front agreements. Another 18% said they are learned their lesson after past layoffs for which they were unprepared financially. The going rate for severance is about two weeks' pay for every year of service, but policies vary widely from company to company, Caggiano says. Of course, the closer a company gets to real trouble or bankruptcy, the less it will probably shell out in severance to laid off employees.

Even at companies that are stingy with severance, Mullarkey says, would-be employees can always ask for guarantees of other assistance, such as outplacement services and extended health-insurance coverage. Caggiano adds that it's smart to discuss all the options before taking a position, if only to gauge a company's willingness to put more on the table.

EXPENSIVE EXITS. A job seeker in a tough employment market will be less likely to snub an offer simply because the company doesn't have a good exit package. But, Mullarkey notes, sensible companies will remain sensitive to the needs of the quality employees they want to attract -- and that could mean offering attractive severance. "Someday, there will be an employee shortage again," Caggiano predicts. "And companies will want to have lots of ways to get good candidates in."

Of course, using up-front promises of severance to do so could present employers with an even more formidable challenge down the road: making sure their businesses remain strong enough so they don't have to fire employees -- and kick off a bunch of high-cost parting handshakes. By Eric Wahlgren in New York


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