Workforce Changes and Canadian Severance Trends in 2015

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By Peter Saulnier, CHRP and Vincent Chow

What workforce changes are Canadian organizations planning for 2015 and how will they manage them?

Surveying Severance and Change
To answer that question, Logan HR conducted a national survey of workforce changes and severance practices in the fall of 2014—the only study of its kind to provide information specific to Canada. A total of 290 organizations participated across Canada, with all industries and regions represented. Small, medium and large organizations were included, as represented by number of employees:

Bottom Line - Pie Chart - Peter and VincentLump Sums and Stability
Survey results showed that 87 per cent of participants experienced about the same or higher numbers of terminations in the past 12 months than in the previous year, and that they anticipate the same or slightly fewer employee terminations in the coming 12 months.  These results suggest an increasingly stable workforce environment in the coming year.

Results also seem to indicate a changing format for severance pay, with more prevalence of lump sum severance today, rather than salary continuance.

Top Employers Terminate Differently
One quarter of those surveyed reported having received ‘Top Employer’ recognition within the previous two years. Survey results indicated several things that top employers did differently in their severance and termination practices, including:

  • Being more likely to have a detailed project plan for large downsizings;
  • Using their career transition provider to assist with planning downsizings; and
  • Following an established process for individual terminations.

As well, top employers were more likely to include benefits continuation and career transition services as part of the overall severance arrangements.  These respondents were also more likely to include non-compete and non-solicit clauses in their severance agreements.

Organizational Change Driving Force
As aforementioned, the number of employee terminations over the past 12 months is the same as or higher than last year for most organizations in Canada (87 per cent).  These results suggest that economic recovery has not yet fully taken hold.

However, employers were slightly more optimistic for the future with 22 per cent indicating lower or significantly lower terminations in the coming 12 months.  What appears to be driving employee terminations is organization structural change (59 per cent), followed closely by individual performance (58 per cent).  It is possible that the latter is under-reported, as low-performing employees are often the first to be selected as part of larger downsizing initiatives.

When asked for the main cause of any expected change in the number of employee terminations over the next 12 months, organizational change (52 per cent) was cited as the top reason, with individual performance (46 per cent) and financial reasons (30 per cent) coming in second and third.

Participants indicated that the ideal amount of time to plan an individual termination was approximately a week.  Of course, this much advance warning is not always possible, so HR departments need to be ready with established processes and templates to prepare for a termination meeting on much shorter notice.

Facilitating Larger Downsizings
For larger downsizings, 88 per cent of the organizations surveyed established a project plan ahead of time—with most using a detailed plan, including assignment of responsibilities, communications planning, etc.  Participants indicated that the ideal amount of time to plan a downsizing was a month or more.

Common reasons cited or not being able to conduct sufficient project planning for larger downsizings included: not enough time, HR informed too late in the project, too many priorities and timing issues. Interestingly, 20 per cent of respondents cited inexperienced management as a reason for lack of planning.

Many organizations utilize external support to help plan a downsizing.  Two thirds of organizations use career transition support to assist with the planning, while approximately the same number use legal counsel in the planning phase.

Planning for a Downsizing

  1. Departure Considerations:  Will employees be leaving immediately, or will they be given any working notice?
  2. Severance & Documentation:  Lump sum severance or salary continuance?  Letters and release need to be prepared well ahead of time.
  3. Logistics:  This includes location, day, and time of notification; collecting company property; returning personal belongings; and helping employees to leave with dignity.
  4. Security: Will network access be disabled immediately? Are there security fobs, passwords, etc to be collected?
  5. Career Transition:  Should be onsite to help employees deal with the news, and understand their next steps.
  6. Communications:  Colleagues of impacted employees should be told in person whenever possible.  Other employees and some external stakeholders, like key customers, may need to be informed.

Surveying Severance Payments
When determining severance payments, participants reported length of service, job level and age of the employee as the top criteria used to calculate payments.  See the table below for reported severance payment structures.  (Note that figures may add up to more than 100 per cent as some organizations reported more than one practice).

When asked how severance payments were structured, the following approaches were cited:

Bottom Line -Severance Chart - Peter and Vincent

Ninety-four per cent of those surveyed required employees to sign a formal release in order to receive their full severance, with the most common time given to sign the release being up to one week (59 per cent)—13 per cent gave more than a week and 12 per cent less than a week, while six per cent did not specify.

Supporting Career Transition
The majority of participants provide Career Transition support (outplacement) for their terminated employees.  The top 3 reasons for providing career transition services are:

  • It’s the right thing to do (67 per cent);
  • For terminated employees to received job search skills—to land another job faster (59 per cent); and
  • To send a positive message to remaining employees (48 per cent).

Other common reasons included legal risk mitigation, and protecting the organization’s brand image.

Career transition services are included in the majority of termination packages, with approximately three quarters of participating organizations including these services at the professional and manager levels.  While the programs are typically smaller for unionized employees, many organizations include career transition services for these individuals as well.

Addressing Career Transition Variables
The top criteria used in deciding the type or length of career transition program provided are: job level (66 per cent), length of service (51 per cent), age of the employee (43 per cent), and expected difficulty of job search (41 per cent).

For professional and management positions, the most common career transition program provided to terminated employees is three months.  For executive positions, many companies typically provide programs of six months or more—often up to 12 months or beyond for senior executives.

When choosing a career transition provider, the quality of consultants (95 per cent), quick response time (91 per cent), and customizable program features (87 per cent) were the most important criteria for participating organizations.

While 94 per cent of participating organizations require terminated employees to sign a release in order to receive their full severance, only a very small number require terminated employees to sign the release in order to start their career transition services.  This is likely because there are obvious advantages to assisting terminated individuals with a successful job search as soon as possible, allowing them to put their energy towards their future, rather than dwelling on the past.

Peter Saulnier, CHRP (Peter.Saulnier@LoganHR.com) and Vincent Chow (Vincent.Chow@LoganHR.com) are partners with Logan HR, a consulting firm specializing in career transition (outplacement), compensation, coaching, and leadership development.

(PeopleTalk Winter 2014)

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