Severance packages vary. But any help at all is often more than employers are required to give

August 1, 2002

5 Min Read
Got Severance? Count Your Blessings

Jobs are being cut nearly every day from the telecom sector, but some have the comfort of padding their fall with a big pile of cash.

When Marconi PLC (Nasdaq/London: MONI) lays off workers, those with a VP-level of seniority qualify for more than six months of their base salary after the day they're fired, according to a document obtained by Light Reading. The document, passed on to Light Reading from a source close to the company, details the telecom equipment maker's involuntary severance policy for U.S. workers as of July 15.

As it announced in January, Marconi is cutting 4,000 jobs worldwide, including 1,000 in the U.S. Most of those losing jobs, however, aren't as fortunate as the VPs, who receive 28 weeks of base pay plus an additional week of pay for each year they've worked at Marconi.

Director-level employees get 18 weeks of their salary paid, plus a week of pay per year of time served. Other managers start with 12 weeks of salary, and all other salaried personnel get four, plus a week of pay per year of time served. Personnel at director level and above also get three months of assistance with an outplacement firm to either help them find new jobs or train for other industries. Marconi employees below the director level get between one week and one month of outplacement help.

Company-paid healthcare coverage for furloughed Marconi workers varies widely, but the general rule, according to the company plan, is that Marconi pays for a minimum of eight weeks of coverage after an employee is fired.

"Marconi is very committed to its employees -- they are the greatest resource we have," says Jim Blew, a Marconi spokesman. "When business conditions require us to reduce our workforce, we make every effort to treat our employees in a professional and fair manner. [We] strive to offer all the support reasonably possible to help our employees make their transition from Marconi to their next career."

Other telecom equipment companies have similar plans in place, but few care to discuss the details on the record. Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Corp. (NYSE/Toronto: NT) both provide for a set number of weeks of severance pay based on seniority, plus additional pay per year of time served. Many vendors also factor in age and will put employees who are old enough onto a retirement plan.

In Lucent's case, a spokesman says the most severance given out is 30 weeks for 25 or more years of service. This general rule, however, does not apply to officers of the company, who have often negotiated individual employment contracts. Also, Lucent pays health insurance costs for its managers for up to six months, based on years of service, the spokesman says.

Nortel's typical severance package includes 60 days notice plus four weeks of pay and an additional week of pay per each year of service, according to a source close to the company. It also provides healthcare coverage for the entire severance period, the source says.

Again, though, the general rule only applies to those employees who don't have specific contracts. Exempt from such rules are executives such as former Nortel CEO John Roth, who is being paid a higher salary during his first year away from Nortel than he ever made when he actually ran the company (see Nortel's Roth Rakes It In).

Alcatel SA (NYSE: ALA; Paris: CGEP:PA) is a bit different, in that it treats employees that arrived through acquisitions according to whatever their original employer's policy was.

As a rule, Alcatel doesn't disclose details regarding its severance plan. However, a public filing on its most recent layoff showed that it gave employees at least nine weeks of severance pay and 90 days of health benefits in lieu of advanced notice.

Cisco Systems Inc. (Nasdaq: CSCO) has only endured one layoff, and it gave all the employees it let go six months of severance pay and six months of company-paid health insurance, a Cisco spokeswoman says.

After layoffs, Lucent will employ 45,000 by the end of this year and Nortel will have 42,000 on payroll by September. Cisco now employs about 36,000 after cutting thousands of jobs last spring. Alcatel says it will employ 70,000 in all its subsidiaries worldwide by the end of next year.

Across all industries, large layoffs continue with regularity. There were 1,557 mass layoffs in June 2002, involving 159,352 workers, according to the U.S. Department of Labor's Bureau of Labor Statistics. (The Bureau counts a "mass layoff" as any job cut involving at least 50 people from the same place that have, for the first time, filed for unemployment insurance benefits during a given month.) From January through June 2002, there were more than 1.06 million new filings for unemployment insurance, the Bureau says.

Interestingly, while some telecom industry giants are more generous than others, employees of financially strained telecom startups are often left with little or nothing if their company shuts down or cuts staff (see BBO Files for Bankruptcy Protection).

Legal experts say the law doesn't require companies to do much for at-will employees. "In most cases, there is no legal requirement of severance, absent an express corporate policy or practice, or a written contract of employment," says Beth Schroeder, a partner in the Employment and Labor Law Department of Silver & Freedman.

There are some legal measures in place to ease the sting of a massive layoff. "Most large employers grant one week's pay for each year of service -- but this is customary practice, not legal requirement," says Neil Martin, a partner at Gardere Wynne Sewell LLP. "The Worker Adjustment and Retraining Notification Act (WARN), however, does require 60 days notice or pay in lieu of notice where a mass layoff occurs."

Even WARN doesn't shield startup employees, whose companies often employ fewer than 100 people. Also, it is possible that larger companies can work through WARN's loopholes if they are hit with "unforeseeable business circumstances" such as a large service provider or business partner going bankrupt.

The bottom line: Even if some management severance packages seem lopsided when compared to the rank and file, the harsh reality of large layoffs deems that any amount of warning or severance could and should be counted as a blessing.

— Phil Harvey, Senior Editor, Light Reading

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