Why Competitive Severance Pay is Critical to Employer Brands
Whether layoffs are in your plans or not, it’s vital to review severance pay policies to ensure they support both your employees and your brand. Check out new data from LHH’s benchmark study.
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For CEOs and CHROs, offering a competitive severance pay package is a key factor in safeguarding your company’s reputation during challenging times such as layoffs or restructuring. While the decision to let people go is often necessary for business survival, the way organizations handle these transitions has the potential to protect or harm the employer’s brand.
If you’re a leader, well-structured severance benefits policies show you care about your employees and send a positive message to those who stay, potential future hires, and even your customers. In this article, we’ll explore how competitive severance pay packages provide opportunities to protect your employer brand and preserve your company’s market position.
Unless noted, data in this article is from LHH’s Severance and Separation Benefits 2024 Report.
What is Severance Pay?
Severance pay is a set of benefits offered to employees who are terminated through layoffs, redundancies, re-organizations, or reductions in force. This may include a lump-sum payment, continued health insurance, bonuses, and sometimes outplacement services to help them find new employment.
Why is this important? Severance packages help laid-off employees transition smoothly while protecting the company from potential legal claims or negative publicity. When done right, severance shows that your company values its employees—even when parting ways.
According to our benchmark study, 90% of surveyed companies across the US and Canada offer severance pay.
How Severance Packages Impact Your Brand
The way you treat employees during layoffs can significantly affect your employer brand. When companies handle layoffs poorly, word spreads quickly, especially in the age of social media. Employees, customers, and the public notice how a company manages difficult situations, and that can either build or destroy your reputation.
Offering a fair and competitive severance package shows your company takes responsibility and cares about the well-being of its employees. It helps maintain trust with your remaining staff, who are often concerned about their own job security, and reassures future talent that your company treats people with respect—even during tough times.
On top of that, employees who leave on good terms are more likely to speak positively about your company, reducing negative reviews and public relations risks. This can strengthen your company’s standing in the market and make it easier to attract top talent in the future.
What Makes a Severance Package Competitive?
So, what makes a severance package competitive? It’s more than just offering a paycheck after someone leaves. A competitive severance package includes several elements that show your company is serious about supporting employees through transitions.
1. Fair compensation
Providing fair and industry-standard compensation is key. This includes considering the employee’s length of service, position, and market value when deciding on the severance pay.
According to LHH research, in the last three years, 70% of organizations across the US and Canada have made their severance benefits more generous.
Related: LHH’s 2025 Salary Guide breaks down compensation ranges by company size, practice areas, and regions.
2. Additional support
Many companies stand out by offering extra support like outplacement services to help laid-off employees find new jobs faster. Mental health resources or counseling can also help employees cope with the stress of losing their job.
Related: LHH is a global leader in outplacement services, helping nearly 1.4 million individuals transition to new roles and even careers in the last three years. Services are tailored to your needs and include a variety of resources, from tech tools to caring, empathetic, and experienced career coaches.
3. Flexibility
Some companies offer flexible options for severance packages, such as allowing employees to choose between a lump-sum payment or continued salary and benefits for a certain period. Flexibility in health insurance coverage is also a significant factor, especially for employees with families, disabilities, or chronic conditions.
By offering these types of benefits, companies can ensure they are competitive with other employers, showing they value both current and future employees.
The Risks of Not Offering a Good Severance Package
What happens when a company doesn't offer a strong severance package? The risks can be significant.
Brand damage
Employees talk, and news about poorly managed layoffs travels fast. This can hurt your reputation and employer brand, making it harder to attract top talent in the future. Candidates may hesitate to join a company known for cutting corners when it comes to severance.
Legal issues
Failing to offer a fair severance package or properly following local labor laws can lead to lawsuits, which can be costly and time-consuming. In addition to the financial impact, legal battles often result in negative publicity, damaging the company’s image further.
Ultimately, saving money on severance in the short term can lead to bigger costs in the long run, both financially and to your reputation.
How to Structure a Severance Package That Supports Your Brand
Don’t worry. It doesn’t have to be difficult to create a severance pay policy aligned with your brand values. Here’s how to ensure your package is both competitive and protective of your employer brand:
Benchmark against industry standards
First, research what other companies in your industry are offering in terms of severance. A package that is competitive within your sector will reflect positively on your company’s reputation.
Download new benchmark data in LHH’s Severance and Separation Benefits 2024 Report
Consult legal and HR teams
Second, make sure your package complies with all legal requirements and aligns with best practices in your industry. Consulting with experts is a short-term expense to avoid long-term costly mistakes.
Communicate clearly and transparently
Third, during layoffs, communication is key. Be clear about the reasons for layoffs, how the severance package was designed, and what support is available to employees. This transparency helps maintain trust with both laid-off employees and those who remain.
These are tough conversations to have but handling them with empathy is the best way. Make every effort to keep a positive relationship with your employees. When you treat departing employees well, it helps remaining employees stay engaged instead of looking for the exit themselves.
Related: How to Conduct Layoff Meetings Compassionately
Documenting severance policies has become standard practice for US organizations increasing from 70% in 2017, to 84% in 2020, to 97% in 2024. Canadian employers have a little catching up to do, sitting at 84% today.
More than half, or 56% of respondents across both countries have a specific written document while 41% maintain general written guidelines.
Most respondents, or 67%, said they communicate severance policies to employees through a supervisor or manager. Other channels include the employee handbook (65%), a company meeting (62%), online resources (61%), and outside consultants (31%).
Conclusion – Severance Pay is an Opportunity to Live Your Core Values and Pay it Forward
By following these recommendations, you can design a severance package to help your employees transition smoothly while strengthening your company’s reputation as a fair and responsible employer.
Remember, competitive severance packages are not just about managing financial liabilities; they are also crucial for protecting your employer brand during layoffs.
A well-structured package shows your company cares about its employees, even during tough times, and aspires to preserve trust among current employees, potential hires, and the broader market.
After all, when things improve, perhaps you’ll want to employ former employees again, or “boomerangs.” They maintain a lot of institutional knowledge and reduce onboarding or ramp up time. Regardless, a fair and equitable severance package makes it more likely former employees will be advocates for your company, instead of the opposite.
If your company is considering layoffs, now is the time to review your severance policy to ensure it supports both your employees and your brand. By offering a thoughtful, competitive package, you can safeguard your reputation and position your company for future success.
When you’re ready, reach out to talk to an LHH expert about our career transition and outplacement services. Combining experienced job coaches with loads of resources – live and tech-based, LHH has enabled candidates to re-enter the workforce 69% faster than the US average. We help HR leaders, CEOs, and procurement teams find the solution 83% of companies believe is important to prepare impacted employees for career transition.