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Blog Post | Beyond Data

Managing severance pay and practices in challenging times

Findings from Willis Towers Watson’s 2020 Severance Policies and Practices Survey – Asia Pacific

Compensation Strategy & Design
Beyond Data|COVID 19 Coronavirus

By Edward Hsu | April 22, 2020

During the current COVID-19 crisis, many businesses are facing difficult decisions for their workforce.

In the eye of the COVID-19 storm, many organisations are faced with difficult decisions to keep their business going. Cost management and business continuity are understandably front of mind. During these times of economic instability, employers need to be ready to respond quickly to stay competitive. For many organisations, headcount reduction is a last resort. There are a number of actions considered before redundancy. Determining severance pay for involuntary termination of employment can be a challenging process, particularly in the dynamic and diverse region of Asia Pacific.

Unsurprisingly, severance can have a demoralising effect on the workforce — for those who remain, noting that the employer observes fair practices and treats staff fairly can be crucial. The 2020 Severance Policies and Practices Survey – Asia Pacific was conducted at the height of the COVID-19 outbreak for many markets in Asia. Its insights can help organisations benchmark their severance policies with prevalent market practices to ensure their packages are equitable and competitive.

Key findings include:

  • 27% of organisations have a hiring freeze in place.
  • 26% of those without a hiring freeze in place are considering alternatives to redundancy.
  • 48% follow the statutory formula for calculating severance pay.
  • 77% of organisations that offer above statutory severance pay do so to maintain morale for remaining employees.
  • 52% offer outplacement support – the most common being individual counselling.
  • 84% have a formal policy or set of principles for handling redundancy.

Cost management alternatives

With many businesses urgently looking at cost management strategies, the survey found that redundancies and workforce reductions are not the first actions that organisations necessarily choose to take. Common alternatives include hiring freezes, furloughs, reduction in benefits and limits on overtime or other expenses. Some organisations are also considering to enact early retirement programs. Among the 73% of organisations that do not have a hiring freeze in place, 26% would plan to implement other cost reduction measures before redundancy.

Chart showing alternatives to redundancy, with hiring freeze at 63%, cost reduction at 54% and early retirement or mutual separation 32%.
Figure 1. Alternative measures to redundancy planned by organisations without a hiring freeze currently in place.

A key workforce strategy

Establishing severance policies and practices has an important role in workforce strategy, enabling organisations to demonstrate care for current employees and maintain their reputation and security for future hires. Severance is a difficult action for employers and much more difficult on employees, being well prepared and securing stable outcomes can benefit business continuity.

Driven by employee experience

Our survey found that demonstrating care and concern for the welfare of continuing staff is the key reason that some organisations opt for higher severance than the legal minimum. Of the 52% choosing to provide employees above the local statutory requirements, 77% do so to maintain employee morale.

Chart showing reasons for offering above statutory requirements, with employee concern and morale at 77%, minimise disputes at 69% and business reputation at 49%.
Figure 2. Reasons why employers provide severance pay above the legal minimum.

To further support employees, more than half of organisations in Asia Pacific offer outplacement services, with individual counselling the most common type of support provided at 39%, followed by individual and group counselling at 31%.

52%
of organisations offer outplacement support – the most common being individual counselling

Preparing for the worst

If predictions of a severe economic slowdown are accurate, HR professionals can expect the unfortunate likelihood of involuntary attrition and formulation of severance packages. Organisations that prepare their severance policies and practices will be better positioned to protect, regenerate and sustain their human capital through the challenging period ahead.

Find out more or order the full summary or reports by country.


About the survey

The 2020 Severance Policy and Practices Survey was conducted online in February 2020 and received a total of 700 sets of responses from 23 markets across Asia Pacific.

Author

Leader, Rewards Data and Software – Asia Pacific

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