Crm Severance Pay Group 6

7/31/2019 Crm Severance Pay Group 6

1/22

Amity Business School

Ruhi B-31

Shobhna B-32

Nikita B-33

Harpreet B-34

Bhumika B-35Gazia B-37


2/22


WHAT IS SEVERANCE PAY

Severance pay refers to an amount paid to anemployee upon dismissal or discharge fromemployment.

It is a one time payment when terminating anemployee. Severance pay programs exist in mostcountries around the world.

It is a compensation offered to an employeeleaving a company, which may include extendedbenefits, such as health care, and job placement

assistance or resources


3/22



4/22



5/22

Amity Business SchoolWHERE DOES SEVERANCE PAY

COME IN COMPENSATION


6/22


6

SUPPLEMENTAL

PAY BENEFITS

UNEMPLOYMENTINSURANCE

SICKLEAVE

SEVERANCEPAY

VACATIONSAND

HOLIDAYS

PARENTALLEAVE

SUPPLEMENTALUNEMPLOYMENT

BENEFITS

WHERE DOES SEVERANCE PAY

COME IN COMPENSATION


7/22

Amity Business SchoolORIGIN OF SEVERANCE PAY

There were three key events that influenced the

introduction of severance pay programs across the

world namely :

The creation of broader labour codes-

Early industrial restructuring and spells of high-

level unemployment in the interwar period, and

The expansion of the welfare state after WW II.


8/22

Amity Business SchoolTYPES OF SEVERANCE PAYS

VOLUNTARY RETIREMENT SCHEME

It is a generous, tax-free severance payment to persuade theemployees to voluntarily retire from the company. It is alsoknown as 'Golden Handshake' as it is the golden route to

retrenchment.

GRATUITY

Gratuity is a lump sum payment made to the employees basedon the duration of their total service. The gratuity benefit ispayable on cessation of employment (either by resignation,death, retirement or termination, etc) by taking the last drawnsalary as the basis for the calculation.


9/22

Amity Business SchoolCALCULATIONSIn India, severance pay is calculated as per law as

15 days of basic pay for every completed year ofservice.

For senior members or those who

have contributed significantly and to ensure theirgoodwill, you could do 15 days of gross pay(instead of basic) for every completed yearof service.


10/22


ADVANTAGES OF SEVERANCE PAY

Benefits of Severance pay include:

A severance package for employees is a fair and just solution to

reduce the employee cost burden on the company.

Employer's Option: Unless there is a provision in theemployment contract that outlines a specific severancearrangement, offering a severance package is done at the

company's option. It can help to soften the blow of beingterminated and reduce the likelihood of the employeethreatening the safety of the rest of the staff

Good Will: Employees who are offered severance packages

can often be a source of positive referrals for the company. Ifthe termination is explained in a professional manner andfollowed with a severance package, it can prevent theemployee from trying to ruin the company's public reputation

with clients, vendors, investors and other business partners.


11/22


It can enhance the company's image as a fair employer. Aseverance package is a way of telling the employees that the

company cares for its people..

DISADVANTAGES OF SEVERANCE PAY: Financial Difficulty: A severance arrangement that is in

writing in employment contracts can sometimes make abad financial situation worse for a struggling company. Ifthe company is trying to reduce payroll to avoidbankruptcy, the severance agreements may make layoffs apoor short-term financial solution.


12/22


Administrative Costs: The health and lifeinsurance benefits offered in a severance package,while mostly paid for by the terminated employee,

are still administered by the company. Thecompany bears the financial burden of processingpayments and administering insurance plans foremployees who are no longer with the

organization. This can become an issue withterminated employees who are late on paymentsor do not notify the company they intend to ceaseusing severance benefits.

DISADVANTAGES OF SEVERANCE PAY


13/22


ONE OF THE FIRST DOCUMENTED CASES OF THE USE

OF SEVERANCE PAY (1889)

Carl Zeiss, a famous German firm, was among the first

companies to provide employee benefits, such as PAIDVACATIONS,SICKNESS BENEFITS,PENSION FUND at the time

of dismissal.

The firm and worker both faced a challenge of establishing

long term employment relationship. The firms success depended on the implementation of highly

technical and continuous training, which in turn required a

long term relationship with employees. As Zeiss workers

were sought after by competitor firms and labor was

becoming more mobile, it made them more attractive to be

poached by other employers who might offer higher wage

and so the stability of a long term employment relationship

was threatened indeed.

But uncertainties in this new market also implied that Zeiss


14/22


So both sides were interested in future cooperation and

have incentives to terminate the relationshipopportunistically.

Thus the sole owner of the firm guaranteed social

obligations such as severance pay and pensions. The

pension fund helped commit Zeiss workers to the long term

employment relationship, especially as their pensions grew

the longer they remained employed with the firm (the Zeiss

pension fund grew almost tenfold between 1895 and

1905).

With severance pay equal to a half years salary, it alsoserved as a significant deterrent to firing workers, since the

costs incurred would be especially high for skilled workers

(with more experience).


15/22

Amity Business SchoolEXAMPLES OF COMPANY OFFERING

SEVERANCE PAY

Ford Motor Co, On Tue, Sep 25, 2012 whichexpects to lose more than $1 billion in Europe thisyear, is offering severance packages to "a fewhundred" white-collar European workers as theautomaker struggles to rein in costs amid plungingvehicle sales.

Co-CEOs of Wipro, GirishParanjpe and Suresh Vaswani,each received Rs 7 crore as theirgolden handshake.


16/22

Amity Business SchoolCEO HIRING: ITS ALL ABOUT SEVERANCE

PACKAGE

Severance packages, rarely discussed till recently, are now common

in pre-hire negotiations.

"The increased conversations around severance are a change of

business norms," says Purvi Sheth, CEO of executive search firm

Shilputsi Consultants.

A company recently offered six months' salary as severance paywhen it hired the top three executives for its Indian ITES subsidiary.

CEO of an Indian manufacturing company- "Severance may not be

the first thing to be discussed, but is an important element before

closure".

It made peace with a severance package equal to three months' pay

plus benefits , says Varda Pendse, director at Cerebrus Consultants,

an HR consultancy.


17/22



18/22

Amity Business SchoolSEVERANCE PAYS AROUND THE WORLD


19/22

Amity Business SchoolSEVERANCE PAYS AROUND THE WORLD

A lot depends onlevel of position,

years inorganization, sizeof organization,

budget and asometimes...how

badly the company

wants the persongone.


20/22


Hewlett-Packard's

former CEO MarkHurd is walking away

with severance andother grants worthan estimated $34.5milliona number

that could rise to

more than $40million, according tocompensation

experts.

Along with $12

million in cashseverance, Hurd getsto keep $8.9 million

in stock options,$12.7 million in

performance-basedstock units and, more

than $600,000 inrestricted stock

units.

AS ON AUGUST 2010-HIGHEST S.P PACKAGE


21/22

Amity Business SchoolCONCLUSION

To provide severance pay to departing employee is akindness on part of the employer , the departingemployee receives pay that will supplement his or herunemployment compensation and cushion his or her

standard of living while job searching.Since many times a persons employment is

terminated through circumstances external to theirwork, the provision of severance pay is a positive and

supportive gesture.


22/22


Crm Severance Pay Group 6

Documents