Laid-Off Workers Face Shrinking Severance Checks But Midsized Manufacturers Increase Their Hiring

The latest victims of corporate downsizings are finding their severance pay shrinking, but an increasing number of midsized companies are hiring from the ranks of displaced managers, according to separate studies released Monday.

With companies under pressure to squeeze more profits from smaller work forces as rising interest rates push up their borrowing costs, they responded in the first quarter by laying off more people and cutting severance pay, said a report by Challenger, Gray & Christmas Inc.

The severance period is the maximum time a laid-off employee continues to be paid, unless he finds another job. It has been shortening steadily since the median severance period peaked at 16.7 weeks in 1993, dropping to 12 weeks in the first quarter of this year, said the national outplacement firm. Median means half are more and half less.

“Creating higher and higher earnings becomes almost an addiction,” said James E. Challenger, a principal at Challenger, Gray. “The only way to do that is with higher productivity and intensive cost-cutting measures, including the use of non-cash benefits in severance packages.”

A company might, for example, give a discharged employee a company car or allow him to use it to find a new job, instead of cash severance.

There are exceptions, Challenger said. Some high-level executives can negotiate rich severance packages. The severance pay of unionized workers is often bargained into their labor contract.

Challenger said the shorter severance period in many cases encourages laid-off workers to find a job sooner. “If they get six weeks of severance pay,” Challenger said, “many will wait until five weeks (are over) to look for a job.”

Companies announced 168,695 layoffs in the first three months of 1996, up from 137,865 in the fourth quarter and 97,716 in the first quarter of 1995, according to the report. The first-quarter number was swollen by an announcement of plans to lay off 40,000 at AT&T.

Middle management positions have been among those bearing heavy cuts in the downsizings. A separate study by Grant Thornton LLP, the Chicago-based accounting and management subsidiary of Grant Thornton International, raised some hopes for those job seekers.

It said 30 percent of the 255 top manufacturing executives it surveyed by telephone plan to hire managers this year. Nearly half, or 46 percent, intend to create new full-time production jobs.

Software applications maker Iterated Systems has doubled its payroll in the past year and is still hiring, from “accounting to software engineers to academics to research scientists,” said Deborah Gable, vice president for human resources at the Atlanta-based company.

“With this phenomenon of the big companies downsizing or right-sizing, workers just don’t have that loyalty any more to a particular company. People want to be part of a company where they can make a contribution and be part of the success of that company,” Gable said.

Often, she said, smaller companies offer that opportunity whereas bigger companies do not.

Grant Thornton found that 60 percent of the firms it surveyed were optimistic about the U.S. economy, while 11 percent were pessimistic and 29 percent were uncertain.

Only 17 percent said the United States will enter a recession before the end of 1996, while 71 percent said it would not, and 12 percent were unsure.