Thursday, December 6, 2007
Corporate America and George Bush have a lot in common. The little guy is merely currency to be used and then forgotten. Bush used them when he got re-elected, yet he's turning his back on them now. Corporate America uses workers' skills until they aren't need any longer and then sends them on their way.
It is time for workers to be insured against what is now becoming the liklihood of being fired for no cause. Workers have insisted on having access to disability insurance, and the average worker now has access to group long term disability. And the government has even carved out a tax advantage for those poor souls who find themselves in the position of having to file a claim for and collect disability...no federal income tax on their benefits as long as the worked was W2'd the premium amount. So the precedent is there...corporations and government providing an insured safety net for workers who lose their jobs because of accident or illness (not their fault). So, what's so different about being fired just because the corporation has decided it just doesn't need you any more (not your fault)? Not much as far as I am concerned.
It's time to press hard for severance insurance. Talk to your HR department. E-mail your Congressman and your Senator. E-mail Senator Kennedy at www.kennedy.gov and ask him as the ranking member of the Committee on Health, Education, Labor and Pensions what he thinks.
Saturday, December 1, 2007
Wednesday, November 28, 2007
Tuesday, November 20, 2007
If nothing else, the severance insurance guys have got themselves on the map. So whyt haven't we heard, or better yet why can't I find anything material about it other than on their website? Maybe the reason it is flying under the radar is that corporations are using their captives as a way of securing the insurance so it doesn't hit the obvious radar screens. I'll bet I'm pretty close on that one...like I have been on a few other things.
Good on me! The problem is I still haven't found a job and that sucks.
Tuesday, November 13, 2007
The one thing that I do have a clue about is this economy is in free fall (whether acknowledged by the pundits, or not) and going to generate a whole lot of folks who get fired. Whether caused by the global economy, the declining dollar, outsourcing, technology...you name it, real full time jobs held by real people are at risk.
I've talked about the similarities with disability insurance. The most obvious similarity is that whether injured, ill or fired they all have lost their jobs through no fault of their own. The disabled have all sorts of options. I still can't figure out why the displaced have none.
Monday, November 5, 2007
Stick with me, and I'll figure out how to best explain how it works to you all.
What's really interesting to me is that there doesn't seem to be a lot of discussion beyond the reality that banks are taking hits to their earnings and will probably take more. No one seems to be focused on the overall impact that the increased number of foreclosed houses is going to have on the real estate market and the prices that these houses are going to have to be listed for in order to get them off the banks' balance sheets. It's already happening. My daughter pointed out a house over the weekend in one of suburban Boston's tonier areas that was on the market for $659k. A year ago that house would have been on the market for something above $850.
I've got to think that recession follows, and when that happens more jobs are going to be lost.
Thursday, November 1, 2007
I guess "ever" is now synonymous with 30 years, because here we are. 50 bucks a barrel is a joke. Singapore's market closed this morning at over $96 a barrel. And yet nobody is talking about the impact this is going to have on inflation in the US. Since the price of oil is denominated in US dollars, and the value of the dollar against other currencies is weak, other countries aren't going to feel the pain the way we are. So what does that say? It says to me that the cost of US made goods is going to inflate. It says that foreign made goods will be even more competitive in the US than they already are. It says that a recession is just around the corner. It says that more US jobs are going to be lost not to outsourcing but to our inability to compete in a global market. AND NOBODY IS TALKING ABOUT INFLATION!! The only possible reason is that the really smart economists realize the extent of the problem for mortgage lenders and the fact that 2008 is going to put real meaning behind OREO (other real estate owned in the parlance of the banks). Do you suppose that significant deflation in the housing market is what is driving the economists' silence in inflation? Could be.
The proof of things beginning to unravel is what I've written about over the last couple of days. Merrill Lynch and Bank of America thinning their ranks (there's the finance side) and this morning Chrysler (the manufacturing side) drops the bomb that they're going to thin their ranks by 12,000!
It's clear that these job reductions are just the beginning. The way I see it is that the time is now for SEVERANCE INSURANCE. It would benefit the workers by giving them a more secure source of post employment benefits. It would benefit the corporations because it is cheaper than the way they fund severance now.
We all need to get on the bandwagon. These severance insurance guys are on the right track...in my humble opinion.
Monday, October 29, 2007
In an earlier blog I queried the work force as to why they weren't rising up and making their voices heard. Well, duh! They're financially strapped. They're alone. They're scared. The last thing that there going to do is (in their minds) make a bad thing worse. It's almost like they assume there's a blackball system out there.
Well, hang on folks. willy has an idea. It's not insurance, but it is a legal way to engineer severance packages to make them last longer. They will still pay out the equivalent of a worker's take home salary. The big deal is I can cause those payments to last longer. I'm going to call it ENGINEERED SEVERANCE. I can use the leverage the severance insurance guys to save money for the corporations and use it to make severance benefits last longer.
Son of a gun if the old boy (that be me, willy) hasn't really figured out something that isn't complicated, isn't a tax deal, isn't plowing new ground and really works. It's amazing how being unemployed can work to your benefit...once you're no longer pissed off at the dolts that fired you. Hang in there with me. I'll lay this all out for you over the next few blogs.
Sunday, October 28, 2007
On October 24th the AP reported that Merrill was taking a $7.9 BILLION writedown on their sub prime mortgage portfolio. Bloomberg confirmed the AP's reporting but said the writedown would be $8.4 BILLION. What's a half a billion dollars among friends? Is Merrill's problem so big that a half a billion is a rounding error? And what did this all lead to?...the biggest quarterly loss in Merrill's history. Do they really think that laying off 3,400 workers will solve billions of dollars of writedowns? Or as a trial balloon floated less than a week before their earnings announcement would soften the blow on Wall Street? Give me a break. Once again workers are the expendable currency for corporate growth.
And how does management position themselves after they make these announcements? They "come clean" and say it was bad judgment and weak risk management strategies, careful to avoid saying that it was their BAD JUDGMENT. Whatever happened to accountability? Whatever happened to credibility? How stupid do they think we all are? Why aren't the shareholders (along with the regulators) banging at Merrill's doors? And why aren't the workers who are getting fired rising up and refusing to sign those general releases that the tough guys in HR make them sign in order to get their severance? Ooops, we know the answer there.
MERRILL LYNCH (and many of its Wall Street counterparts) ARE OUT OF CONTROL! And everybody is losing. What a shame that what was an admired symbol of of all that is good with capitalism has been reduced to a pile of its own excrement...from bull to bullshit. Somebody should write a book with that title.
Wednesday, October 24, 2007
Friday, October 19, 2007
I'm just beginning to think that the severance insurance guys might be onto something and that maybe they are being driven by the reality that severance has become a separation bonus and that corporations need to wake up and realize that they're getting hosed.
Thursday, October 18, 2007
The FAQ's page also sort of answers the question "why would a corporation buy severance insurance?" The answers make it pretty clear as to where these guys' heads are. Reference to "improved returns on equity" would seem to say that these guys are focusing on private equity, the M&A universe and major activist investors. The use of "improved returns on capital" would seem to say that publicly held companies are on its radar screen. That seems to be confirmed by reference to "smoothing earnings".
I can figure out the attraction for corporations. That's pretty simple. Severance insurance saves money. But I'm still struggling with what the benefits are to the displaced worker and what would get Human Resource executives comfortable with a change in severance policy.
As I've said before the severance insurance guys are obviously not stupid, so I suspect they've got their arms around the worker benefit issue. It's probably pretty obvious, but I'm just a little slow in seeing it.
Wednesday, October 17, 2007
I guess you could take the position that the corporation saves money up front and the worker has his/her severance benefit controlled, so (s)he doesn't get a lump sum and blow it all at once. Wow, that sure gives new meaning to equality.
Struggling to be less cynical, which ain't easy for me, I suppose I could take the position (as I have on occassion before) that there's not a whole lot different between losing your job because of an illness or injury and being eligible for disability, and losing your job because the corporation just doesn't need you anymore and being eligible for severance insurance (disemployment) as a result. They sort of both take care of you, while you're not working.
But how similar are they? Managed disability insurance is a reality. Do you suppose the quants behind severanceinsurance.com are thinking along the lines of managed severance insurance? That would certainly fit with my concept of "service severance".
Thursday, October 11, 2007
The introduction of this website, if nothing else, confirms my suspicion that someone is out there who happens to think that severance insurance is an economic (and possibly human) option to current severance funding practice. It also confirms through its content that I was right; whoever is doing it has the attention of some of the big boys in the insurance world.
My read is that the people behind this website know what they're doing. They don't tell you who they are. They don't name a broker. They don't name a carrier. They don't want to...nor do they need to. They're probably letting the big boys do their blocking and tackling.
The fact that they don't even try to brand severance insurance, underscores their cocky ass attitude and their sophistication. They obviously know that their chances for succesful branding (albeit not under their name) are far more likely, quickly and profitably to occur if the major players in the insurance universe establish severance insurance as a different way for large corporations to deal with how to fund severance. And after all, if they're nothing more than the brains behind the concept, why would they want to create what already exists on the distribution and risk taking sides...and then compete against them?
This is all really starting to get interesting. I've got my suspicions who the players are, but before I open my mouth and get my butt in trouble, I think I'll make sure I know what I'm talking about.
Tuesday, September 25, 2007
1. The percentage of unemployed workers who go back to work within five weeks
What's really interesting to me is comparing this data with the average unemployment duration as reported by the BLS. It clearly demonstrates the arbitrage that exists between average duration and the percentage of unemployed workers who get re-employed within the period defined by the duration data. No rocket science invoilved here. Insurers can clearly see that the odds are in their favor.
Monday, September 24, 2007
It sure as hell has got to be ineffective, because nobody seems to know about them except for a few high placed finance executives in a few Fortune 200 companies. Give me a few more days, and I should have the facts straight.
Monday, September 3, 2007
I'm trying to figure out how to include some graphs from the Bureau of Labor Statistics. They go back to 1948 and show the cumulative month by month data for four categories of unemployment duration:
What is interesting are the trends shown in these graphs. Fewer people are getting back to work in less than 5 weeks. The range of those who go back to work between 5 and 14 weeks has narrowed. The number of workers who are taking from 15 to 26 weeks to get back to work is growing, as is the number who takes more than 26 weeks. What I'm learning here is that the trends are not only against the workers trying to find new jobs but also against the state governments whose unemployment trusts are paying out unemployment insurance and corporate America that is finding premiums on state unemployment insurance increasing. The residual impact on Federal programs has to mirror this data, so it would seem.
Is the reason that unemployment duration is increasing because (i) there are more workers to employ (estimated 140 million today) or (ii) that rather than being retrained in place workers are being fired, thrown into the "system", trying to get re-trained and then getting re-employed?
Somebody besides me needs to be thinking about this.
If you want to see these graphs before I figure out how to include them:
- Go to http://www.bls.gov/
- Click on "Get Detailed Statistics"
- Click on "Schdeule A"
- Click Unemployment by Duration
- Bring up data
- Set time frame to 1948 through 2007
- Click on "Include Graphs"
- You should now be able to look at the graphs
So, as I suggested a few sentences ago, ask yourself how much of that sleuthing is actually being done by the corporations who are the end users of the skills? Some, I'm sure...but probably no where near as much as should be done. Wow! Maybe I've just stumbled on a new and credible reason for HR to exist...something that they could do that would actually render direct value to shareholders. There I go again...my cynical view of HR. My apologies to those of you who hang out in that space. You can tell. I've been burned.
My thinking (rambling?) on all of this was prompted by reading a review in yesterday's NY Times www.nyt.com by Stephen Kotkin of Robert Reich's new book, "Supercapitalism". It's interesting to me that Reich has the word "capital" imbedded in his title, because evidently he spends a whole lot of pages talking about labor, not surprising for Clinton's former Secretary of Labor. I guess he differentiates between capital and labor. Maybe he doesn't. I'm going to have to read the book.
What is really interesting to me is that I have taken the position more than once that corporate executives in America treat labor as capital. They accumulate it and spend it. Until I read Reich's book I can't tell whether Reich agrees. He certainly spends a lot of time on the imbalance of CEO/worker compensation. He suggests that the CEO compensation package should bear some relation to workers' total compensation....hmmmm, return on...human capital? Interestingly, he also suggests that CEO's could devote more of their "considerable talents" to raising the skills of loyal workers. Interesting thought!
Question: What percentage of a displaced group of workers from a corporation would that corporation want to keep if those people could be given the right skills? If there is even one, why wouldn't it make economic sense (it certainly would make human and social sense) to allocate the dollars that were going to be paid out in severance to retraining. If the corporation were into instant gratification, this wouldn't work, but if they weren't, it actually might work and actually position the corporation as a socially responsible employer.
- Labor is capital
- That could change if corporations were more progressive and re-trained the current workforce as a result of internal "future skill studies"
- Re-training could be funded through the re-allocation of severance dollars
- Corporations would build more loyal workforces
- Productivity would increase
- Quality would improve
- Credit markets would be less pressured during times of substantial worker displacement
- Federal/state programs for the unemployed would be less pressured
Tuesday, August 28, 2007
In my last blog I kind of drew the conclusion that the obvious source would be the brokers. In thinking that through some more, if severance insurance is geared towards large corporations, then I would think the large brokers would be the likely suspects. I'm talking about the Marsh's and AON's of the world. They are the one's with the existing client relationships among the Fortune 200.
So...keep the faith. I'll keep looking. I'm getting more convinced that there is a move afoot, albeit quiet, to introduce severance insurance. I'm just curious enough (and unemployed enough) to have the interest and time to stay on this.
Thursday, August 23, 2007
I am becoming convinced that there is something going on out there in this space. I'm not so sure what's taking so long, but where there's smoke, there's fire...and I believe there is plenty of smoke out there.
I'm going to turn my research towards trying to sleuth out what is going on. Back to the Callen patent as a starting point.
I'll be back...hopefully with some concrete information.
Wednesday, August 22, 2007
- Outplacement firms...they like the system just the way it is, because large corporations turn to them to provide post-employment support. Why mess with what works (for them)?
- Academics...believe the current system is broken but beyond that diagnosis they have not come up with any concrete ideas for a new system/method
- Insurance companies...other than the AIG www.aig.com rumor, nothing else has turned up that would confirm any insurance company (good or bad) has a severance insurance product. They seem to be mired in the "adverse selection" bog.
- Insurance brokers...My sense is that the Marsh's of the world www.marsh.com are always looking for new product. But that doesn't mean they are capable or interested in developing one.
- Insurance consultants...Is it their job to diagnose problems (kind of like the academics), to solve problems (kind of like investment bankers) or both? My sense is they are diagnosticians not problem solvers. See www.hewitt.com or www.mercer.com
- Politicians...With all the talk about the middle class being left behind, about mortgage foreclosures, etc. I'm kind of surprised that both sides of the aisel haven't focused on this issue. Not one of the serious candidates has anything remotely close to restructuring job loss benefits on their radar screens/web sites.
- Job Boards...The Monsters www.monster.com of the world are too focused on their own business model to meddle in another arena.
- Investment Bankers...You'd think that the folks responsible for creating financial solutions and effecting all of the major merger and acquisition activity would have quantified the amount of money allocated to workforce restructuring in these deals and at least inquired/explored as to whether there were any alternative strategies available. I guess they rely on the brokers to give them a heads up.
- Private Equity...If there was ever a natural fit, I guess this would be it. They are focused on returns on invested equity and the timeline to effect their exit strategy. Severance Insurance could play a significant roll here. Again, I guess they rely on the brokers to give them a heads up.
- Corporate Executives...They rely on their risk managers (who rely on their brokers) and their human resource executives (who seem to always prefer not rocking the boat). If those executives aren't feeding senior management the right information, then nothing is going to change.
So, who cares (other than me)? I don't think anyone...EXCEPT THE POOR SOULS WHO HAVE BEEN FIRED!! And they don't carry any weight. Maybe they should organize? I've suggested that before.
Tuesday, August 21, 2007
Their lack of attention to the issue is probably driven by the same reason that mine was...it simply wasn't on their radar screen. A little bit surprising since their client bases have displaced tens of thousands of employees over the last eight to ten years. But their business model had nothing to do with funding benefits, so I guess it's not so surprising. As I understand it, they position themselves between the displacing corporation and displaced employee to provide the employee with what their industry deems as post-employment support, i.e., developing job search skills.
If that's the case, their business certainly doesn't focus on the mechanisms of funding severance nor does it focus on actually being accountable for finding displaced workers new jobs.
So they certainly can't be accused of ignoring severance. It's just not on their bandwidth. It just comes along with the displaced workers who cycle through their systems.
I'm beginning to come to the conclusion that if there is someone out there in the severance insurance space, they don't have a lot of company.
Tuesday, August 14, 2007
As a matter of fact, the relevant literature goes back to 1996 when a guy named George E. Rejda (V.J. Skutt Distinguished Professor of Insurance at the University of Nebraska) wrote a paper, UNEMPLOYMENT COMPENSATION: A PROPOSAL FOR AN OPTIONAL SYSTEM OF SELF-INSURANCE. I quote from the abstract, "The author believes state unemployment compensation programs are inefficient public monopolies that are not subject to competition."
Now admittedly George was coming from a slightly different direction, but his premise was identical to mine. I quote further from his Abstarct, "As a result (of providing an alternative), the cost of providing benefits to unemployed workers may be reduced for many employers..."
There is another paper written in 2005 by Donald O. Parsons from Department of Economics at George Washington University entitled, BENEFIT GENEROSITY IN VOLUNTARY SEVERANCE PLANS: THE U.S. EXPERIENCE. What is interesting about this paper is that it cites studies done by Right and Lee Hecht Harrison that basically confirm the formulaic approach to severance plan benefits. The paper further posits (at least as I read it) that voluntary programs would (i) end up costing more, "induce firing costs" and (ii) be less generous, "benefit generosity is likely to be limited". Well, give the guy some credit, at least he's got his fingers on the right places to look, if you're a corporation trying to save money. But his conclusion is weighed down by what I would call the typical excuses for why severance funding can't be done (i) differently, (ii) fairly and (iii) more economically. He is basically saying that a different kind of severance would cost more and provide lower benefits. How creative!
Severance Insurance can be real. What I now know is that there are people out there working on an alternative, e.g., the Callen patent. What I don't know is who are they (other than Callen)?
I know I'm not alone. I've just got to find the players and bring their ideas to the surface.
Friday, August 10, 2007
- Stabalize Insurance Budgets
- Reduce Insurance Admin Costs
- Negotiation Tool
- Utilize Own Experience
- Premium Flexibility
- Policy Terms
- Increased Claims Control
- Recapture Underwriting Profits
- Accept Greater Deductibles
- Access to Reinsurance Markets
- Customized Coverage
- Underwrite Exposed Risks
- Enhance Loss Prevention
- Profit Center
After looking at this list, the conclusion is pretty obvious. Severance Insurance fits the "captive model" about as well (if not better than) any other cover currently offered by captives.
I'm beginning to get pretty convinced that if that Callen patent really does what I think it's trying to do, then whether it's an independent insurer or a captive insurer, severance insurance may, in fact, really be a reality out there. Unknown. Flying beneath the radar. But a reality. I'll continue to dig.
Wednesday, August 8, 2007
There are plenty of companies out there with self-insuring cultures who have captives. Why wouldn't they want to end-run the traditional insurance channels, insure through their captive and reinsure that portion of the risk they wanted to cede? I suspect they would.
- Make money
- Benefit shareholders
- Establish itself on the cutting edge of a new kind of "socially responsible" insurance
- Improve reputation
- Reduce UI claims by reducing unemployment duration, i.e. getting people back to work more quickly
Interesting to note here that service severance has potential quantifiable value not only to displaced workers and their former employers but also to the state UI trusts, which in turn should realize savings through the reduction in benefits paid and, as a result, be able to lower premiums and benefit the corporations that are paying those premiums; a rather circular set of relationships.
Tuesday, August 7, 2007
- Could provide less expensive funding alternative for the costs associated with severance
- Savings could fund a variety of initiatives from R&D to retained workforce benefi
- Could provide the ability to smooth the costs associated with severance over a period of years
- Could position the company as one with a social conscience, assuming they included service severance in their plan
- Could position the company as a better place to work...for prospective employees
- Could level the playing field for all employees...a known benefit plan with equal treatment for all
- It could guarantee the severance benefit to the displaced worker
- It could provide a stronger guarantee than the company could provide
- It could smooth out the severance benefit, i.e., no lump sum payment but payments made on a pay period basis
- It could extend the benefit period
- It could provide a tax advantage to the benefits
- It could help access "working fringe benefits"
- It could provide ancillary benefits, e.g., "service severance"
This is pretty interesting. I'll take a look at them one by one.
Monday, August 6, 2007
So, if their perspective is one of guardian, then severance insurance needs to bring more to the table than "just" an alternative funding strategy that happens to have the potential to save substantial sums of money. Enter what I have called in earlier blogs "service severance".
If service severance, as I see it, can be justified to HR folks as a far superior and constructive approach than outplacement, then maybe they begin to grab onto the idea that there might be a better mousetrap in the world of severance. What am I saying here? I am saying that corporations need to go the extra mile and add service severance to financial severance, if for no other reason than to get the buy-in of their own HR executives.
I'm going to spend some time to better flesh out my ideas for service severance in future blogs.
Sunday, August 5, 2007
My point here is that there seems to be significant data available to an underwriter to understand the myriad of individual risks inherent in underwriting severance insurance. The challenge is automating its retrieval and layering it on a real workforce/employee base.
Saturday, August 4, 2007
What does all of this mean to an insurance underwriter? I really don't know, but I suspect that s/he would conclude that an underwriting would have to be done on an individual by individual basis. That's pretty cumbersome stuff and could be enough of a hurdle for the insurance companies to back away from even trying to offer severance insurance.
But where there's smoke, there's usually fire, and there is clearly buzz out there that some insurance company is writing severance insurance or at least some form of it. I still haven't found it, and I don't know whether it is for corporations or employees. I'll keep looking.
Friday, August 3, 2007
I've got to think that the insurance industry hasn't missed this, if they are really considering putting a product on the market (or they already have). Their actuaries are certainly looking for predictability and fifty years of this data certainly would show them that. However, don't think the adverse selection proiblem is solved. There's a lot more drilling to do.
But for every one of these answers (and there are plenty more, I'm sure), I suspect the insurers would say there is an offsetting risk. And I'm sure they will hang their hats on the "adverse selection/moral hazard" argument, that those who would buy the coverage would be those who controlled the risk. For instance, a corporation would only buy the coverage, if they knew they were going to need it, or an individual would only buy a retail version of severance insurance if s/he thought they were at risk for getting fired.
No question, if there really is an insurance product out there, it has to deal successfully with this issue. The question is how could that happen. The answer...I don't know.
I'll keep digging.
My vision of service severance is very different. First, it's actually accountable to its client(s). If they don't help you find a new job, they don't get paid. Second, they actually become an advocate for the displaced worker. Third, they have the ability to reach deep into the world of available jobs and match up opportunities that actually fit...your age, your skills, your experience, your location, etc..
I really think there's a void in this space, and without a whole lot of imagination I think we are beginning to see that there is a lot of "loose" money kicking around in the world of severance that could be better applied to not only provide a financial bridge during unemployment but also provide active advocacy with a clear goal...finding a new job.
Let me know what you think.
Thursday, August 2, 2007
Why not take some of the financial leverage and use it to help workers get back to work? It would benfit the worker, the insurer and the displacing corporation.
Pretty simple, eh? You'd think so. But I'm still blown away by the fact that corporate America isn't pursuing this idea.
Anybody got any thoughts on why?
That would seem to confirm that there are at least two ways for a company/insurer to save money on severance. I've got to think there are more.
What blows my mind is why severance insurance (if, in fact, it does exist) isn't on corporate America's radar screen.
I'll do some more hom,ework and circle back.
Tuesday, July 31, 2007
I've got to research whether there is anything like that for any other benefit. Do you suppose it (or anything like it) is translatable to any other kind of job loss benefit?
Monday, July 30, 2007
Well, that got me to researching long term disability insurance and better understanding what makes it tick. I now better understand how it is structured, but in doing the research I found that long term disability benefits are offset by any Social Security or Workmens Compensation benefits received. "Offset" ??? If that's the precedent, then why couldn't/shouldn't severance be offset by state unemployment benefits? Possibly more savings for an insurer? Any legal issues?
So how big a deal would that be. In looking up state unemployment insurance benefits, I found that the range of weekly benefits is from $133 in Puerto Rico to $575 in Massachusetts. And these amounts can grow considerably based on marital status, dependents, etc. So say someone is getting 10 weeks of severan ce. The potential savings with an offset would be $1,330 to $5,750 per person. That's real money.
Now I'm understanding why insurance companies are sniffing around this. The savings are really there, so it would seem.
Sunday, July 29, 2007
There was a 2005 paper written by Donald O. Parsons from George Washington University's Department of Economics that seems to have done a pretty good job researching the minimums and maximums of corporate generosity when it comes to severance. He found:
1. Exempt workers severance benefits ranged from 4 to 28 weeks.
2. Executive workers severance benefits ranged from 9 to 33 weeks.
3. Senior executive workers severance benefits ranged from 12 to 37 weeks.
4. Officers severance benefits ranged from 13 to 39 weeks.
So, it's pretty clear that there does exist a duration arbitrage that an insurance company could absorb a portion of the risk on.
As an example the Bureau of Labor Statistics data for the month of June states that the median weeks unemployed for US workers over the age of 16 is 6.2 weeks. So, if the average benefit formula provides one week of benefit for every year of tenure, then there exists a positive potential arbitrage for every worker who has been employed by the same company for over 6.2 years. This leads to the question of what is the average tenure of the American workforce?
So, it's possible that the insurance companies see a natural arbitrage here and are willing to bite off a piece of it in the form of duration risk?
How big do you think that arbitrage is...days? weeks?
Monday, July 23, 2007
The question is, are there any potential savings here? I went to the Bureau of Labor Statistics website and researched what the average duration of unemployment was. Interestingly, they not only keep average data monthly (and have since 1948) but they also keep median data monthly.
So, my conclusion is pretty clear here; if the severance duration awarded an individual displaced worker exceeds the national unemployment duration average or median, there just might be suuficiently significant savings on which an insurance company might build a risk absorbtion model. But that's too simple, because I'll bet when you drill down in the data, you'll find significant variables like age, sex, ethnicity, academic achievement, job description, job tenure, salary range, etc.
Does severance insurance really take into account all of this and still allow an insurance company to quantify the duration risk, such that they can make an informed decision as to whether or not they should offer coverage to a company? There's another issue. What's a company but a group of workers (I've refrred to them quite often as currency). Could an underwriter really accurately underwrite a company on an individual by individual basis and come up with a premium that accurately reflected the sum of the individual risks?
This whole discussion brings up another hurdle. In order to capture potential duration savings, the severance benefit would have to be paid on a pay period basis and stop (like disability) when the diplaced worker went back to work. How would that change cut it with the human resources crowd?
Wednesday, July 18, 2007
So I figured I better do a little more research and inquire of a number of human resource specialists about their feelings towards such a change of approach in funding severance. Virtually unanimously, they were more focused on this approach "not taking anything away from" displaced employees. Almost all of them were concerned that a change would require them to do more work. Hey guys, who's this about, you or the displaced worker?!! But back to the real question...at whose expense?? Clearly, these HR folks are asking that question.
Until I sleuth out the real structure of the insurance coverage, I really can't definitively answer that question. Probably the best way to get a handle on it in the absence of that information would be to analyze the current structure of all post employment compensation; severance, accumulated vacation time, accumulated sick time and state unemployment insurance benefits. By better understanding how much theses benefits can deliver, we can probably put our finger on the likely sources of savings that the insurance companies are incorporating in their coverages.
So, the next blog will begin to model/quantify/discuss those sources of post employment compensation with a view to trying to identify the likely sources of savings.
It appears that the software uses a three dimensional risk isolation approach and limits the coverage in any given cell (specific group of employees as determined by wage, tenure and job description) to a calculated number of employees (as a percentage of the total number of employees in that cell). This would appear to be the controlling strategy for dealing with adverse selection. Under the approach used in the two patents, it would appear that a corporation couldn't elect to fire just those employees who would be the most expensive to provide severance to, because they would only be covered for a certain number/percentage of employees who fit that description, e.g., those who earned over $150,000.
Tuesday, July 17, 2007
I'm hoping that my poking around will turn up the actual structure of this new product, and then we can discuss its specific merits (or lack thereof). In the meantime the patents I mentioned do give some sense of how the insurance policy is structured, so maybe we can start there.
More on what the patents disclose later.
Monday, July 16, 2007
Severance Insurance is an alternative way for large companies to fund the costs associated with severance.
Salary Protection Insurance is the same thing but with the interests of the displaced employees as its priority.
Sunday, July 15, 2007
Interestingly enough there is a patented underwriting method for something called salary protection insurance that claims to deal successfully with the adverse selection issue. Go look up Patent Nos. 6,332,125 B1 and 6,944,597 B2.
So if the concern for adverse selection is removed, why isn't salary protection insurance available? Geeez, it would be just like disability insurance...someone loses their job through no fault of their own...they get sick...they get injured...or they get fired/displaced/let go/replaced/outsourced for no cause and their income is maintained net of Workman's Compensation, Social Security or in the case of Salary Protection Insurance, net of state unemployment insurance benefits. Why shouldn't every worker in the United States have this coverage...as a benefit? The company pays for it (or some major chunk of it), just like they do disability insurance. Then, if a worker gets fired, it's an insurance policy that takes over and maintains the worker's income for some period of time. But maybe it should be exactly like disability insurance. If the worker pays the premium and gets fired, the benefit payments are tax free. That would be excellent!
I've heard AIG has been looking at this coverage. Don't know for sure, but they are a company that has always been on the cutting edge of new transfer-of-risk solutions, so it wouldn't surprise me.
Friday, July 13, 2007
Now there is an insurance policy that corporations can buy to cover their expenses related to severance and the word is that it not only smooths demand on free cash flow but also saves the corporation big bucks.
So if that's the case, there must be enough financial leverage inside the policy to pay a return to the insurance company, its broker, deliver savings to the corporation and also pay the corporation's severance obligations. Why couldn't that financial horsepower be shared and advantage both the displaced employee and the corporation?
This whole idea of severance insurance is a whole lot like short and long term disability. All provide salary protection because of an involuntary loss of income; non-causal loss of job v. an accident, injury or illness.
The only question is why has it taken so long for severance insurance to be offered?
Tuesday, July 10, 2007
Tuesday, July 3, 2007
Wednesday, June 27, 2007
Service severance is the answer to the reality that financial severance pays the bills (for a while), but service severance finds a new job. All financial severance is...is a stop gap measure that prolongs the inevitable; financial severance is likely to run out before you find a new job.
The Bureau of Labor Statistics would probably disagree pointing out that statistically unemployment duration isn't significantly greater today than it was yesterday, last month, last year. The problem with their data is that it doesn't measure the quality of a new job. Is it at the same salary as the lost job? Is it on the same shift as the last job? Is it within the same hourly commute as your last job on a similar mode of transportation.
What this discussion begins to open up is the real underlying value of service severance...to manage what I would call job quality.
Monday, June 25, 2007
Shareholders have been very successful in organizing and pushing their agendas on management. Politicians from both sides of the aisle have helped them. Why shouldn't we workers do the same? No we wouldn't be just another union-like organization. We will be focused only on severance benefits...both financial and non-financial.
I've got some ideas, but I can't fight the fight alone.
Friday, June 22, 2007
Can severance really be made to last longer? I think so. Can it be "customized" to meet the needs of the people who have been fired? I think so. Are there other services that the company that is doing the firing can provide ? I think so.
Wednesday, June 20, 2007
Realistically, how long is that? Well, you can go to the Bureau of labor Statistics and research unemployment duration at http://www.bls.gov/. They have monthly "UD" data going back to 1946. The good news is that this data will give you the average and median unemployment duration. The bad news is that it isn't specific to age, sex, ethnicity, geography, industry, job description, tenure, salary range, etc.. But at least it can you give you some sense of what to expect. Once you've got an idea of where unemployment duration is, do the simple arithmetic. How long will your severance support you? If that is less than the average unemployment duration, you've got a problem. The reality is that your severance won't support you long enough to allow you to find a new job.
Then what to do? Is there a way to make severance last longer? Think financial engineering. Think creatively. Think legally. Think ethically. The answer is "yes", and if you bear with me a few more weeks, I'll introduce you to a company that has developed a patented underwriting template for the insurance industry to underwrite a transfer-of-risk alternative to funding the costs associated with severance. The cool thing is that there is now a way to take that system and turn it to your advantage. The same company has developed that, as well. Stay tuned. There just may be light at the end of the tunnel.
- Go through your checkbook for the last month and add up every fixed obligation you paid like mortgage or rent, car payments, credit card bills, tuition payments and the like.
- Then add up what you spent on food
- How much did you spend on imbedded annual expenses like insurances (all of them!), utilities, etc.
- Add up the paychecks that you deposited in your account.
- Is there a positive balance? I hope so, but likely not.
- Now go to your employee handbook and look up their severance plan (sometimes called a separation plan).
- How many weeks of benefit are you eligible for?
- Do you think you could find a job in that period?
- If not, YOU ARE IN TROUBLE.
- No more paychecks/benefit checks.
- The bills keep coming
- You don't have to be a rocket scientist to know what starts to happen next.
Is there a system or product or service or strategy that could help you? I believe so.
Thursday, June 14, 2007
My mind is wandering...collective advocacy, collective wisdom, collective bargaining, mutual benefit. Remember, we are talking about service severance. What is the best approach to supporting displaced workers? Is there a way to harness the collective horsepower of the unemployed?
Is there something to be learned from the mutual insurance company approach, i.e., the policyholders are the stockholders. They have a stake in the product delivered and the success of it.
If employers are looking at us as expendible currency, then what's wrong with involving ourselves in the underlying value of that currency. It would seem to me that collectively we have a lot more to gain than trying to go it alone.
Do me a favor and think on this for a couple of days while I go out on a contract job and try to put a few bucks in my pocket.
The Monster's of the world try to help you out and let you post your resume on their site, so that hiring companies can punch in a few key words and if you're lucky enough to have one of them in your resume, you might make it through to where someone actually reads your resume. Again, kind of like buying a lottery ticket.
Maybe the old concept of employment company isn't so broken. Outdated, certainly...but not broken. What is missing from my point of view is real accountability and advocacy. Do you suppose there's a chance something like that could be created using the power of the internet?
Maybe it's a hybrid high tech/low tech kind of business model.
I've got some ideas along those lines. Think "collective advocacy".
Wednesday, June 13, 2007
Do you suppose there's a way to turn the tables on your looking for a job?
We'll talk in the morning.
Tuesday, June 12, 2007
Cash severance. What are the options?
- All at once...lump sum?
- Same as paycheck before you got fired...for as long as it lasts?
- Spread out over a period of time that you determine...so that you know you have cash to pay your bills?
- Paid directly to a training program/university, so you can upgrade your skills?
- Paid directly to your mortgage, credit card, tuition payments, car payments, child support?
These are the ones I can think of right off the top of my head. How say you?
Monday, June 11, 2007
And then what about the services provided by the New Severance? What could a company possibly do or pay to have done that would provide the greatest benefit to those people it just fired.
Think about it. We'll talk tomorrow.
What do you suppose "New Severance" should include?
Sunday, June 10, 2007
Where am I going with these ramblings? I'll tell you where. There's got to be a better way to deal with the loss of your job than receiving what we know as severance. Believe me, I'm dealing with the problem. Just like another over 1.25 million professional, administrative and white collar workers with three years of job tenure with the same employer, I'm out of work, earning nothing and picking up part time work just to make ends meet. Sure as hell my former employer doesn't care. There's only two people that care...my wife and me.
In the perfect world what should the best severance alternative be? Maybe one that gets Google's attention, so it can stop pushing movies and executive benefits to the surface. PEOPLE need real resources. It's time to focus on those. People (the real workers...the middle class) are the backbone of this country and they are being used as currency for corporate growth, fired when it fits the priorities of the corpoartion, given severance to shut them up and ushered out the door with a hollow, "We're terribly sorry, but your services are no longer needed. Sign here and we'll give you a check."
It short severance needs to be more than just money. It needs to provide some income while you find a new job AND it helps you find that new job. The new severance I am thinking about needs to address BOTH the human and capital sides of human capital.
Thursday, June 7, 2007
If you agree with me, good for you, but what does that get you...ABSOLUTELY NOWHERE! It's time to take control of your own destiny. It is FACT (assuming you fit within the averages)that you are going to have over three jobs in your lifetime. It is FACT that the majority of you will not voluntarily leave those jobs. You'll get fired. Oh excuse me; in HR-speak you get displaced.
The way I see it, in order to be displaced someone has to push you aside. Remember, corporations hire skills and fire people. What's going to push you aside is new expendible currency (people) that better fits the immediate needs of the employer.
The corporations are looking out for themselves. Who's looking out for the people?
I wonder how the displaced Citibank people are feeling. Anybody looking out for them?
Wednesday, June 6, 2007
The interesting dichotomy is that the HR department in the same company would tell you that severance is a reward for being a long and loyal employee. Hey guys, it can't be both.
Let's go back to the whole human capital thing. Flesh or money? We know it's the money. So why can't HR departments shoot straight? They've lost the argument that they represent the human interest (flesh) side. Yet they have absolutely nothing to contribute to the dialogue. They pay lip service to displaced employees, yet don't do jack to provide a constructive alternative severance benefit package that would actually help displaced employees.
Tuesday, June 5, 2007
Since most workers are no longer represented by unions, who's looking out for them? Who's making sure that severance packages are intelligent solutions to the reality of job loss? Absolutely no one. The American worker is on his/her own. Figure it out, folks. It's reality. There's nobody out there on your side...EXCEPT YOU.
But there should be. Let me know what you think is/would be your greatest priority if you lost your job. Income? Assistance finding a new job? Access to upgrading your skill set? What? I'm interested.
Gives new meaning to the mantra that companies hire skills and fire people. Clearly, the corporate priority is skills, not people.
Is that right? Is that ethical? Is that compassionate? Should it be the American way? No, to all of these. But it is REALITY.
Monday, June 4, 2007
So, OK, we're money; we're currency; sort of a commodity, I guess. Where does that lead? I guess it means we're expendable. That's comforting. Especially, when you've got a mortgage, tution payments, a credit card bill, etc. etc.
Think on it. We'll talk some more tomorrow morning.