Severance Insurance

Talk about closing the barn door after the horse is out! What about those millions of foreclosures that have already happened? What about those families? And oh by the way, Bush's plan completely locks out those folks who are already screwed and are running more than 30 days late now or have been more than 60 days late over the last year. What about those families? What this plan does is to give help to those who don't need the help (by virtue of their ability to stay on top of their exploding interest rate)? It's kind of like giving tax breaks to the top 10% income earners.

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.




willy

Severance Insurance

So, I'm spending my usual too many hours sleuthing out what I think is an intelligent approach to severance, when I come across a Stamford, CT based company called Transition Services, Inc. http://www.tsisolution.com/ . They position themselves as providers of "advanced severance management". Clearly, they are not in playing in the insurance space, but it is clear that they understand that there are ways to save on the costs associated with severance, using the same mechanisms that I have already identified. And oh by the way, their CEO is a guy with insurance background (AIG and CNA) and their COO comes out of the insurance brokerage universe (Marsh, Inc.) This all makes sense, because their parent company is an insurance company called RVI Guaranty Company. So, don't you just think they just might be "aware" of severance insurance...maybe even in bed with the severance insurance guys?


willy

Severance Plan...Severance Package

Give some thought to the terms severance plan and severance package. Who's plan? What package? It sure isn't the plan of the employee who just got fired. It's the plan the corporation has for buying off a fired employee's promise not to sue. The term severance package just goes to show that a corporation is trying to deal with their firing an employee with a neat and clean strategy, again to buy off the employee. If you think a corporation is doing it out of some sense of loyalty, you're either super crazy or super naive. Get with it folks, severance has nothing to do with taking care of an employee and everything to do with managing their reaction to getting fired.

Severance Insurance

It must mean something, because www.severanceinsurance.com is now in the top spot when you Google "severance insurance", and I'm pissed, because up until now good ol' willy has been up there. So who's looking at the site? It sure doesn't look particularly special. But it does make a point and get all of the information across. and given its position on Google more than a few people are looking at it.

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.

willy

Severance Insurance

Things are a shakin'! Word on the street is that the severance insurance guys are about to make some announcement. Big placement? Fresh capital? Strategic alliance? Kissing corportions off and casting their lot with the folks who have gotten fired? I haven't a clue. I guess we'll just have to wait and see.

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.

willy

Severance Insurance

On October 29th I got real cocky and started talking about what I called engineered severance. I acknowledged that it wasn't insurance. But what a weekend's worth of modeling has shown me is that I really can take most of the strategies that the insurance guys are using and use them to extend severance benefits...and not insignificantly. Rather than call it engineered severance which might freak soime people out, let's call it extended severance, because that is basically what it is.

Stick with me, and I'll figure out how to best explain how it works to you all.


willy

Severance Insurance

No question that Citi's and Merrill's CEO's deserve to lose their jobs. But what about the Boards of Directors? What were they doing. What reports were they reading? Why didn't they challenge management on the disproportionate portfolio growth in sub-prime mortgages?

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.


willy

Severance Insurance

Remember the good old times back in the 1970's when inflation was out of control? Do you remember what we were told was the driving force behind it? The cost of oil. And back in those days you were accused of smoking dope if you thought the price of oil would ever get to $50 a barrel...EVER!

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.

willy

Severance Insurance

Merrill Lynch wasn't alone last week. It sees the the investment banking crowd at Bank of America didn't quite do so well during third quarter, as in a 93% Q3 earnings free fall in that division. The result...3,ooo jobs are being cut. Wachovia is reported to be about to announce an overall 10% earnings drop. willy bets there might be a job or two that gets lost there.

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.

willy

Severance Insurance

On October 18th Merrill Lynch announced that it was going to lay off 3,400 workers, about 5% of its workforce. They stated that they were preparing for tougher times ahead and that this move could save them $500 million. I hope they fired those people quickly, because they announced really tougher times six days later!

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.



willy

Severance Insurance

That last blog sure was out of character for me! Can you believe it? I actually hypothesized on the funding of severance from the perspective of the corporation. So unlike me! Are the corporations going to see severance insurance (www.severanceinsurance.com) as an opportunity to do something new and innovative that actually benefits the shareholders? Are they going to jump on board the severance insurance band wagon and establish it as the severance funding paradigm? Or are they going to pass it by in the name of, "we have higher priorities." They better get on board or as I see it someone is going to figure out how to take the savings mechanisms used by severance insurance (they're not rocket science) and turn them around to the advantage of the fired worker. Now wouldn't that be interesting?

willy

Severance Insurance

Following up on my last blog which ended with my obvious confusion in trying to identify why severance insurance actually benefits fired workers, let me ask a pretty unpopular question. Is severance, as it is known today, what it was intended (and expected) to be? Or are fired workers getting a sweet deal simply because corporations are scared that if they don't give them what they want, they'll sue. I know I'm not so far off the mark here because most corporations require a worker who is eligible for severance to first sign a general release and waiver (so that they can't sue) before they actually get their severance. Have the lawyers driven severance away from what it was originally designed to do and turned it into a "give me what I want or I'm going to sue your ass" handout.

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.

willy

Severance Insurance

I find it interesting that http://www.severanceinsurance.com/ on its FAQ's page defines its target market as "Corporations in search of significant new cost efficiencies." Big whoop! Like what corporation isn't looking for new cost efficiencies. But these guys aren't all that stupid. You tell me what else new is there out there that can generate savings over current cost of 25% to 40%?

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.

willy

Severance Insurance

OK, it's time to be a cynic. Who me? The more time I spend on trying to figure out what is driving the heads behind the http://www.severanceinsurance.com/ website that has "magically" appeared, the more cynical I become. Give me a break...good for the company that is doing the firing and just as good for the poor SOB who gets fired. No way! The corporation saves money. The worker loses money. How does that translate into being good for both sides?
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".


willy

Severance Insurance

Geeeezus! Out of nowhere there has appeared within the last few days a new website called http://www.severanceinsurance.com/. Do you think this is just a little bit ironic that this has appeared 90 days or so after I started pushing on the whole concept of severance insurance?

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.

Stay tuned.

willy

Severance Insurance

Geeeez, you'd think I wouldn't be so inept, but believe it or not and thanks to some spade work by a very good friend (thank you Matt), I've finally learned how to show you the graphs that are generated by the Bureau of Labor Statistics for monthly unemployment duration statistics for the period 1948 to 2007. That's almost 59 years of monthly data. I'd say that is representative of reality. The graphs below (in order) show that history for:

1. The percentage of unemployed workers who go back to work within five weeks

2. The percentage of unemployed workers who go back to work within 5 to 14 weeks

3. The percentage of unemployed workers who go back to work within 15 to 26 weeks

4. The percentage of unemployed workers who go back to work in more than 27 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.

I'll dial into the average unemployment duration data in my next blog.

willy

Severance Insurance

It's only taken me three weeks, but I think I've finally found the source of severance insurance. I'm double checking now, but it looks like these guys (i) have a viable product. (ii)have been around for a number of years, (iii) have been playing with some of the big boys, (iv)but haven't met with significant success yet due to an ineffective distribution strategy.

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.

willy

Severance Insurance

Following up on my earlier blog about whether it would be cost effective for corporations to re-train obsolete workers rather than fire them, pay severance and hire new employees, the following data suggests that if the almost 60 year trend continues, the cost to corporate America, to state unemployment trusts, to the Federal Treasury is going to reach a tipping point. This all says to me that the current approach is broken and without a proactive effort to change the model, the future isn't very bright for anyone.

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

Interesting stuff.

willy

Severance Insurance

Let's start with the idea that companies hire skills and fire people. If there is any truth to this, that means that training new workers with "in demand" skills is going on virtually full time in order to keep the pipeline full, because we know that companies are hiring even as they are firing, but I sense it is going on outside the universe that requires the skills (more in a minute). Also, figuring out what those new skills are is pretty interesting challenge. But both (identifying new skills and training workers to them) are going on; think tanks, universities, community colleges, vo-tech programs, you name it. They're doin' (sounds like Bush) it, as are plenty of others.

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.

Some conclusions:

• 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

willy

Severance Insurance

I'm still trying to track down more concrete information on whether the Callen patent is in active use. I've had no success to date, but I'll keep trying.

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.

willy

Severance Insurance

Well, I think it's pretty clear. If corporate America or the world of private equity are going to hear about Severance Insurance, the trail is going to have to begin with a broker. The major brokers have the sophistication, credibility and relationships that are going to get Severance Insurance to become the new paradigm. It's a win/win/win situation. The broker benefits reputationally and financially by presenting a new and cutting edge cover. The insured ends up saving (theoretically) a bucket full of money. The displaced worker gets a guaranteed severance benefit.

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.

willy

Severance Insurance

The quick and easy answer is that nobody does. Otherwise there would be a severance insurance/severeance replacement product out there. But maybe that's a little harsh. In my blogs I've discussed the obvious potential reactionaries:

• 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.

willy

Severance Insurance

I believe I've developed a fairly strong case for the assumption that there is a reasonable consensus that the idea of severance insurance isn't so far-fetched. Then why has the outplacement world been so quiet? Are they worried about upsetting their apple cart? Do they prefer to fly under the radar? I don't think so. Just about every time an outplacement firm is quoted in a major publication, it's someone from Challenger Gray & Christmas...see http://www.challengergray.com/ or maybe it's the guys from Drake Beam Morin...see http://www.dbmcareerservices.com/.

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.

willy

Severance Insurance

I thought that maybe I was getting a little carried away with the whole concept of severance insurance (either financial or service) and decided to take a few days and poke around in academia to see if any smart academic type was out there thinking along the same lines. Guess what? There are.

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.

willy

Severance Insurance

There is a good list of the benefits of a captive in Jay Adkisson's "The Asset Protection Book". He lists the following benefits:

• 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.

willy

Severance Insurance

Why would corporations lay off duration risk/reward, if it had a captive insurance company? They probably shouldn't, if it is a risk they can get their arms around. In the post SOX era aren't corporations looking for real transfer of risk opportunities to better justify the existence of their captives? And wouldn't a natural be a risk that they could control...like severance insurance?

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.

willy

Severance Insurance

I suppose the answer here is obvious. If they do a good job underwriting, an insurance company could:

• Make money
• Benefit shareholders
• Establish itself on the cutting edge of a new kind of "socially responsible" insurance
• Improve reputation

willy

Severance Insurance

How could severance insurance benefit the state unemployment insurance trusts?

• 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.

Interesting.

willy

Severance Insurance

How could severance insurance benefit the employer?

• 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

willy

Severance Insurance

How could severance insurance benefit the displaced worker?

• 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"

Others?

willy

Severance Insurance

Literally, severance insurance would mean a guarantee to the beneficiary that s/he would receive severance. But when you really think about it, it's a whole lot more than that. It benefits the displaced worker (possibly in a variety of ways); it benefits the employer (possibly in a variety of ways); it benefits the state unemployment insurance trusts (possibly in a variety of ways); it even benefits the insurance industry (while not harming any other party). In my opinion the only possible downside to severance insurance is to the insurance company that poorly underwrites the risk (if, in fact, there really is a method out there that allows an insurer to underwrite the risk).

This is pretty interesting. I'll take a look at them one by one.

willy

Severance Insurance

Human resource folks aren't all that bad, in spite of my cynicism. They just need to be able to justify a change in strategy from their perspective. My experience is that HR talks one way to displaced employees and another way to retained employees. Fundamentally, I think they are intimidated by the potential power that a displaced employee has, so they tend to acquiesce to virtually any threat. On the other hand, their response to a disenfranchised retained worker might be along the lines of, "Just be happy you have a job." Many benefit vendors/consultants report that their overview of HR personnel is that they act as the self-appointed guardians of displaced employees and all the benefits that inure to them and struggle to see any positives in changes to those benefits.

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.

willy

Severance Insurance

If you go to the Bureau of Labor Statistics data, it is really easy to demonstrate that the duration of unemployment is directly related to industry. That's no big whoop, because we all know that there are cycles in every business. Take, for instance, the mortgage universe. Five years ago there weren't enough workers on the face of the earth to satisfy the industry's appetites for workers. Today, they're a dime a dozen. Another good example drills down one layer deeper...from industry to actual skill set; how about being a cobalt programmer pre 12/31/99 vs. post 12/31/99. Boom to bust. But often they're not that obvious. You need to drill sideways. Look at categories of jobs, and you will always find certain job descriptions that are like the kiss of death (in terms of how long it takes) when it comes time to finding a new job. An example would be a human resources middle management type. There are a lot of them out there in a market where there are fewer jobs available that match their skill set. Whoaa... "human resources" and "skill set" in the same sentence. Now that's a bit oxymoronic!! Sorry, my cynicism runneth over. I'm not disguising what I've been through very well, am I?

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.

willy

Severance Insurance

It's nice to have data that shows pretty significant predictability over a long period of time, but the problem is that when all the data is dumped into a bucket and the averages/medians are determined, they are just that...averages and medians. Just because a certain set of variables for one discrete group of workers matches another doesn't mean that there aren't huge anomalies. For instance, if I took the following variables (age, ethnicity, geographic location, number of dependents, academic achievement, work skill) and was able to show that the displacement characteristics were similar, I'll bet you the minute I then sorted by sex the similarity would erode.

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.

willy

Severance Insurance

One interesting fact that the Bureau of Labor Statistics data demonstrates that sort of offsets some of the adverse selection concern is that when you study the displacement history of the American workforce (age 25 through 54, both sexes, all ethnicities, in white collar/administrative/professional jobs across all industries, with three years or more of job tenure) over a long period of time (50 years), you'll see that the displacement rate as a percentage of the total workforce is amazingly flat...like close to a flat line around 1.67%. Even as the economy has seen wild swings in good times and bad, the departure from this average is not all that substantial. If you're interested, take a look at www.bls.gov and drill into the size of the workforce at any given point in time and then drill into the number of people displaced. Do that for as many years as you want, and you'll see what I mean.

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.

willy

Severance Insurance

Why would an insurance company want to offer severance insurance? And to balance out the discussion, why wouldn't an insurance company want to offer severance insurance? The answer to the first question is probably pretty simple...but also pretty naive. An insurance company would want to offer it, because it would be a new line of insurance, a new opportunity to improve returns on invested capital to benefit its shareholders, a new oportunity to differentiate itself from its competitors, a new opportunity to add a "short tail" product.

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.

willy

Severance Insurance

It would be pretty interesting to know how the average worker rated financial severance insurance vs. service severance insurance. My sense is that those who have gone through the drill and think that service severance is like outplacement would rate service severance pretty low. I'm not real objective on this subject because the outplacement "assistance" that I was given as a displaced senior executive was absolutely WORTHLESS. And to think my employer actually paid for it...scary! The fact that HR executives think it has value...even scarier!!

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.

willy

Severance Insurance

Just a thought...If we are beginning to prove that there is an underlying economic validity to the idea of an insurance company offering severance insurance (financial severance), then couldn't some of the underlying economics possibly be directed towards what I call service severance?

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?

willy

Severance Insurance

SUB Plans have been around since the mid 1950's. They are primarily used by heavily unionized industries with the auto industry leading the pack. There seems to be a consensus that the Ford plan is the gold standard. They find their origin the Tax Code under Section 501 (c)(17). There are over 100 private letter/revenuerulings supporting various aspects of SUB plans, including the fact that benefits paid out under this plan are not deemed "wages" for the purposes of FICA, FUTA, SUI and Medicare employment taxes.


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.

willy

Severance Insurance

I can't find any other employee benefit that gets the same kind of preferential treatment that long term disability does. But I did find that Ford Motor Co. has a thing called a SUB Plan which allows the benefits paid out under this program to not be subject to FICA taxes. It looks like that holds true for both the employee and the employer. Interesting!

I'll do some more hom,ework and circle back.

willy

Severance Insurance

With long term disability if you get W-2'd the premium (which basically means that you pay the pemium), any benefit you receive is not deemed "wages" for the purpose of federal income tax. It's not taxable! Wow!

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?

willy

Severance Insurance

It's been established (not yet quantified) that there are durational savings. Where else could there be savings? A number of blogs ago I asked the question, "If insurance companies can write disability insurance, why can't they write severance insurance?" Both illness/injury and getting fired result in the same thing...loss of income, and both happen involuntarily.

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.

willy

Severance Insurance

Ok, here's a little bit of insight as to how big an arbitrage (the difference between how long a severance benefit a displaced worker gets and when that displaced worker gets a new job) could exist.

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.

willy

Severance Insurance

Days or weeks? The classic answer is probably, "It depends." But depends on what? My guess is that since severance benefits are typically determined by the length of tenure an employee has, average employee tenure is probably one of the biggest factors. I'd expect that an old line company like P&G or IBM or ATT probably has pretty long average employee tenures, so their displaced employees probably receive a severance benefit that provides a big spread (arbitrage) between benefit duration and how long it takes their displaced employee to find a new job.

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?

willy

Severance Insurance

If there is money to be saved, because the formula used to calculate severance benefit duration generates a benefit duration that significantly exceeds average/median unemployment durations, who gets to save it? The corporation? No question here unless there really is insurance, in which case it's these savings that incent the insurance company to write the coverage in the first place.

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?

willy

Severance Insurance

Almost all of the severance programs that I have looked at work on the basis of a displaced worker receiving a certain number of days or weeks of severance for each year that they have worked for the company. For instance, if a company gives one week of severance for each year of tenure, the arithmetic is pretty easy...6 years of tenure gets 6 weeks of severance, where each week of severance equates to one week of pre-displacement salary.

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?



willy

Severance Insurance

I've talked a bit about Severance Insurance being a transfer-of-risk product for large corporations, say the Fortune 500. Clearly, it benefits the buyer (the corporation) by apparently saving them significant amounts of money. A couple of blogs ago I asked "at whose expense?".

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.

willy

Severance Insurance

I'm not particularly brilliant at understanding how patent language is constructed and after taking a look at the two patents for "Providing Termination Benefits for Employees" aka severance insurance, I'm not any more enlightened on how this insurance product is really structured. No great surprise there!

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.

willy

Severance Insurance...What is it?

As I said in last night's blog, there is an insurance product out there for corporations called Severance Insurance. Clearly, it is a new and innovative way of funding the costs associated with severance. But why would a corporation buy it? Is the corporate market the only market? What about private equity funds? What about its use in the merger and acquistion spectrum? What about for activist investors? Not yet knowing all the details of how the coverage is designed, I would expect that there are only two credible pitches for this coverage: (i) it can save significant money and (ii) it can smooth demand on cash flow! The question is, how much can it save and at what cost to whom? Being the cynic that I am, I could assume it takes from the worker in order to give to the employer, but maybe that's an unfair position. Until I find out more I'll withhold my cynical tendencies.

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.

willy

Severance Insurance/Salary Protection Insurance

I am getting somewhere with all of this. It turns out that there do exist transfer-of-risk solutions for severance. Here's what I've learned.

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.

willy

Severance Insurance

If insurance companies can write short and long term disability insurance, then why can't they write severance insurance? Their immediate response will be that they can't deal with something called adverse selection. What's that? It is the fact that if a corporation is the insured, they will only buy the insurance if they know they are going to need it. If the worker is the insured, he or she will only buy it, if they think they're going to get fired.

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.

willy

Severance Insurance

The traditional funding protocol for severance is pretty simple. The company writes the displaced employee a check in exchange for receiving a signed general release and waiver.
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?


willy

An Alternative Funding Strategy for Severance

The standard funding protocol for severance is that a corporation writes a check to the displaced employee. Evidently, there is now an insurance policy that

Salary Protection Insurance

Seriously, who's it for?

willy

Salary Protection Insurance

Word from a number of insurance markets is that there is such a beast. Who's the broker? How do I get it? Is it for me or for my employer (former)?

willy

Salary Protection Insurance

Do you think there could be such a thing? There is!

willy

Independence?

It's nice to celebrate our nation's independence, but when you think about it, what does that get us? A warm and fuzzy feeling? Niiiiice. But for those of us who have put in an entire career for some company only to be fired because we no longer fit, it doesn't mean jack! WE sure aren't independent. Independence needs to mean that we, the workers, have some control of our destiny. That doesn't mean letting some union represent us. It means standing up, being counted and representing ourselves. Until corporate America can be made to believe that the workers they seek are "collectively independent", we are captive to their whims and whimsies. Time to stand up folks. Organize ourselves. Don't rely on anyone to do it for us. Seek independence. SERVICE SEVERANCE MUST HAPPEN. There is a way!

willy

Mr. Gore, Maybe you'll listen

I'd like to go back to what I have defined as Service Severance (please see some of my earlier blogs). If financial severance needs to be bolstered by service severance, what do I mean by service severance?

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.

willy

Senators Clinton, Obama and Richardson Will You Listen?

What will it take to get your attention? As I have discussed in this blog more than once, American workers have been relegated to being the currency for growth for corporate America. They are acquired, spent and cast to the winds. There needs to be a better safety net placed underneath them. Severance, as we have all known it, just doesn't cut it any longer. Sure the financial benefits help, but it is real advocacy, new skill training and accountable assistance that they need the most.

willy

Taking Control

Given: Corporate management looks out for shareholders and themselves, not us. So it looks like those of us who are among the "displaced" need to get off our butts and organize...not just for the sake of collecting a large "membership" but also for the sake of prevailing on our collective wisdom to develop smarter, better, more "elastic" severance benefits...a kind of workers' cooperative for severance.

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.

willy

Elastic?

Time to start thinking...yeah, you too Citibank folks.

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.

willy

Elastic Severance

Following up on my blog from earlier today, my guess is that your imbedded overhead is pretty much fixed, as is your severance package. So the real challenge is making sure your severance can last long enough to allow you to find a new job.

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.

willy

Scary Thought!

Here's a little exercise for you to see just how exposed you and your family are to the whims of your employer's senior management.

• 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.

Collective Advocacy

Collective Advocacy = Collective Wisdom

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.

willy

Turning the Tables

How could the system possibly be turned to your advantage? Right now, you sit down, go on-line, read the newspapers' classified, go to industry publications specific to your training and identify possible advertised job opportunities and network as best you can. Then you either e-mail or mail your resume to companies that are trolling or you think are trolling for a certain skill that you could provide.

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".

More later.

willy

Service Severance

Service severance...what do you suppose that really means? In my world that means benefits that you would receive after you have been fired...not in lieu of cash benefits but IN ADDITION TO cash benefits. Service severance benefits (and I strongly differentiate these from outplacement) have to be accountable, ie. the provider doesn't get paid unless there is a result that directly benefits YOU, e.g. you receive training or you find a new job. But what could some of those benefits be? The obvious one is training. But training just to learn a new skill does not necessarily lead to a new job. Targeted training leads to a new job. Another benfit could be assistance in identifying the job market. I don't mean going to monster.com and plugging in your resume. That doesn't identify the active job markets. It just trolls your resume through the electronic universe. In my book, kind of like buying a lottery ticket, especially when you realize how many job boards are out there and how many of those are specialized, so that a generalist board may not even be sourced by a company looking for a specific skill. Remember! Companies hire skills and fire people. When you're looking for a job, you are selling your skills!

Do you suppose there's a way to turn the tables on your looking for a job?

We'll talk in the morning.

willy

Cash Severance

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?

willy

Cash Severance vs. Service Severance vs. Both

Let's assume that the New Severance should include cash and include services designed to help you find a new job. How should the cash benefit be structured? Lump sum? Paid out over time? Should that time be based on some specific formula, or should you be able to determine it? Should it be directed towards paying for new training? Should you have the ability to pre-fund your severance account? Are there any "tax smart" approached to paying out/receiving severance?

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.

willy

More than Money

That perfect world scenario I talked about yesterday...We should define it, promote it, insist that it become the "gold standard". It should be based on the need for "New Severance" to include more than money and virtually meaningless outplacement services.

What do you suppose "New Severance" should include?

willy

Wake Up Google

Geeezz, I Google the word "severance" today, and what does it show? The first "page" is all links relating to the new movie, save one link which is "Riley", and that is all about executive severance. Something is wrong here when a search engine the size of Google can't differentiate between entertainment and real life circumstances, when it prioritizes movies and highly paid executives over the real people in the workforce. You know the ones who actually do the work. Real people are getting hammered every day for being loyal, hard working employees, and the largest search engine highlights a Hollywood product and executive benefits. What about the real people...you know, those folks who are the human side of human capital, those folks who management looks at as being "expendible", those folks who define reality in this country, those folks who can't go more than two pay periods without a paycheck before they're in trouble.

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.

More later.


willy

Displaced

OK, I've moaned a bit over the last couple of days about how corporations perceive their employees. I've taken the position that mangement considers its employees as capital, not as people. I've taken the position that currency (money) is expendible. Duh! I've taken the position that corporate counsel and corporate HR types have opposing responses to the question, "Why severance?"

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?

willy

The Other Reality

Why do you suppose companies provide severance? Out of the goodness of their hearts? I think not. They do it to get you to sign a general release saying that you won't sue the company. They do it because they are scared of you. Just ask any corporation's chief Human Resource counsel.

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.

willy

It really is reality!

Just ask the folks from Citibank or ATT or Pfizer or The Hartford whether it's reality or not. Over 30,000 of them are...or will be...dealing with reality. No job. No income. Financial obligations...mortgages, rent, tuition payments, credit card bills, car payments, FOOD. The average American can't go 30 days without receiving a paycheck.

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.

willy

Skills vs. People

OK, if workers are expendable, as I suggested in yesterday's blog, that means (according to the dictionary) that workers are "capable of being, or to be, consumed, used or sacrificed". Geeez that's a little scary. No, a lot scary. But apparently reasonably accurate given corporate America's approach to managing human capital. Workers are "consumed" by virtue of the fact that companies suck every bit of benefit out of them that they can. And "used" only to the extent a worker can benefit the corporate interest. And then "sacrificed", when retaining a worker is no longer in the company's immediate financial best interest.

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.

More later.

willy

Flesh or Currency?

#1. OK I'm a cynic. What is "human capital"? I guess it usually refers to people (that's the human side). But where does capital come in? That's money, right? Wouldn't you think that either we're human or we're money? Oh, but maybe corporate executives only look at their families and their friends as humans. And they look at their employees as capital. Worth thinking about.

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.

willy