With the ongoing sluggishness of the US economy, increasing numbers of companies are anticipating layoffs in 2006, according to a survey. However, a number of these companies may part with employees without providing severance pay, claim the study's authors, not-for-profit HR association WorldatWork and Aon Consulting.

With nearly 500 major organizations surveyed by WorldatWork and Aon Consulting, results show that 28% of companies are planning layoffs in 2006, while 26% are unsure if reductions in force will be necessary. Meanwhile, of all the employers surveyed, 30% don’t have a formal severance plan in place.

The job market is more volatile than ever, with the competition for top talent extremely fierce, said WorldatWork president Anne Ruddy. To attract and retain the best employees, companies need to offer key rewards like severance plans, which may be a make-or-break deal for those employees.

In addition, this study reveals that of those employers offering a severance plan, 85% use the number of years served as the basis for determining the amount of severance provided to employees. Nearly one-third of companies (32%) offer one week’s salary per year of service, while approximately a quarter of employers (23%) provide two weeks of pay for every year served. Other factors considered in determining severance include an employee’s position (23%) and compensation (20%).

Annual reviews of non-executive severance plans are rare, according to this study. In fact, 63% of organizations have not reviewed their severance plans in at least the last 12 months. Specifically, for 22% of employers, a severance plan review has not occurred during the past 12 to 24 months. For 29% of companies, it has been more than 24 months since they examined their severance plans, while 12% of organizations have never reviewed their plans.

Of those that do assess their severance plans on a regular basis, 61% report making no changes to their plans during the most recent review, while 11% decreased the pay provided and another 11% increased the pay opportunity.

Change is the norm in today’s corporate environment, so companies should review their severance plans at least annually, to ensure alignment with their current business objectives, said Pete Lupo, senior vice president with Aon Consulting.

For example, we’re beginning to see an increase in merger and acquisition activity. M&As require significant focus from employees, whether these workers are asked to complete the terms of the transaction or remain steadfast in their traditional job requirements. It would be difficult for employees to accomplish their goals without knowing what it ultimately means for them. In this type of situation, a well-developed and well-communicated severance plan is essential, he adds.