Board Options, Inc.


How generous should a company be with its employee severance program? At the Board level, the question is often framed by senior management as an unavoidable dilemma between ethics and financial prudence.

But it may be a false dilemma. Consider posing the termination issue as asking management to balance job security and work performance.

Job Security and Work Performance

If job security is high, employees become complacent. If complacent, they are difficult to motivate. On the other hand, if job security is low, employees are also unmotivated. High insecurity tends to lead to feelings of helplessness. And employees who feel helpless are also difficult to motivate.

Moderate levels of job security provide the best platform for employee motivation. There is a long history of research confirming that this tendency.

What is Job Security?

Professor Joel Brocker of Columbia University and his associates sought to measure the relationship between job security and work motivation. They defined job security along two dimensions. The first dimension was perceived threat of future job loss. The second dimension was perceived belief employers would help them counteract the negative consequences of job loss.

High job security was defined as low levels of perceived job threat. Low job security was defined as high levels of perceived job threat combined with low perception of employers' willingness to help. Medium level was defined as high levels of threat and high levels of perceived corporate helpfulness.

Brocker and his team surveyed 597 employees from a national retail chain which had experienced many closings over the past twelve months. Not surprisingly, the perceived threat of future job loss was high. Employees were asked questions about the degree to which they perceived the company was willing to help them land new jobs as well as how hard they perceived themselves to be working, relative to twelve months ago.

As predicted, employees reported themselves working hard when job insecurity was at moderate levels----perceived threat of job loss was high combined with the a belief that the company would take care of them if their jobs were eliminated.

Perception is Everything

Providing decent severance benefits and retained search programs for employees is not just corporate conscience money. The Columbia University research suggests that such programs help stimulate surviving employees willingness to work hard.

It is important to note that this research was conducted on one company. Presumably, the same severance benefits were provided for all categories of employees being terminated during the last twelve months. What made the critical difference was employees PERCEPTIONS of those retained search benefits.

If employees got minimal severance benefits and retained search assistance, but perceived those benefits to be generous, then the effect would be more positive than a generous severance program that was perceived as inadequate. In other words, it is not enough that management provide terminated employees with a decent severance program. Management must also communicate that program to surviving employees. Management should try to communicate why the program is adequate to insure that terminated employees will effectively "land on their feet."

Maryanne Peabody and Laurence J. Stybel are co-founders of Board Options, Inc., a Boston-based management consulting firm that focuses on corporate sponsored career effectiveness of executives who report to Boards of Directors.
Larry serves on the Board of the New England Chapter of the National Association of Corporate Directors and is on the Board of Lincolnshire International Company.
Maryanne has twelve years of health care management experience and is on the Board of Directors of The League School and Christopher House.
Board Options, Inc. is sponsor of the Board Resource Center
Board Options, Inc. Suite 700, Sixty State Street Boston, MA 02109 tel: 617 736 0900

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