The modern executive has one mandate this year: do more with less. Even the most capable and creative among us would be hard pressed to drive profitable growth in an economic environment saddled with soaring inflation, supply chain shortages, rising commodity prices, a labor shortage, hiring and retention difficulties due to employee demand for flexibility and higher wages, and finally, a lingering pandemic. Yet these are the challenges we collectively face as we conduct business in 2022.
According to a recent
the pressure on wages is mounting and in many cases the cost of wages is eroding profitability. In fact, the same survey found that 62% of business leaders surveyed are likely to pass along price increases to their customers this year.
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Taking a small step back, it is worth noting that only two years ago many of the very same businesses were dealing with issues that are totally foreign by the standards of today's world. Organizations were closing their doors and the unemployment rate was setting records. Severance payments made to vast employee populations being put out of work were crippling cash reserves. Many businesses never recovered from the economic catastrophe. So, while it may seem like the very least likely place to look during a worker shortage, perhaps examining severance could be a useful exercise in strengthening the employee lifecycle, creating efficient compensation plans, and aiding in the all-important task of hiring and retention.
The next time you are having coffee with a new hire at your company, ask them if they know how much severance they would be entitled to if they were to be laid off. Chances are, they won't, and didn't ask about it in the interview process. Then ask if they know how much their salary is. They might not tell you, but rest assured they will know with 100% certainty and accuracy how much they are being paid.
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Does this mean that companies should get rid of severance altogether and roll that money into employee base salaries? That is certainly one solution for boosting wages but may be harmful to employees' well-being and the employer's brand in the long run. A better, more balanced approach has been quickly gaining popularity since the 2020 shutdowns. Commonly known as a "SUB Plan," the IRS sanctioned Supplemental Unemployment Benefits Plan offers a way for employers to incorporate state unemployment benefits into their severance packages. This approach maintains the same level of severance benefit in a layoff yet reduces the cost burden on the company by approximately 40%-60%. Furthermore, the employer brand is unaffected or slightly improved, as the payments made through this vehicle are not subject to payroll taxes. (who doesn't like tax savings?)
It is a reasonable assumption that employers utilizing a SUB Plan during the recent downturn would have a greater ability to weather today's storms. Severance savings could be put toward improved wages, increase an employer's ability to attract and retain talent, and lessen the negative impact on profitability.
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With so many factors working against businesses, it is pertinent that value be added wherever it can. Replacing a standard severance plan with a SUB Plan will not solve inflation or the price of oil but it will create efficiencies and substantially improve cash flows.
The answers to today's questions are not simple or obvious and we will undoubtedly see more businesses close their doors as a result. Navigating the challenges of the current landscape and achieving profitability despite the many obstacles will require leaders to dig deep and explore new territory. Investigating possibilities for efficiencies, such as with a SUB Plan, often require going outside of the norm and persevering through unpopular conversations. The reward, however, will most certainly be increased profitability and a far greater ability to thrive in today's challenging and ever evolving business environment.
