The Win-Win Approach to Employment Contracts (Part One)
Outplacement services from the employer perspective
Posted July 22, 2012
You are an official in a corporation and want to recruit an attractive candidate. The candidate wishes the protection of an employment contract or the company wants to protect itself by creating an empoyment contract.
One component of this employment contract will be the outplacement clause.
The purpose of this article is to help corporate leaders think about creating win-win situations in a business transaction that is often perceived as win-lose.
Outplacement is corporate sponsored assistance to help terminated employees find new professional opportunities without violating signed non-compete contracts. According to a 2009 Wall Street Journal article, 66 percent of 264 surveyed employers provided outplacement services with an average cost of $3,589 per employee.
OFFER OUTPLACEMENT EVEN IF THE CANDIDATE DOES NOT REQUEST THE SERVICE.
Job candidates are often reluctant to ask for outplacement assistance in the contract: it might appear to suggest lack of self-confidence, lack of confidence in the business plan, or lack of confidence in you as leader.
They want to work for you. Raising the issue could cloud matters.
But it isnot enough to get the candidate to say "yes."
Job candidates often come with spouses who are highly sensitive to the risks involved with new employment.
The candidate wants to say “yes.”
Outplacement helps the family say “yes.”
IT IS AN INEXPENSIVE SERVICE THAT MAY NOT EVEN BE USED.
The Wall Street Journal article discussed above focuses on average outplacement fees.
Let's use the example of a senior executive.
Assume $20,000 for a one year executive outplacement program. Assume the executive remains with the company for three years at a base salary of $150,000 per year plus 35 percent benefits (insurance, vacation, and retirement), no bonus and no stock options. Over that three year period, the corporate cost of outplacement services for this individual would be 3 percent of the total cost of compensation.
And it could be zero if the person quits or refuses the service.
In other words, as a percentage of total costs for the company, outplacement is a minor issue. And there is no guarantee that the cost would even have to be paid. For example:
Irene is recruited from a Fortune 500 company to become Vice President, Sales. She remains for four years but then resigns to work elsewhere. The company had the benefit of Irene’s work for four years. The provision of outplacement services helped her family to say “yes” to the opportunity. But the final cost to the company was zero.
Negotiation of employment contracts is a transaction. Perspective tends to narrow on the dynamics of the specific deal, sometimes to the exclusion of larger system-wide consequences.
Outplacement has system-wide consequences. For example:
It is not unusual for companies to simultaneously terminating employees while hiring other employees. When a company has a reputation of firing people with dignity by providing outplacement services, employees have a tendency to refer their friends/colleagues to the company. When new employees are brought in through existing employees, the research suggests that recruitment costs go down and turnover also is reduced.
The Aberdeen Group is a research organization that focuses on talent management. Their research confirms the system-wide implications of using outplacement:
CHOICE IS GOOD.
Forcing an employee to work with an outplacement firm where the company has negotiated a single source contract might or might not be appropriate when the company is engaging in mass layoffs. It is clearly not a good idea to give no choice to a single individual being terminated.
The absence of choice leads to lack of internal commitment to that choice.
Guess who gets the blame if the job search doesn’t go well???!!!
Allow the candidate freedom to select from well regarded outplacement firms.
HOW TO FIND GOOD OUTPLACEMENT FIRMS
A good place to start is to speak with people you know.
The Association of Career Firms in North America is the voice of the career management industry. It is a useful resource to find firms that subscribe to the ethical standards of the industry:
Are the consultants working on assignments Certified by the Institute for Career Certification International? ICCU is the global nonprofit that certifies excellence of professionals who engage in career management.
DO NOT PAY FOR SERVICES NOT WANTED.
What should you do if she asks for cash in lieu of outplacement? Outplacement is there to help the person land on her feet. She is also receiving salary continuation or a lump sum severance. Turning outplacement it into a cash grant dilutes the positive message you are sending to the employees who remain.
What would your reaction be if an employee said, “I don’t think I need disability insurance, so I’d rather have the cash.”
There is a legitimate business reason companies provide disability insurance and outplacement.
If the person does not want the service, then do not pay for the service.