I have a dream…. A dream when all employers adhere to the Peluso Policy on PIC Severance… (PPPS for short). So what is PPPS? It’s a theoretical framework for severance.. The pay employees get when they are let go from a job.
We have a system for severance today. The system includes a small severance payment from an employer (not to my knowledge legislated on a national level) and then unemployment insurance (handled state by state). The system works, sort of.. for your average worker, but not for a PIC.
In North Carolina during the great recession, many people were able to get unemployment for nearly two years.. they were referred to as 99 weekers, because unemployment insurance capped out at 99 weeks. The total unemployment was based on the workers tax returns and could be as high as $500/week. Not too bad in aught’s. The problem is that the system was not set up to sustain this level of support to affected workers for the long term. North Carolina was borrowing money to do it. It almost drove the state bankrupt. In reactionary mode, as the job market improved and the political climate changed, the maximum unemployment was limited to $350 and the maximum term was set to 13 weeks. This still isn’t too bad, If you are an hourly wage blue collar employee. Yes, 6 months would be better, but 13 weeks for someone who lost their job at the local convenience store and are looking at moving to some other job with a short hiring cycle is workable.
The problem comes with the capitol P of PIC, which as readers of this blog know stands for the Professional designation of a Professional Individual Contributor. The hiring cycle of an educated and highly skilled individual is much much longer than a few weeks.. It’s a minimum of 3-6 months and in several instances can be over a year.
So how do you separate them out? The answer is that you cant.. so this is my theoretical framework for severance. It’s got holes in it to be sure, but I think this is a start. The first thing we do is set the minimum standard.. That would be two months for every year the employee works.. So if an employee worked 3 years for an employer they get the financial equivalent of 6 months of severance.
So what is the problems here? How do we motivate an individual from sitting out of the workforce and collecting six months of unemployment? Well this is where the incentive comes in, we break out how the severance is paid out. The first 3 months the employee gets 100% of their salary. The second 3 months they get payments that equal 66% of their salary, and the third 3 months they get 33% of their salary. The entire time they get full medical benefits, at least until we come up with a system better than employer provided benefits.
The upside of this system are that the employers aren’t on the hook for much if the employee just didn’t’ work out well or if the business tried something new and realized it didn’t work and they had to let people go that they had hired for the new business initiative. In short, it gives the business the workforce flexibility that is considered a business advantage in America vs. other areas of the world such as parts of Europe.
The benefit for the employee is that if they were around for 10, 15, 20 or more years.. then they get a sound compensation package commensurate with their years of service. An employee with 12 years of service would get approximately one year at full pay, one year at 2/3rds pay, and one year at 1/3rd pay. If an employee had 20 or more years of service and was close to retirement this plan would most likely get them through the last couple of years to get to collect their social security and start pulling from their other retirement programs. You could even set it up so that the salary goes into a pension plan of some sort so that the employee can simply be allowed to retire that much earlier even if they can’t’ get social security for a few years.
There are a tremendous amount of employer side problems with this idea – aside from the problem of keeping the workforce motivated – and I intend to explore some of them in a future blogpost.. but until then I’m going to keep dreaming.
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[…] Why does it happen so often and in every area of our economy? In America there is the belief in the superiority of a highly flexible workforce. We can’t forget that because of the adoption of Milton Friedman’s ideas, in our modern economy the welfare of employees is secondary to the welfare of shareholders. Employees are hired and fired based upon the changing business climate or simply for maximizing shareholder value. Rapd change is considered a sign of a nimble company which is desirable to investors. Going back to how TGRS feeds into my other theories, the effect of the Friedman Doctrine feeds into my idea that employee equity is critical for closing the wealth gap and for reducing chaos, including The Great Reset Switch, in worker lives. I believe mandated Employee Stock Ownership Programs for publicly traded companies are the modern solution to the problem that unions addressed in decades past. If an ESOP group had a large enough stake in the company to have a substantial number of seats on the board of directors, say a third or more, then long term employee welfare becomes top of mind for the corporate leadership. It would be considered equal to the needs of external shareholders and customers. Workers would only be let go when it’s absolutely critical to the survival of the company and those that were let go would have truly comprehensive separation packages that align to their contribution over time to the company. […]
[…] on the part of the organization as to your longer term prospects at the company as well as a truly useful severance program of at least six months full salary and benefits, and then two months for every year employed. […]