Lx3\ BLS Bulletin No. 1462 /q-tx- Dayton & Mont^cmery Co.

Public Li.j;~ry

APR 1 1 lbbb

The Operation of Severance Pay Plans

and Their Implications for

Labor Mobility

UNITED STATES DEPARTMENT OF LABOR 

W. Willard Wirtz, Secretary

Sponosored by

OFFICE OF MANPOWER, AUTOMATION AND TRAINING 

Curtis C. Aller, Director

Prepared by

BUREAU OF LABOR STATISTICS 

Arthur M. Ross, Commissioner

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
BLS Bulletin No. 1462

The Operation of Severance Pay Plans 

and Their Implications for

Labor Mobility

UNITED STATES DEPARTMENT OF LABOR

W. Willard Wirtz, Secretary

Sponsored by

OFFICE OF MANPOWER, AUTOMATION AND TRAINING

Curtis C. Aller, Director

Prepared by

BUREAU OF LABOR STATISTICS

Arthur M. Ross, Commissioner

January 1966

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, D.C., 20402 — Price 60 cents

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
Preface

The Manpower Developm ent and Training A ct of 

1962 directed the S ecretary of Labor to "establish a p r o ­

gram of factual studies of p ra ctices of em ployers and 

unions which tend to im pede the m obility of w orkers or 

which facilitate m obility." Included among the studies r e ­

quested was one on the operation of severance pay plans.

In response to this interest in severance pay, the 

Bureau of Labor Statistics advanced its plans to study 

severance pay provision s of collective bargaining a g re e ­

m ents, resulting in the second of its new series of a g reement studies. To fulfill the statutory d irective, the D epartm ent’ s O ffice of M anpower, Automation and Training 

(OMAT) requested the Bureau to study the actual operation 

and experien ces of severance pay plans. This study, f i ­

nanced by OMAT and sum m arized in the present bulletin, 

also provided the opportunity to bring to light other related 

aspects of layoff and plant shutdown p rocedu res.

The study was conducted and the bulletin prepared 

by J. Joseph Loew enberg, under the supervision of H arry P. 

Cohany, in the Bureau's D ivision of Industrial and Labor 

Relations, Joseph W. B loch, Chief, under the general 

direction of L. R. Linsenm ayer, A ssistant C om m issioner, 

O ffice of Wages and Industrial Relations.

iii

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
S u m m a ry and co n c lu s io n s ______________________________________________________________ 1

C hapter I. In tr o d u c tio n ________________________________________________________________ 5

T y p es of p la n s________________________________________________________________________ 5

S cop e of stu d y ____________________________________________________ 6

P r io r su rv e y of s e v e ra n ce pay p r o v is io n s ___________________________________ 6

S u rv ey of s e v e ra n ce pay e x p e r ie n c e ___________________________________________ 7

N o n s u p e rv is o ry w h it e -c o lla r e m p lo y e e s _______________________________________ 8

C ase s tu d ie s _______________________________________________________________________ 8

Contents

Page

C hapter II. U se of plans and b e n e fits p r o v id e d -------------------------------------------------------- 9

O rig in of p la n s _______________________________________________________________________ 9

E xtent of plan u s a g e _________________________________________________________________ 10

L ength of s e r v ic e _________________________________________________________________ 14

R ea son s fo r s e p a ra tio n __________________________________________________________ 15

A m ount of b e n e fit s ___________________________________________________________________ 15

G r o s s p aym en ts___________________________________________________________________ 16

D ed u ction s _________________________________________________________________________ 17

O ther paym ents at s e p a r a t io n __________________________________________________ 18

O ther b en efits fo r the sep a ra ted w o r k e r ______________________________________ 18

P lan s fo r n o n su p e rv is o ry w h ite -c o lla r w o r k e r s not 

in the b argain in g u n it _____________________________________________________________ 21

C hapter III. P r a c t ic e s and p ro b le m s rela tin g to se v e ra n ce

pay and em p lo y e e s e p a r a t io n ________________________________________________________ 23

E lig ib ility re q u ire m e n ts ____________________________________________________________ 23

E m p loym en t status of the w o r k e r at the tim e of

plan im p le m e n ta tio n ____________________________________________________________ 24

R ea son fo r s e p a r a t io n ___________________________________________________________ 24

W aiting p e rio d a fter s e p a ra tio n ________________________________________________ 25

E m p loy ee b e h a v io r _______________________________________________________________ 26

A v a ila b ility of oth er w o r k ______________________________________________________ 27

E m p lo y e r 's co n tr o l o v e r s e p a ra tio n s _________________________________________ 28

O ther p r o b le m s ___________________________________________________________________ 28

O ptions to s e v e ra n ce pay____________________________________________________________ 28

O ther than S U B -re la te d p la n s__________________________________________________ 29

S U B -re la te d p la n s________________________________________________________________ 31

A d m in istra tiv e p r o b le m s ________________________________________________________ 31

The paym ent p r o c e s s ________________________________________________________________ 32

A d m in istra tiv e d e la y s ____________________________________________________________ 32

W aiting p e r io d s ___________________________________________________________________ 33

M ethod of p a y m e n t_______________________________________________________________ 34

L ib e r a liz in g o r red u cin g the s e v e ra n ce pay o b lig a tio n ____________________ 35

C om pan y s e r v ic e s ____________________________________________________________________ 36

R ole of u n io n _________________________________________________________________________ 39

S ev era n ce pay and u n em ploym en t in su ra n ce _____________________________________ 40

iv

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
Contents— Continued

Chapter IV. Severance pay plans in operation— five case studies. _____ 43

Page

1. Mt. Lion E lectric Corporation___________________________________________ 44

44

45

47

48

49

50

51

Termination pay_____ _________ ___,____ __........__..._________________ 52

Othe r j o b s_____________________________________—--------------------------------- - 5 2

Introduction.

The pens ion-term ination pay plan_________

Special personnel procedures______________

Transfer agreem ent___________________ _____

Administrative issues______________________

The choices m ade________ _________________

Transfers________________________________

2. The Navysail C orporation_____________________

Introduction____________________________________

Plant shutdown_________________________________

Job offers with N avysail______________________

Payments available at time of plant closin g __

Other benefits____________________________ _____

____________ 54

____________ 54

____________ 55

____________ 56

____________ 57

____________ 59

____________ 60

____________ 60

____________ 63

Introduction_________________ 63

State unemployment com pensation-------------------

Subsequent employment experience______ ———

3. Moonwitch Company.

The 1958 department shutdown________________

The 1962 plant shutdown_______________—____ _

The shutdown agreem ent______________________

Implementing the shutdown agreem ent________

Results and reaction s_________________________

64

64

65

66

68

Plant closing allowance_____________-__-__________ -______ ...___ _______ 74

Mayer Street Plant partial closing__..._____ ____ ______________________ 74

Policies in effect at time of layoff ...___________ ______________________ _ 75

Implementing the policies_______________________________________________ 76

Layoff s ______________ ...____________________ __________ ___—----------- ---- 7 7

Subsequent employment experience-------------------......____ ______________ 77

Employees remaining at the Mayer Street Plant___________ ____________ 80

5. The Closing of a N ew spaper.. 

Background 81

Severance pay___________________________________________________________ — 82

Othe r benefits_______________ _______—___________ —...---... ------- 8 3

Subsequent employment experience---------------------------------------------------------- 84

Severance pay expenditure_______________________ ___________________ ____— 85

v

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
Contents— Continued

T a b le s :

1. R esp on d en ts b y in d u stry grou p and type of p la n ____________________________ 8

2. E xtent of plan u sa g e, 1960—62_________________________________________________ IT

3. W o rk e rs re c e iv in g paym ents b y type of plan, 1960—62____________________ 12

4. D istrib u tion of w o r k e r s re c e iv in g se v e ra n ce pay by

in d u stry, 1960—62______________________________________________________________ 13

5. End of b en efit c o v e r a g e _________________________________________________________ 20

6. O ptions to se v e ra n ce pay in oth er than S U B -re la te d

plans by type of p la n ___________________________________________________________ 2 9

A pp en dix: Q u e stio n n a ire s _____________________________________________________________ 87

2826 A — C on ven tion al s e v e ra n ce pay p la n s______________________________________ 87

2826 B— S U B -type se v e ra n ce pay p la n s _________________________________________ 91

Page

vi

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
The Operation of Severance Pay Plans and 

Their Implications for Labor Mobility

Summary and Conclusions

To the vast m ajority of w orkers in the companies studied— almost 98 p ercent in 1962r—the severance pay plan was but one of several protective assurances 

offered by the collective bargaining agreement, by company personnel policies, 

and by the union. For all covered w orkers, severance pay plans represent a 

form of insurance sim ilar in some respects to life or sickness and accident insurance paid for by the em ployer. Hopefully, none of these will be used. The 

availability of severance pay in case of separation is intended to be, and probably 

is, reassuring; it makes w orkers less fearful about the possible effects of a change 

in business conditions, technology, and other developments beyond their control. 

Since far m ore w orkers benefit from such assurances than from actual severance 

payments, the support offered by the plans to general m orale may represent their 

m ajor contribution to flexibility in necessary work force adjustments. For workers 

who are separated and especially for those who remain on the job, however, 

other practices— for example, seniority system s and pension plans— contribute 

considerably to reducing the pressure for restrictions on company employment 

and layoff policies.

This study concentrated on the aspects of severance pay plans and their 

attendant circum stances that bear upon manpower and m obility issu es. In 

conjunction with the previous analysis of plan provisions, it is hoped that no 

significant facet of the problem s involved in the operation of severance pay plans 

was overlooked in this study. What follows is an attempt to summarize the findings 

and to distill from these the implications of severance pay plans for labor mobility.

During the period 1960-62, severance payments, in general, were not 

important expenditure or cost items to em ployers, and the number of workers 

receiving payments was also relatively sm all. About 30 percent of the plans had 

no occasion to make any payments during the 3-year period. In 1962, the year 

of highest utilization, slightly m ore than 2 percent of the workers covered by 

the plans received payments. Of these, over 60 percent had fewer than 10 years 

of service. Involuntary separation due to lack of work was by far the chief reason 

for separation. Reflecting the number of low -service w orkers among those r e ­

ceiving severance pay, average payments ranged from $303 in plans in which 

w orkers retained recall rights to $1,279 in plans in which w orkers lost all 

reem ploym ent rights. Individual variations w ere, of course, wide.

Total severance payments probably accounted for only about one-fifth 

of 1 percent of annual payrolls among all plans combined. After deductions, 

take-home or spendable payments w ere, on the average, about 20 percent less than 

the amounts prom ised by the plans. Other benefits available on separation (e.g., 

prorated vacation pay, extended health and insurance coverage, vested pension 

rights), however, added to the resources of the separated worker.

1

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
2

On the basis of these figures, it would appear that a severance pay plan 

is a form of low -cost insurance to many com panies, with a return to be m easured 

not only in term s of the equity of displaced w orkers but of the bolstered m orale 

of the entire work force. On the other hand, information obtained from the 

companies on the options available to w orkers facing separation, the types of 

company services in use designed to help such w orkers to other jobs or em ploym ents, and other efforts of a like nature, reflect a com plex of influences that 

tend to diminish the relative im portance of severance pay in itself. M oreover, 

the slow rise in the prevalence of severance pay plans, in conjunction with the 

seem ingly low level of plan use, may signify that other practices (for example, 

m ore specialized form s of assistance, reassignm ent, retraining, early retirem ent, 

attrition arrangements, and the like) are taking over a greater share of the 

problem of displacement.

The direct effects of severance pay on labor m obility appeared to be 

neutral, that is, the practice did not significantly impede m obility nor did it, in 

actual practice, significantly enhance mobility. Management representatives, 

where opinions w ere offered, generally believed that w orkers facing the possibility 

of separation did not bypass other employment opportunities elsewhere so as to 

avoid losing severance pay. On occasion, companies advanced the severance 

payment to encourage early leaving. The reasons why severance pay failed fully 

to exploit its potential for enhancing m obility w ere many, encompassing the attitudes of the parties (management, union, and w orkers), the structures and 

administration of the plans, and the circum stances in which w orkers found themselves after separation.

The traditional views of severance pay see it as a device to support the 

separated w orker until the next job com es along and as a settlement of the em ­

p loyer's obligation to the displaced w orker. The problem s of fitting the displaced 

worker for another and different job, of recognizing that the w orker may have 

lost not only a job but an occupation, of enhancing his chances for reemployment 

elsew here, appear still to lie outside the sphere of the severance plan. The 

persistence of the traditional views accounts, at least in part, for some of the 

practices that seem to weaken the m obility potential of severance pay. Eligibility 

requirem ents are often restrictive, limiting the number of separated workers 

to whom severance payments are made. In many cases, the payments are too 

sm all to make a contribution to the w ork er's m obility, let alone support his fam ily; 

in virtually all cases, legally required (e.g., incom e tax withholding) and other 

deductions take sizable bites out of available cash. Delays in payment, whether 

attributable to plan requirem ents or to slow administrative procedures or to 

w orker choice, postpone the availability of the resource and perm it the accumulation of debt. Alm ost half of the w orkers receiving severance pay in 1962 retained 

recall rights to their jobs; although these w orkers may have had little chance 

of going back to work, an attachment to the em ployer was preserved, presum ably 

tending to discourage leaving the area or even an intensive job search.

In 22 States, the receipt of severance pay affects the displaced w ork er's 

unemployment compensation benefits. The rationale for such regulations derives 

principally from the view that severance payments and unemployment compensation 

serve the same purpose.

With regard to the w orkers' use of severance pay, the case studies 

revealed that the payments were used mainly to pay off past debts and make 

installment payments (often on purchases that would not have been made if the 

w orker had had earlier notice of impending separation); to m eet current living 

expenses; and, if anything was left, for savings. Expenditures for training or 

other means of increasing their job skills and opportunities for reemployment 

w ere insignificant.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
3

On the other hand, most of the displaced workers had very little guidance

regarding the use of their severance pay. Initially, they may have had the cash

resources and the willingness to take steps aimed at improving their qualifications

for and accessibility to new jobs. But apparently, without effective counseling

and other forms of job assistance, they did not know how to convert their assets

into effective job mobility. The passage of time often eroded both their resources

and their accessibility.

It is frequently argued that too much is expected of severance pay:

Severance pay, however, has recently been criticized as not having a very positive

effect in providing the displaced workers with "a new start" since so little of it is used for

the purpose of obtaining retraining, finding better jobs, or, in appropriate cases, establishing

self-employment. The significance of this criticism is that it would be unrealistic to expect

severance pay to accomplish any more than unemployment compensation.1

1 Richard Wilcock and Walter Franke, "Unwanted Workers: Permanent Layoff and

Long-Term Employment" Glencoe, 111. (The Free Press of Glencoe, 1963), p. 124.

Under current operations of severance pay plans, such comments may well be

valid generalizations.

Even within existing purposes and cost limits, however, plans have a

potential for enhancing mobility of workers that is currently not being realized.

Employers can strive to present a worker with all alternatives simultaneously

and to pay the severance award, if chosen, promptly upon his separation. Longer

advance notice of separation would enable the worker to prepare better for it.

States can review their unemployment compensation systems for their effects on

severance pay. Tax authorities can reassess current tax policy with respect to

severance pay. Employers, unions, and public and private agencies can provide

more guidance and direct assistance to displaced workers receiving severance

pay, particularly in identifying skills and trainable aptitudes and suggesting appropriate courses of action to capitalize on their assets. These steps, obviously,

will not solve all problems. They will, however, increase the opportunities of

separated workers to use their severance pay in more productive ways.

New approaches to severance pay require revisions in traditional attitudes

in the direction of adapting plans more specifically to the reemployment needs of

separated workers. This requires a disposition on the part of employers, unions,

and workers toward the provision of, or payments for, retraining opportunities,

and relocation if necessary, which would ..fit the displaced worker for other

employment.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
Chapter I. Introduction

Severance pay has often been advocated as a device to promote labor

m obility,1 since the payments, under the circumstances, may help the displaced

worker find other employment. In its simplest concept, separated from all related

aspects both before and after the act of payment, severance pay provides the

worker at a critical point in his working life with a financial resource that

supports effective job hunting. The amount may even be large enough to underwrite

relocation or retraining expenses. To the employer, the severance pay obligation

may serve as an inducement to find other jobs for employees facing displacement,

or otherwise to avoid incurring the financial and morale costs of separation.

Many factors, however, come into play in situations involving worker displacement

which, along with the incidence of severance pay, require study before the

manpower and mobility implications of severance pay plans can be properly

evaluated. This bulletin, supplementing an earlier study of severance plan provisio n s,2 focuses on the experience and operations of several hundred plans.

Types of Plans 3

In recent years, through collective bargaining, the concept of severance

pay and the availability of unemployment insurance have been merged in a variety

of devices, made even more diverse by tax and legal considerations and a certain

blurring of the distinction between severance and layoff. To an increasing degree,

moreover, workers who are laid off with or without the expectation that the

layoff will be permanent are also realizing in cash or in vested rights their

equity in various fringe benefits that they stand to lose, along with wages, in

the loss of jobs.

Traditional severance pay plans provide a money payment, in a lump

sum or in installments, to workers whose employment has been terminated.

A complete severance of the employment relationship, and with it the worker’s

seniority, is either treated explicitly by the plan or the conditions of the payment

are such that only permanent separation is applicable. These awards are variously

referred to as severance pay, termination pay, dismissal allowance, separation

benefit, and layoff allowance (where layoff implies permanent layoff). Under such

plans, the payment of benefits is not contingent on the workers remaining

unemployed. Severance pay plans generally are unfunded, although in recent

years a number of funded arrangements have been negotiated.

The primary purpose of supplemental unemployment benefit (SUB) plans

is to provide weekly allowances to workers on layoff, as a supplement to

unemployment compensation. Usually, the layoff is not considered permanent,

that is, both employer and worker expect the worker to be recalled to the job.

Unlike traditional severance pay plans, SUB benefits are paid only if the worker

is unemployed. SUB plans are typically funded arrangements.

A recent example is the Redundancy Payments Bill placed before the British House of Commons in March 1965,

with the purpose, as described by the Economist (London, England, Apr. 3, 1965), "to promote social justice, and

to encourage the mobility of labor, by compensating wodcers put out of a job by their industry's decline or their

employer's uncompetitiveness."

2 Major Collective Bargaining Agreements; Severance Pay and Layoff Benefit Plans (BLS Bulletin 1425-2, 1965).

3 The following description of the various types of severance pay plans currently in effect is taken from the

agreement study upon which this study is largely based. Ibid.

5

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
6

In recent years, SUB plans have been expanded to provide additional

benefits. Some SUB plans have adopted severance pay provisions granting lumpsum allowances to workers whose unemployment has extended for a specified

period or when the employer determines that the worker’s layoff is permanent,

whichever is sooner.

Both traditional severance pay provisions and SUB plans are found in

the primary metal industries, but severance pay is not part of the SUB plan nor

is the severance allowance paid from SUB funds. The two plans are related only

to the extent that, under certain circumstances, SUB payments may be deducted

from severance allowances.

Extended layoff benefit plans, such as those negotiated in the aerospace

industry, contain some of the major features of SUB plans and traditional

severance pay plans. They resemble SUB plans in that they are funded, clearly

state that their purpose is to supplement unemployment compensation, and cover

all workers on layoff without removing the workers' rights to recall. They

resemble the traditional severance pay plan in payment of benefits as a lump-sum

allowance (after the first 4 weeks of layoff), the payment not to be contingent,

after the qualifying p e r io d of unemployment, upon the worker remaining

unemployed.

Other variations include plans having features of severance pay and layoff

benefits. These provide for lump-sum payments, but because they lack either

a clear-cut statement that the acceptance of benefits severs the employment

relationship or a listing of conditions for payment that could be interpreted only

as permanent separation, they conceivably could provide for either layoff benefits,

or a severance benefit in the event that the laid off worker is never recalled.

Still other plans combine a layoff benefit under one condition and a severance

benefit under another. Some plans provide a benefit only on retirement, either

in lieu of a pension plan or if the worker does not qualify for a pension under

an existing plan. Individual trust account plans, a funded arrangement, establish

an account for each worker from which he may draw under certain specified

conditions, including separation. Pooled multiemployer arrangements, as in the

apparel and maritime industries, have their own unique features.

Scope of Study

Prior Survey of Severance Pay Provisions. For its study of plan provisions, the Bureau examined 1,773 major collective bargaining agreements, each

covering 1,000 workers or more, or virtually all agreements of this size in the

United States, exclusive of those in railroad4 and airlines industries, and in

government. These agreements applied to approximately 7. 5 million workers or

almost half of the total coverage of collective bargaining agreements outside of

the excluded industries. Of these, 4. 1 million workers covered by 1, 023 contracts

were in manufacturing; and the remaining 750 agreements, applying to approximately 3. 3 million workers, were in nonmanufacturing. For that prior study,

the Bureau tabulated traditional severance pay plans; plans which had no explicit

statement of termination; separation pay provisions in SUB plans; the aerospace

industry's extended layoff benefit plan; combination plans; and other variations

providing payments on separation or layoff, exclusive of provisions incorporated

into pension plans.

The exclusion of die railroad industry from diis study needs special emphasis, since severance pay is an

important type of protection in this industry. However, a comprehensive study of experience in the industry was made

by the staff of the Presidential Railroad Commission. (See ’’The History of and Experience Under Railroad Employee

Protection Plans,” Appendix Vol. Ill, Report of the Presidential Railroad Commission, February 1962, pp. 109—191.)

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
7

A ll of these plans are hereafter called severance pay plans, disregarding,

for the sake of convenience, legal or tax distinctions among the different types

of plans.

Survey of Severance Pay Experience. Of the 1,773 major agreements

analyzed for Bulletin 1425-2, 525, covering 3, 051, 000 w orkers, contained severance pay plans. Of these, 58 agreements, covering 208,000 workers, were

excluded from the present study either for not being germane (e.g . , severance

pay awarded only at retirement or negotiated in principle only) or for not having

the information readily available (multiemployer plans and pooled industry funds).

However, two large pooled industry funds in the apparel and maritime industries

were included, as were a number of other association plans.

A mail questionnaire was sent to each of the 467 plans in the scope of

the present study. Two separate questionnaires were used (see appendix)-— one

for companies whose severance pay plans were in some way related to a supplemental unemployment benefit plan, and the other for the remaining severance

pay plans. Replies usable in whole or in part were received from 418 plans, or

approximately 90 percent of those requested. These 418 plans covered a total

of 2,868,247 workers. Classified according to the essential features of the plans

for purposes of this study, the response comprised the following:

Type of plan

SUB-related - — ----------- -—-

Lose recall rights-----------------

Retain recall rights--------------

Combination------—— ---- -—

No information on recall rights

Total--------------------------

Plans Woikeis

147 1,709,879

72 219,913

183 778,855

11 152,350

5 7,250

418 2,868,247

The above distribution of plans differs from that presented in the study

of severance pay provisions largely because of: (1) Differences in classification—

the provisions study made reference to severance pay plans included in SUB and

pooled industry plans. This study is concerned'with severance pay plans affected

by SUB plans even though not part of them, such as plans of the primary metals

industry; (2) interpretations by respondents— some respondents chose to answer

the questionnaire in terms of employees permanently and involuntarily terminated,

although parts of their plans provided for payments to employees temporarily laid

off or retiring; (3) classification of plans in the provisions study according to

language; in this study, according to questionnaire replies and interviews; (4) provision by some plan administrators of revised employment figures, and provision

by others of information for the entire work force covered by a plan, not just

for those covered by the collective bargaining agreement.

More than two-thirds of the worker coverage of responding plans were

accounted for by four industries— transportation equipment, communications,

primary metals, and apparel (table 1).

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
8

Table 1* Respondents by Industry Group and Type of Plan

Total Type of plan

Industry group

Plans Workers

SUB-related Lose recall

rights

Retai

ri

n recall

ghts _ Combination No information

on recall rights

Plans Workers Plans Workers Plans Workers Plans Workers Plans Workers

Transportation

equipment —--------— 40 692,742 22 596,625 3 5,000 15 91,117

Communications — — 72 474,824 - 8 41,600 61 374,124 3 59,100 -

Primary metals — —— 53 455,531 46 444,940 2 4,175 5 6,416 . - - -

Apparel -----------------— 35 426,849 35 426,849 - - - - - - - -

Electrical machinery---- 33 211,509 2 10,160 1 1,500 22 108,949 6 88,100 2 2,800

Machinery, except

electrical -—----------- 19 114,995 12 101,200 5 11,945 2 1,850 . .

Food------------ -----—— 29 90,908 1 1,200 24 78,490 4 11,218 - - - -

Chemicals—------------- 36 69,864 - 6 12,202 28 52,512 2 5,150 -

Fabricated metals------- 14 61,058 14 61,058 - - - - - - - -

Transportation----------- 8 46,654 3 35,090 2 3,850 3 7,714 - - - -

Utilities————-------- 19 45,908 - - 10 22,026 8 22,682 - - 1 1,200

Ordnance— -------------- 10 45,869 - - - 10 45,869 - - - -

Rubber-———----------- 5 41,625 2 14,800 3 26,825 - . - . - _

Other1- --------------—— 45 89,911 10 17,957 8 12,300 25 56,404 . . 2 3,250

Total —————— 418 2,868,247 147 1,709,879 72 219,913 183 778,855 11 152,350 5 7,250

Includes textile, furniture, paper, printing, petroleum refining, leather, stone and glass, instruments, mining

and crude petroleum, retail trade except restaurants, services, and miscellaneous nonmanufacturing* 6 industry groups

are not represented among questionnaire respondents: Tobacco, lumber, miscellaneous manufacturing, wholesale trade,

restaurants and hotels, and construction, railroads, airlines, and government were excluded from the scope of the survey.

Nonsupervisory White-Collar Employees. Information on the incidence

of severance pay for nonsupervisory white-collar employees not in the bargaining

unit was obtained from 371 of the 418 companies or plans responding to the

questionnaires. Over 700,000 white-collar employees were covered by severance

pay plans in effect in these companies.

Case Studies. A series of five case studies was undertaken to observe

the operation of severance pay plans, to gather data on worker use of and reaction

to severance pay, and to gain insight into the role of severance pay in plant

shutdown situations. Each case study involved interviews with management and

union officials, representatives of public agencies in the community, and a

limited number of separated workers. The case studies (ch. IV) describe

partial or complete plant shutdowns that affected workers of various skills and

ages, and reveal aspects of layoff situations and severance pay that are not

susceptible to study by mass survey techniques.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
Chapter II. Use of Plans and Benefits Provided

This chapter deals primarily with the incidence of severance pay— the

frequency of plan use; the number of workers receiving payments, their length

of service prior to separation, and the reasons for their separation; and an

accounting of the benefits paid and received, including gross severance payments

and deductions therefrom, other cash payments accruing to separated workers,

and noncash benefits available upon separation. Consideration of these matters

is preceded by a discussion of the development of plans.

Origin of Plans

The negotiation of severance pay and related plans is largely a postwar

development, although a substantial proportion of companies had formal plans in

effect prior to the incorporation of such provisions in collective bargaining agreements. According to Bureau of Labor Statistics studies, the proportion of agreements with these plans increased from 4. 7 percent in 1944 to 7. 9 percent in 1949,

to 15.7 percent in 1955—56, and to 29.6 percent in 1963.5 The year of origin

of the 418 negotiated plans covered by this study, and the incidence of prior

experience, is reflected in the following tabulation. (Changes in plan provisions

are not accounted for.)

Severance pay plans Prior severance pay

_______ in agreements______________ plans in effect_______

Year originally

negotiated Plans Workers Plans Workers

1939 or earlier---------------- 5 12,271 1 2,413

1940-1944......................... 31 216,380 23 185,897

1945-1949 ........................ 119 784,491 39 247,767

1950-1954 ......................... 50 271,286 21 182,067

1955-1959 ......................... 128 1,268,155 11 30,137

1960-1963 ........................ 73 273,424 8 15,870

Data not available------------ 12 42,240 9 35,040

Total---------------------- 418 2,868,247 112 699,191

The spread of plans after 1955 is attributable in large measure to the

introduction of a severance pay feature into the automobile SUB plans, and the

negotiation of SUB-severance pay plans in the women1 s apparel industry. Over

three-fourths of the worker coverage added between 1955 and 1963 were accounted

for by SUB plans. Severance pay plans in the primary metals industry, most

of which were negotiated in 1947, prior to the conception of SUB plans, were

later tied to SUB plans in some respects (thus considered as SUB-related plans

for purposes of this study) although not made a part of them.

Slightly more than a fourth of the respondent plans (112), covering a

similar proportion of workers, indicated that the company had formal, unilateral

severance pay plans in existence prior to the negotiated arrangements. One

company, for instance, reported that it "first adopted a termination allowance

plan for salaried employees in 1923, and extended such allowances to hourly

5 See BLS Bulletin 1425-2, op. cit.

9

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
10

employees beginning in 1928;" the plan was made part of the collective bargaining 

agreement in 1941. The largest number of plans reporting form al experience 

before a collectively bargained plan cam e into existence were in the com m unications and electrical machinery equipment industries. As might be expected, the 

older the plan under collective bargaining the m ore likely it was preceded by a 

unilateral, nonbargained plan.

Without considering the periods in which a nonnegotiated plan was in 

effect, alm ost half of the plans studied were in existence prior to 1954. Only 

about a sixth had not been negotiated by I960, the beginning of the period for 

which data on plan usage were requested. The negotiation of a severance pay 

plan, however, is not commensurate with implementation of the plan. The 

Ladies* Garment W orkers' Fund, for instance, required 2 years' of em ployer 

contributions following negotiations before the plan was placed in operation in 

1960. In all cases, term s of the plan have to be m et by the individual worker 

or work situation before severance payments can be made.

Extent of Plan Usage

The companies surveyed were asked to report the number of em ployees 

to whom payments had been made in each of the 3 years— 1960—62. A few re ­

spondents were not able to furnish the requested information. In some cases, 

recently adopted plans had not had sufficient time to be put into operation; in 

others, the data sought were not readily available from company records.

There was a noticeable increase in y ea r-to-y ea r implementation of plans 

between I960 and 1962, both in absolute and relative term s, as shown below:

Number of plans reporting Percent of plans with workers

Year on usage receiving payments

1962............................................ 401 64.5

1961............................................. 378 61.1

1960............................................ 310 52.9

The addition of new plans partly explains the increase in the number of plans 

under which payments had been made.

Approximately 30 percent of the respondents reported no experience at 

all during the 3-year period. Several companies noted that they had never had 

occasion to pay severance benefits even though their plans were first negotiated 

in the late 1940's. Lack of plan implementation does not necessarily mean that 

there were no workers separated; either the circum stances of the separations or 

the individual characteristics of the w orkers may have disqualified them from 

severance pay eligibility. On the other hand, the lack of payments under many 

plans during the 3-year period probably reflects the absence of plant shutdowns 

involving large numbers of w orkers; successful efforts in finding jobs for workers 

who would otherwise be separated; increased use of early retirem ent; or stable 

or rising employment needs.

The utilization of severance pay varied with the type of plan, although 

all types showed an increase in usage over the 3-year period (table 2). Plans 

that awarded pay to workers who retained recall rights were consistently im plemented to a greater extent than those compensating workers on com plete separation, including SUB-related pla n s.6 The greater frequency of tem porary layoffs,

6 The inclusion of 35 plans involving the International Ladies' Garment Workers' Union, the 35 administered 

as 1 plan, overstates the rise in usage of SUB-related plans. Even without the ILGWU plan, however, this category 

shows a somewhat higher increase in plan usage than the other two distinct types.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
11

the existence of other plans to alleviate layoff situations, and stricter eligibility 

qualifications under plans requiring employment termination to be permanent 

probably account for the difference.

Table 2. Extent of Plan Usage, 1960-62

Type of plan and year

Total plans reporting 

on usage 1

Plans with no workers 

receiving severance pay

Plans with workers 

receiving severance pay

Number Percent Number Percent Number Percent

All plans:

1962..................................................... 401 100 142 35.5 259 64.5

1961..................................-................ 378 100 137 38.9 231 61. 1

I960— .............................................. 310 100 146 47. 1 164 52.9

SUB-related:

1962..................................................... 145 100 61 42.1 84 57.9

1961................................—................ 138 100 66 47.8 72 52.2

1960...............................................—- 94 100 64 68.1 30 31.9

Lose recall rights:

1962..................................................... 67 100 29 43.3 38 56.7

1961............. ..........................-.......... 59 100 27 45.8 32 54.2

1960..................................................... 55 100 27 49. 1 28 50.9

Retain recall rights:

1962..................................................... 173 100 47 27.2 126 72.8

1961..................................................... 171 100 40 29.3 121 70.7

1960..................................................... 154 100 51 33.2 103 66.8

Combination:

1962..................................................... 11 100 2 18.2 9 81.8

1961..................................................... 7 100 1 14.3 6 85.7

1960............................................ ........ 5 100 2 40.0 3 60.0

No information on recall rights:

1962..................................................... 5 100 3 40.0 2 60.0

1961......... ........................................... 3 100 3 100.0 0 -

1960...................................... .............. 2 100 2 100.0 0 -

1 Excludes plans to which data were either not available or inapplicable.

Over a third of all plans in which workers lose recall rights when a ccepting severance pay, including SUB-related plans (75 of 212), had no case of 

severance payments during the 3 years, as against one-fifth of plans in which 

workers retain recall rights.

Along with the increased utilization of plans has com e an increase in 

the number of w orkers receiving payments upon severance or layoff, as follow s;

______ Workers receiving payments______

Plans making payments Percent of workers under—

All reporting Plans making

Year Plans Workers Number plans * payments

1962............................... 259 2,302,656 52,838 1.9 2.3

1961............................... 231 2,108,406 33,373 1.3 1.6

1960............................... 164 1,400,856 16,892 .8 1.2

* Excludes plans for which information was either not available or inapplicable.

205-662 0 - 66-2

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
12

Over the 3-year period, a total of 103, 103 workers received payments. This 

is at least 3.6 percent of the w orkers covered by the total 418 respondent plans. 

F or each principal type of plan, the pattern is sim ilar— substantial annual increases, m ore than 100 percent, in the number of workers receiving severance 

pay between I960 and 1962 (table 3). The m ost notable change in these 3 years 

occu rred in SUB-related plans, largely because of the addition of plans in the 

apparel and m aritim e industries. The highest proportion of w orkers receiving 

payments out of w orkers covered by plans that awarded severance pay occu rred 

in plans where w orkers retained recall rights. Next in this scale were plans 

in which reem ploym ent rights were lost (other than SUB-related plans).

Table 3. Workers Receiving Payments by Type of Plan, 1960-62

Type of plan and year

Plans implementing payments Workers receiving payments

Plans Workers 1 Number Percent

All plans:

1962...................................... 259 2,302,656 52,838 2.3

1961.............................. ........ 231 2,108,406 33,373 1.6

1960------------------------- 164 1,400,856 16,892 1.2

SUB-related:

1962...................................... 84 1,441,043 22,379 1.6

1961...................................... 72 1,303,596 11,435 .9

1960......... —— .................. 30 786,200 4,848 .6

Lose recall rights:

1962...................................... 38 134,477 3,884 2.9

1961...................................... 32 118,637 2,233 1.9

1960..........................-.......... 28 99,582 1,584 1.6

Retain recall rights:

1962...................................... 126 576,036 24,865 4.3

1961...................................... 121 545,373 17,937 3.3

1960...................................... 103 455,974 9,801 2.1

Combination:

1962...................................... 9 147,900 1,660 1.1

1961....................-................ 6 140,800 1,768 1.3

1960...................................... 3 59,100 659 1.1

No information on recall

rights:

1962— ............................— 2 3,200 50 1.6

1961...................................... - - - -

1960-.........-........................ - - - -

1 Coverage held constant, based on latest coverage figure reported.

A distribution of w orkers receiving severance pay in 1960—62, by industry, reveals variation in the percentages of w orkers receiving payments among 

industries in any year, and y ea r-to-y ea r in the same industry (table 4). V ariations in the proportion of w orkers receiving severance pay in a single year are 

only partially explained by differences of plans with respect to recall rights. 

Although all plans in the ordnance industry provided for retention of recall rights, 

the overwhelming m ajority of workers receiving severance pay in the food and 

transportation industries lost recall rights. These were the second and third 

ranking industries in percentage of covered workers awarded severance pay in

1962. The reasons for the incidence of w orkers receiving severance pay must 

be sought in eligibility requirements, industry characteristics, and econom ic 

pressures. Nor do all industries follow the overall upward trend in proportion 

of covered w orkers receiving severance pay in the 3 years. The chem icals and 

electrical machinery industries, for instance, showed a reverse trend, while the 

prim ary and fabricated metals industries awarded severance pay to the relatively 

fewest workers in 1961.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
13

Table 4. Distribution of Workers Receiving Severance Pay by Industry, 1960-62

Plans reporting Plans paying benefits Workers receiving payments

Industry group and year

Number Workers Number Workers Number

Percent of 

workers 

in plans 

responding

Percent of 

workers in 

plans paying 

benefits

All industries, 1962*------------ 401 2,770,898 259 2,302,656 52,838 1.9 2.3

Selected industries:

Ordnance--------------------------- 10 45,869 7 41,119 4, 604 10.0 11.2

Food-------------------------------- 23 85,108 16 63,358 3,484 4.1 5.5

A pparel---------------------------- 35 426,849 35 426,849 9,824 2.3 2.3

Chemicals------------------------- 33 63,414 27 54,435 826 1.3 1.5

Primary m etals-------------------- 52 449,531 14 247,916 4,067 .9 1.6

Fabricated metals----------------- 14 61,058 8 45,302 1,616 2.6 3.6

Machinery, except 

electrical------------------------ 19 114,995 11 100,800 1,358 1.2 1.3

Electrical machinery------------- 27 179,859 20 162,482 2,139 1.2 1.3

Transportation equipment------- 35 680,743 25 643,292 15,696 2.3 2.4

T ransportation--------------------- 8 46,654 4 38,850 1,596 3.4 4. 1

Communications------------------- 71 473,024 54 376,000 3,338 .7 .9

All industries, 1961*------------ 378 2,577,254 231 2,108,406 33,373 1.3 1.6

Selected industries:

Ordnance--------------------------- 8 42,700 6 38,800 2,344 5.5 6.0

Food-------------------------------- 24 76,918 12 53,568 1,893 2.5 3.5

A pparel---------------------------- 35 426,849 35 426,849 5,958 1.4 1.4

Chemicals------------------------- 31 58,756 29 55,656 2,793 4.8 5.0

Primary m etals-------------------- 50 348,431 9 160,816 1,272 .4 .8

Fabricated metals----------------- 13 59,908 3 25,150 415 .7 1.7

Machinery, except 

electrical------------------------ 17 112,795 10 98,800 1,177 1.0 1.2

Electrical machinery------------- 24 165,694 16 149,172 2,968 1.8 2.0

Transportation equipment-------- 31 665,143 23 635,222 8,215 1.2 1.3

T ransportation--------------------- 6 11,654 1 1,250 1 .1 .8

Communications------------------- 69 466,924 49 358,500 3,760 .8 1.0

All industries, I9601------------ 310 2,011,910 164 1,400,856 16,892 .8 1.2

Selected industries:

Ordnance--------------------------- 8 42,700 3 4,950 105 0.2 2.1

Food-------------------------------- 21 70,118 10 39,668 1,209 1.7 3.0

Apparel---------------------------- - - - - - - -

Chemicals------------------------- 31 58,756 25 51,003 2,155 3.7 4.2

Primary m etals-------------------- 48 340,431 8 99,316 2,160 .6 2.2

Fabricated metals----------------- 11 53,608 3 34,850 1,287 2.4 3.7

Machinery, except 

electrical------------------------ 16 110,345 10 74,345 1,885 1.7 2.5

Electrical machinery------------- 21 84,594 13 62,972 1,730 2.0 2.7

Transportation equipment-------- 29 661,943 16 607,675 2,033 .3 .3

Transportation--------------------- 5 11,564 - - - - -

Communications------------------ 68 465,494 48 360,905 3,243 .7 .9

1 Totals include industries not shown separately.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
14

Length of S ervice. A distribution of severance pay recipients in 1962 

by their years of service at separation, with data for about two-thirds of the 

total, reveals the preponderance of relatively low -service w orkers among the 

recipients of plan benefits, taken as a whole.

Percent of workers receiving 

Years of service payments, 1962

Under 3 years-------------------- 23. 7

3 to 9..............-............................ 37.8

10 to 14........................................ 19. 2

15 to 19........................................ 12.8

20 years and over---------------- 6. 5

Total------------------------ 100.0

The high proportion of recipients with less than 3 years and from 3 to 9 years 

reflects the low eligibility requirements of many plans, 7 while the low proportion 

of w orkers with 20 years of service or m ore undoubtedly reflects not only the 

protection afforded by a high seniority standing but also the availability of retirement (regular or early) as an alternative to separation.

Plans which granted benefits without loss of recall rights and SUB-related 

plans accounted for m ost of the w orkers receiving benefits with less than 3 years, 

and from 3 to 9 years of service.

Percent distribution of workers, 1962 

_________ Years of service_________

Type of plan Under 3 3-9 10—14 15—19 20 and over

SUB-related............................. 25.1 36.2 18.4 12.7 7.5

Lose recall rights---------- 5.7 33.7 31.6 15.6 13.4

Retain recall rights-------- 27.3 37.9 17.7 13.0 4.1

Combination------------------- 14.6 61.0 15.8 6.8 1.8

In the case of SUB-related plans, however, five-sixths of workers r e ­

ceiving pay upon less than 3 years of service came from two industries, apparel 

and m aritim e, which together accounted for only about half of the number of 

workers receiving severance pay from SUB-related plans. Without these two 

industries, the length of service distribution of workers receiving severance 

pay from SUB-related plans is sim ilar to that of other plans in which recall 

rights are lost with acceptance of severance pay. 8

SUB-related plans, excluding apparel and 

_______________ maritime industries, 1962_______

Years of service Percent of workers receiving payments

Under 3 ------------------------------ 2.8

3 - 9 ....................-............................ 26.9

1 0 -1 4 ------------------.................. 30.3

1 5 -1 9 — ........................................................... 21.4

20 and over------------------------------------------ 18.6

7 See ELS Bulletin 1425-2, op. cit.

8 One company with a SUB-related plan reported 1,963 severance payments, which showed 80 percent of the 

1,.335 recipients to have 20 years or more of service, with the remainder falling in the 15—19-year category.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
15

Reasons for Separation. Information available for m ore than 90 percent 

of the recipients of plan benefits indicated that involuntary separation due to lack 

of work was by far the m ost important reason for separation.

Percent of workers receiving

Re ason for sep aration p ayments

Involuntary separation due to lack of work (lack 

of business, closing or consolidation

of plants, technological change)----------------------------------- 95,2

Retirement or disability without being eligible

for retirement annuity---------------------------------------------- 1.0

Discharge for cause or inability to perform work----------------- 2. 8

Voluntary separation-------------------------------------------------- . 9

Other-------------------------------------------------------------------- .1

Total.............................................................................................. 100.0

The low frequency of voluntary separation reflects the prevailing practice 

of restricting benefits to w orkers involuntarily separated.9 Instances were r e ­

ported, however, of w orkers volunteering to leave in place of another employee 

slated for displacem ent, thereby becom ing eligible for separation pay.

Lack of work was the prim ary reason for separation in each of the 

different types of plans.

Reason for separation of woikers receiving severance pay, 1962

Type of plan

Lack of 

work

Retirement

or

disability

Cause or 

inability 

to perform

Voluntary

separation Other

SUB-related--------------- 99.5 0.3 _ 0.2 _

Lose recall rights---------- 91.3 2.0 1.5 5.2 -

Retain recall rights------- 93.5 1.4 4.2 .7 0.2

Combination--------------- 84.4 .4 15.1 - -

No information on 

recall rights-------------- 100.0 - - - -

Total------------------ 95.2 1.0 2.8 .9 . 1

Amount of Benefits

Accounting for the resources that workers carry with them upon separation involves consideration of four item s: (l) The amount of money they are

entitled to under the term s of the plan (gross payments); (2) the amount they 

actually receive after deductions (net payments); (3) other cash payments due 

workers under other provisions or term s of employment (e. g ., prorated vacation 

pay); and (4) noncash benefits (e. g ., vested pension rights and extended health 

and insurance plan coverage). Although the latter two categories are not dependent upon the existence of a severance pay or related plan, they may provide 

separated workers with very important assets, and thus com e within the scope 

of this study.

9 See BLS Bulletin 1425-2, op. cit.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
16

Gross Paym ents. The 250 plans supplying data on amounts of gross 

payments reported sums totaling approximately $ 24. 2 m illion due to the group 

of workers separated in 1962. Since about 2. 3 m illion workers were covered by 

these plans, the severance payments obviously constituted only a very sm all 

fraction of total payrolls (probably about one-fifth of 1 percent). The findings 

bear out a conclusion derived from Bureau of Labor Statistics studies of em ployer 

expenditures for supplementary wage p ra ctices,10 namely, that severance payments 

in general have not been an important expenditure or cost item to em ployers.

Based on reports of both the number of severed workers and gross 

payments for 1962, an average payment of $467.50 was computed. Wide variations in average payments among the different types of plans, attributable not 

only to plan provisions but to the average service years of separated w orkers, 

are shown in the following tabulation:

Amounts of gross payments, 1962

Number of Average

Number separated Gross payment

Type of plan of plans workers payments per worker

All plans reported........................ 250 51,806 $24,224,205 $467.59

SUB-related.......................................... 83 22,349 1 11,503,827 1 515.00

Lose recall rights—..........................— 35 3,059 3,913,203 1,279.00

Retain recall rights-------------------- 122 24,689 7,484,.428 303.00

Combination---------------------------- 8 1,659 1,269,835 765.00

No information on

recall rights--------------------------- 2 50 52,912 1,058.00

1 These figures account only for the severance payments under SUB plans.

The lower average payment of SUB-related plans, in relation to other 

plans where workers lose recall rights, is in part attributable to the inclusion 

of the apparel and m aritim e industries, where large numbers of low -service 

w orkers were separated. The average payment for these two industries combined 

amounted to $151; excluding these payments, the average was $895 for SUBrelated plans.

The industries in which workers receiving severance pay were m ost 

numerous are ranked below in order of average payments:

Number of

Industry plans

Food------------------------------- 14

Machinery, except

electrical—-------------------- 11

Fabricated m etals-------------- 8

Primary metals------------------ 13

Electrical machinery------------ 19

Communications---------------- 52

Transportation------------------- 4

Transportation equipment------ 25

Ordnance------------------------- 7

Apparel--------------------------- 35

Workers receiving Average payment

severance pay, 1962 per worker

2,662 $1,493.69

1,358 1,393. 73

1,616 1,180.17

2,786 912.87

2,116 532.17

3,316 516. 73

1,596 407.08

15,696 319.27

4,604 140. 31

9,824 109.39

See Employer Expenditures for Selected Supplementary Remuneration Practices for Production Workers in 

Manufacturing Industries, 1959 (BLS Bulletin 1308, 1962) and Employer Expenditures for Selected Supplementary 

Compensation Practices for Production and Related Woriters, Composition of Payroll Hours, Manufacturing Industries, 

1962 (BLS Bulletin 1428, 1965).

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
17

The amount of money paid out by individual plans depends on the number 

of separations, the term s of the plan, the service of separated w orkers, and pay 

levels. Five plans reported total gross payments in 1962 of over $ 1 m illion 

each. Four of the five plans were SUB-related; the other plan also terminated 

the employment relationship. One of the highest average payments for a large 

group of separated workers was made by a manufacturing company where awards 

to m ore than 900 workers averaged alm ost $2,000. An even higher average was 

recorded in the payments awarded to over 300 workers in another situation.

Deductions. Gross payments may, in some cases, be quite different 

from net severance pay, the amount of disposable cash available to the separated 

worker. The chief deductions are income tax withholding, the social security 

tax, and prior SUB payments. In individual situations, a w orker1 s debts to the 

company may be deducted from severance pay.

Data for SUB-related plans in the study were requested on the gross 

payments due, the deductions made because of prior payments of unemployment 

benefits (and the number of workers involved), and the total net amount (gross 

amount less all deductions). Data for other types of plans were requested on 

total gross and net payments, the difference com prising the deductions. Many 

respondents had difficulty in reporting net payments; hence, the data presented 

here are suggestive rather than definitive.

Among SUB-related plans, supplementary unemployment benefits paid 

after a certain date may be deducted from the severance pay due. The critical 

date differs among plans: In the auto industry, it is the beginning of the extended

layoff period which qualifies a worker for severance pay; in the steel industry, 

it is the date when the worker has gained eligibility for severance pay; while in 

the rubber industry, at least until 1963, it is the period of the m ost recent 

layoff. On the other hand, ILGWU plans provided for no deductions since severance pay is made from the fund in conjunction with, not in lieu of, SUB payments.

Despite the various ways in which SUB payments may reduce severance 

pay, the amounts deducted and number of em ployees affected apparently were 

relatively sm all in 1962. Among plans that permitted deductions fo r prior SUB 

payments, 19 of 41 plans making severance payments in 1962 made such deductions for some w orkers. Seven other plans were unable to provide information 

on SUB deductions. Alm ost half of the workers receiving severance pay under 

the 19 plans reporting had some amount deducted because of prior SUB payments. 

The deductions amounted to about 9 percent of the total severance pay of these 

plans. For those who were affected, deductions averaged alm ost $200 per worker.

Number of SUB plans reporting deductions-------- 19

Workers receiving severance pay in 1962--------- 3,676

Gross severance payments------------------------------$3,824,851

Workers with SUB deductions------------------------ 1,725

Amount of deductions--------------------------------- $342,648

Under certain circum stances, the SUB deductions may rise to high 

levels. One plan reported deductions averaging m ore than $900 where gross 

severance pay averaged about $ 1,400. Because the questionnaire focused on 

severance pay recipients, companies possibly did not report eligible workers 

who received no severance pay since prior supplementary unemployment benefits 

equaled or exceeded severance pay to which they were entitled. N evertheless, 

it appears that deductions for supplementary unemployment benefits were not 

significant in term s of the number of people affected among all w orkers r e ­

ceiving benefits from SUB-related plans. However, they can prove a significant 

deduction for the individuals who are so affected.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
18

Another kind of deduction involving SUB-related plans, but not included 

in the above, is the "anticipated receipt of State benefits beyond date of plant 

closing. " The severance pay under these plans is computed in the same way 

that supplementary unemployment benefits are ordinarily computed, namely, as a 

percentage of a number of w eeks1 wages less the State unemployment com pensation due the worker for those weeks. In the case of the two plans noting such 

deductions, the deductions amounted to 43 percent of total gross severance pay.

The com posite of all types of deductions (incom e tax withholding, social 

security, debts to the company, etc.) is reflected in the following data:

Number of plans reported--------------------------- 84

Gross severance payments--------------------------- $5, 776,212

Net severance payments----------------------------- $4,563,979

Deductions:

Amount--------------------------------------------- $1,212,233

As percent of gross payments------------------ 21

Deductions as a percent of gross payments, where reported, ranged among plans 

from a high of about 35 percent to a low of about 3 percent, but m ost plans 

fell within a few points of the 21 percent average shown above. If this figure 

can be taken as a reasonable estimate of typical deductions, spendable severance 

benefits will, on the average, represent about four-fifths of the amounts due 

workers on separation.

Other Payments at Separation. The plans surveyed were asked to identify other kinds of monetary payments available from the company to em ployees 

at time of severance. A certain amount of underreporting is inevitable in a 

question of this type.

The payment m ost commonly reported was prorated vacation pay. All 

but 9 plans in which workers lost recall rights and 10 plans in which workers 

retained recall rights reported that separated em ployees were paid for accum ulated vacation tim e. The amount of accumulated vacation pay depended on the 

time between the last vacation and separation, length of vacation to which the 

employee was entitled, and the individual’ s wages. Since both the typical vacation 

plan and severance pay plan provided benefits graduated by length of service and 

wages, those em ployees receiving the higher severance payments w ill also receive 

m ore in prorated vacation pay.

W orkers participating in pension plans to which they contribute (not 

com m on among collectively bargained plans) are norm ally entitled to the return 

of their contributions upon complete separation. Three plans reported that the 

em ployer’ s contributions were also returned to the worker. Twenty-four com ­

panies with savings or thrift plans in effect provided for payment of em ployer 

and employee contributions upon separation; eight others returned only the em ­

ployee’ s share. Among other plans or practices making payments upon separation 

were savings and vacation plans (8), stock-purchase plans (6), profit-sharing 

plans (2), and unused sick leave (7). Under the ILGWU plan, w orkers were 

entitled to SUB benefits in addition to severance pay, without offset.

Finally, to com plete the accounting of the cash resources of the separated w orkers, their pay for the last payroll period worked must be taken into 

consideration.

Other Benefits for the Separated W orker. The noncash, but nonetheless 

valuable, benefits that w orkers may carry with them upon separation consist

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
19

prim arily of vested rights to a pension and extended coverage under life insurance and hospitalization, surgical, and m edical plans. The companies in the 

survey were asked to report on the existence of pension and health and insurance plans and their protection available to workers receiving severance pay 

in 1962.

Of the 415 plans for which these data were reported, all but 5 had pension plans in effect. Of these 410 plans, 253, or about 3 out of 5, had a vesting 

provision. Such a provision guarantees that separated workers meeting the 

service (typically 10 or 15 years) and age (typically 40 or 45) requirements will 

receive a pension from the plan when they reach age 65, wherever they are then 

employed. W orkers who qualify thereby assure them selves of an asset that, in 

other than cash-in-hand term s, may be m ore valuable than their severance pay. 11

Data were reported for only 69 plans on the number of w orkers separated in 1962 who were vested. Of a total of 15, 938 workers receiving payments 

under these plans, 5, 251, or 1 out of 3, had qualified for a vested pension. 12

Consideration of vested pensions in relation to severance pay raises the 

question as to whether companies offset one against the other. In response to 

an inquiry on policy in this regard, 52 of the 253 companies with both a severance 

pay plan and a vesting provision in their pension plans replied that the amount 

of severance pay was to be deducted from pensions when the latter payments 

sta rt.13 Responding in the negative were 193 companies, and 8 failed to reply. 

Thus, for 1962, at least 1, 530 of the 5, 251 severed workers who were vested 

could expect to have their pensions, when and if paid to them, reduced by the 

amount of severance pay they had received. The prim ary and fabricated metals 

industries accounted for m ore than half of these w orkers.

The extension of life insurance and hospital, surgical, and m edical insurance coverage, paid for in whole or part by the em ployer, provides the separated worker with types of insurance that otherwise would not be available to him 

during any period of unemployment following separation. Such extended coverage 

is often canceled if the worker finds other employment during the period of 

extension; hence, in these cases, it is a form of benefit available only if the 

separated worker remains unemployed. None of the payments or benefits p reviously discussed has this limitation. M oreover, such extended coverage, where 

it exists, is usually available to all workers upon layoff; that is, it is not a 

benefit contingent upon com plete separation. SUB-related plans were not included 

in this inquiry because of the long period between layoff and separation. 14

Benefit coverage for life insurance and hospital, surgical, and/or m edical 

insurance typically ends at the same time or .shortly after employment term ination, according to data presented in table 5. The '‘other" category of end of 

coverage includes termination of coverage varying with length of service of the 

separated worker. Fewer than 20 percent of w orkers covered by these benefits 

can expect coverage beyond 1 month following layoff or acceptance of severance pay.

11 For a full treatment of vesting provisions and tiieir worth, see Labor Mobility and Private Pension Plans

(BLS Bulletin 1407, 1964).

12 Several plans offered workers facing separation the option between severance pay and vesting. These are

not included. Also excluded are plans in which workers could retire, with an annuity, upon separation.

13 The reverse of this practice—that is, the conversion of a vested right to a pension into severance pay,

either to supplement severance pay or to provide payment in lieu of severance pay—also exists. An example is found

in the case of Mt. Lion Electric Corporation, described in ch. IV.

14 See Major Collective Bargaining Agreements: Supplemental Unemployment Benefit Plans and WageEmployment Guarantees (BLS Bulletin 1425-3, 1965).

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
20

Table 5. End of Benefit Coverage1

When coverage ends

Life insurance Hospital, surgical, and

medical insurance

Plans Workers Plans Workers

All plans reporting----------- 265 1,145,710 266 1,147,018

Plans in companies with

benefits----------------------------- 259 1,135,268 255 1,130,259

Coverage ends:

At time of layoff-------------- 68 311,225 99 435,344

With acceptance of

severance pay----------------- 26 133,498 34 152,001

At end of calendar month

or period for which

premiums were paid-------- 56 293,631 60 273,485

Up to 31 days after layoff,

termination, or acceptance

of severance pay------------ 63 168,256 35 86,902

Over 31 days to 3 months

after layoff-------------------- 10 58,575 11 55,884

6 months or more after

layoff-----------------------.— 15 117,974 12 111,743

Other----------------------------- 21 52,109 4 14,900

* Excludes SUB-related plans.

It is advantageous for the separated worker to be able to continue health 

and insurance coverage after loss of protection under the com pany's plan, even 

at his own expense, if group rates are available. In answer to the question 

MWhen employee is no longer covered by the company, may he pay for continued 

coverage at group ra te?, " the following responses were received:

Life insurance:

With plan in effect------------------------

Workers may continue coverage—-----

Workers may not continue coverage —

No information on continued coverage

Hospital, surgical and/or medical:

With plan in effect------------------------

Workers may continue coverage------

Workers may not continue coverage —

No information on continued coverage

Plans Woikers

259 1,135,268

33 200,278

223 924,890

3 10,100

255 1,130,259

75 397,304

177 726,055

3 6,900

Companies may also arrange for ad hoc extensions of the opportunity to pay for 

continued coverage at the group r a te .15

15 Examples of ad hoc extensions are provided in two of die case studies: In one, woikers could pay the

group-rate premium of hospital-surgical-medics! insurance for up to 18 months beyond normal expiration; in the other,

insurance was available at half of the group-rate premium to woikers who accepted a special pension because of

plant closing and at the entire group-rate premium to those who received severance pay and signed for preferential

hiring at another plant.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
21

To com plete the accounting of the benefits available to workers r e ­

ceiving severance pay in 1962, the 30,459 workers receiving allowances from 

the plans surveyed, exclusive of SUB-related plans, were distributed as follows 

by the period of extended coverage under life insurance and hospital, surgical, 

and m edical plans.

Percent of woricers receiving

severance pay, 1962

All workers receiving allowances------------------------------- 100.0

Life insurance

No insurance available--------------------------------------------------- . 6

Coverage of insurance ends;

At time of layoff------------------------------------------------------ 15.9

With acceptance of severance pay--------------------------------- 3. 5

At end of month in which laid off

or period for which premiums

were paid------------------------------------------------------------- 7. 3

30—31 days after termination--------------------------------------- 57.9

At other time---------------------------------------------------------- 14. 3

No information on end of coverage------------------------------- .5

All woricers receiving allowances-------------------------------- 100.0

Hospital, surgical, and medical

No insurance available--------------------------------------------------- 1.2

Coverage of insurance ends;

At time of layoff------------------------------------------------------ 63.1

With acceptance of severance pay--------------------------------- 4.4

At end of month in which laid off

or period for which premiums

were paid------------------------------------------------------------- 16. 3

30—31 days after termination--------------------------------------- 2.9

At other time---------------------------------------------------------- 11.6

No information on end of coverage------------------------------- . 5

Plans for Nonsupervisory W hite-Collar W orkers 

Not in the Bargaining Unit

Most companies with a collectively bargained severance pay plan for 

their organized workers also had a plan for nonsupervisory w hite-collar em ­

ployees " not in the bargaining unit. Some information was obtained from the 

companies surveyed with regard to such plans.

In some cases, the questions on nonsupervisory w hite-collar workers 

proved not applicable, either because all such workers were organized or b ecause the plan was administered outside of the company, i. e ., in an association. 

Of the 418 plans surveyed, 3 reported that w hite-collar workers were in the 

bargaining unit and 44 provided no information. This section thus relates to 

371 com panies.

Of the 371 companies, 298 or 80 percent reported plans in effect, 

covering over 700,000 em p loy ees.* 17 The incidence of plans was lowest among 

companies with SUB-related plans for organized w orkers:

1^ Professional, technical, sales, and clerical employees.

17 Forty-seven companies did not report employee coverage; 251 reported a total of approximately 681,000.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
22

Type of plan for Plans for white-collar

bargaining unit Number reporting workers

All plans------------------------------ ------- 371 298

SUB-related------------------------------------ no 70

Others--------------------------------------- ------ 261 228

Alm ost four-fifths of the nonsupervisory w hite-collar severance pay plans 

were s im ila r18 to the ones for em ployees in the bargaining unit, according to 

respondents.

Plans for white-collar workers

Type of plan for

bargaining unit Similar Not similar No information

All white-collar plans------------- 234 61 3

SUB-related------------------------------- 43 27 «

Others-------------------------------------- 191 34 3

The main differences between plans for the bargaining unit and those for 

other em ployees appeared to lie in eligibility requirements and allowance scales. 

F or instance, the Auto W orkers (UAW) and E lectrical W orkers (IUE) negotiated 

SUB-related plans with m ore generous allowances than those granted m ost nonsupervisory w hite-collar workers under sim ilar circum stances. On the other 

hand, several respondents in the prim ary metals industry indicated that plans 

for nonsupervisory w hite-collar workers paid greater benefits for long service 

and required shorter service for eligibility than their collectively bargained 

plans. The same advantages were reported by m ost plans departing from nonSUB-related negotiated plans. In some cases where organized w orkers received 

severance pay and retained recall rights, the plan for nonsupervisory w hite-collar 

w orkers may require com plete termination before award of severance pay. A 

few respondents noted that severance pay for nonsupervisory w hite-collar workers 

not in the bargaining unit was handled on an individual basis.

Despite sim ilarities, bargained and nonbar gained plans differed in that, 

under the form er, workers are assured severance pay by a contractual right, 

while under the latter, provisions are subject to company policy. The meaning 

of the distinction was characterized by one respondent as follow s:

The plan /for nonsupetvisoiy white-collar workers/ is an expression of the company's

present policy with respect to separation allowances for salaried employees; it is not a part

of any contract of employment and no employee or other person shall have any legal or

other right to any separation allowance. The company reserves the right to terminate, amend,

or modify the plan, in whole or in part, at any time without notice.

Of 218 plans reporting on experience in 1962, 103, covering about 95, 000 

w orkers, indicated that no workers had been awarded severance pay during the 

year. The balance, 115 plans covering upwards of 370,000 w orkers, 19 reported 

a total of 5, 779 separated workers receiving payments. Proportionate to total 

coverage, this volume of separations with payments was about half that of the 

workers in bargaining units.

18 The word "similar" was used in the questionnaire without definition,

identical in every detail.

19 Employment coverage for eight plans was not reported.

It should not be interpreted to mean

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
Chapter III. Practices and Problems Relating to

Severance Pay and Employee Separation

The dismissal* of regular em ployees, particularly lon g-service w orkers, 

through no fault of their own is a drastic occurrence in contem porary econom ic 

life. In this chapter, an attempt is made to throw light on the practices and 

problem s involved in employee separation and severance pay that appear to have 

the m ore significant m anpower-m obility im plications. The subjects discussed 

range in scope and in time sequence from the determination of eligibility to the 

relationship between severance pay and unemployment compensation.

Eligibility Requirements

An early source of difficulty in implementing severance pay plans 

may lie in determining whether workers separated from the company qualify 

for payments under term s of the plan. If they do not qualify, the company may, 

of course, decide to waive qualification restrictions, but such a solution may 

not be feasible when a large number of w orkers or a precedent is involved. 

Qualifications for severance pay vary widely among plans. 20 Regardless of the 

sim plicity of eligibility requirem ents, there are likely to be differences in interpretation of provisions or difficulties in applying administrative rules in particular situations. Among other consequences, these differences and their resolution 

affect the number of workers receiving severance pay. Some of the problem s 

and im plications of decisions and resolutions of the difficulties will be explored 

in this section.

Where restrictions on eligibility are found in severance pay plans— and 

the m ajority of the plans contain some restriction— they may include any or all 

of the following:

1. Employment status of the worker at the time of plan implementation.

2. Specific reason for separation, relating to work situation.

3. Waiting period after separation.

4. Specific exemption from payment relating to employee behavior.

5. Availability of other work in the -company.

6. Em ployer's control over separation.

These restrictions apply mainly to plans under which workers lose recall rights 

but may also be included in plans where such rights are retained. Other im ­

portant restrictions on worker eligibility for severance payments, such as years 

of continuous service or age of worker, can be easily m easured and are therefore 

not as likely to becom e subjects of disputes or com plex interpretation.

20 See BLS Bulletin 1425-2, op. cit.

23

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
24

Employment Status of the Worker at the Time of Plan Implementation.

Eligibility is usually conditional on the worker* s status with the company. This

should not be confused with active employment; employees already on layoff may

be eligible for severance pay, and in some plans layoff is a condition for eligibility. In case studies where there was no such condition, employees on

layoff at the time the plan was put into effect constituted up to two-thirds of those

receiving severance pay.

Employment status is of particular concern to workers on active duty

when notice is given of circumstances making them eligible for severance pay.

Depending on the length of notice and opportunities for alternative employment,

workers may be torn between a desire to quit so as to be a step ahead of other

workers seeking new employment or to remain to qualify and obtain severance

pay. Some companies recognize the dilemma and make provision for employees

wishing to leave before their scheduled date of separation. Two of the case

studies illustrate managerial agreement to modify the employment status provision with the condition that operations were not to be jeopardized. In one case,

the company unilaterally permitted employees to leave early if schedules of hours

of worker substitutes could be arranged. In the other, the company and union

negotiated an agreement at the time of plant shutdown to allow workers to volunteer for layoff if workers with lesser seniority were qualified to do the work.

In both cases, few workers left early, even though there was no chance for

remaining long with the plant.

Most agreements have explicit statements about an employee* s retention

of seniority or status on the company* s employment rolls. There may be exceptions not contemplated, however, such as the employment status of a person on

leave of absence, a person only recently promoted to a position out of the bargaining unit, or a striker. Confusion about employment status can become

critical in determining severance pay eligibility. One of the case studies cites

three grievances involving this issue, which were settled by the parties at half

the value of the claims. In the ladies* garment industry, employment status

has been interpreted to mean attachment to the firm, even if the worker is sick,

on leave of absence, or employed elsewhere.

Workers on layoff are not necessarily entitled to severance pay. A plan

cited in the next chapter was applicable to employees separated within 90 days

of complete plant closings; employees laid off prior to the 90-day period did

not qualify. When in the course of a shutdown employees were laid off in

stages, management extended severance pay eligibility to all workers laid off

more than 90 days before closing.

Reason for Separation. Administrators of severance pay plans may face

problems when payment is restricted to certain conditions. The problems involve

determinations as to whether particular situations are covered by the language

of the plan. Since disagreement on interpretation can affect a large number of

workers and a decision can serve as a precedent, the issue has been referred to

arbitration in a number of cases. In a plan limiting severance pay to ’’permanent'*

discontinuance of a plant or department, an arbitrator ruled that an indefinite

shutdown of a department which had engaged in military contract work was not

"permanent” within the meaning of the clause. 21 In another case, the consolidation

of operations in various geographic locations within a radius of 33 miles was

interpreted not to be a "force reduction furlough" since the employer offered jobs

at the new location to those claiming severance pay. 22 In a third case, an

21 Bethlehem Steel and United Steelwodcets of America, 23 LA 618.

22 Teleregister Corporation and American Communications Association, 23 LA 526.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
25

arbitrator ruled that employees whose work was reassigned to other employees

and who were given new duties did not qualify for a "technological displacement

allowance" intended to apply in job termination because of changes in plant,

equipment, or process operations. 23 In a fourth case in which severance pay

would be awarded if "employment is terminated either directly or indirectly as

a result" of the employer's decision to close part of a plant, an employee laid

off 14 months prior to his department's closing was declared ineligible for severance pay, not because of the length of layoff but because the decision to close

had not been reached at the time of the layoff. 24

Although severance pay was denied in these cases, it is likely that some

of the unions involved prepared to seek remedial action to cover a situation

which it believed to be included in the existing severance pay plan or which had

not been contemplated previously. This occurred in one of the case studies.

The collective bargaining agreement included provision for a plant closing allowance to employees separated because of complete plant abandonment. When a

partial shutdown permanently removing work from a plant resulted in termination

of a substantial portion of the work force, management refused to grant the

allowance. Although the union could not persuade management to change its

stand, the next agreement contained a new provision with the same scale of

allowances to cover partial shutdowns and extended layoffs.

Extension of language by administrative interpretation rather than by

arbitration or negotiation has occurred in the ILGWU plan. The plan provides

for payments to workers separated when "an employer . . . goes out of business

for any reason whatsoever . . . . " As shutdowns have taken place, it has

become necessary to define eligibility rules to preserve the intent of the plan.

The administrators of the plan have decided that a change of a firm 's name or

nominal owners, seasonal closings, or a minor geographic relocation of a firm

does not constitute going out of business. Since work sharing usage in the industry prevents permanent layoffs among regular employees, at least in theory, the

plan administrators have focused their attention on employment opportunity. If

there is complete termination, partial shutdown, or reorganization of the business

so that there are fewer permanent members of the work force, separated employees may apply for severance pay.

Waiting Period After Separation. At what point a temporary layoff

becomes permanent is resolved in some plans by specifying a period after which

a worker becomes eligible for severance pay. Particularly in SUB-related plans

in which workers qualify for some benefits while on layoff, the length-of-layoff

criterion is prevalent. Workers waiting to establish eligibility in companies with

fluctuating employment opportunities may be faced with a dilemma, as one case

study illustrates. The plan provided for severance pay to be awarded to employees

on layoff for 6 months. Employees at the top of the seniority roster, however,

could be recalled temporarily and laid off again so that they were not able to

accumulate 6 consecutive months of layoff to collect severance pay.

The company may decide to waive the waiting period for severance pay

upon determination that reemployment is unlikely. Twelve plans requiring extended waiting periods for severance pay permitted some employees to apply for

severance pay in 1962 before completion of the normal waiting period: three

because of plant closings, eight others because separated employees did not qualify

for a pension, and one for a "m iscellaneous" reason.

Celanese Corporation of America and Textile Workers' Union of America, 22 LA 148.

Hubbard and Company and United Steelworkers of America, 32 LA 1009.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
26

Employee Behavior, Frequently, agreements contain a list of conditions

which exempt the employer from paying severance pay. This list may relate to

individual behavior leading to separation, to the availability of other work, or to

employer's responsibility for separation.

Severance pay is generally regarded as a reward for loyal service as

well as an aid through possible periods of unemployment. Because of its origins

and usual applications, employers are loathe to award severance pay in instances

they regard as contrary to their best interests. Three types of employee behavior leading to separation usually bar severance pay: Discharge "for cause, "

strike activity leading to plant shutdown, and voluntary termination.

The exemption of severance pay in cases of discharge for cause has

produced many arbitration cases in the publishing industry, primarily because

discharge for cause is one of the few reasons exempting an employer from

granting severance pay. The American Newspaper Guild has long had agreements

with many newspapers calling for severance pay for employees discharged for

reasons other than "gross neglect of duty or gross misconduct. " In a number of

arbitration and court cases, actions that were not deemed gross neglect of duty

and misconduct involved: A reporter discharged for habitual tardiness who had

energetically carried out his duties and worked at home, 25 a reporter discharged

for refusing to accept a temporary transfer of duties without reduction in pay,26

and an employee discharged for arriving to work late after consuming four or

five martinis and subsequently making "somewhat incoherent" remarks at a

business meeting. 27 Gross misconduct or neglect of duty has been upheld in cases

where an employee resigned upon being offered the choice of discharge or resignation after causing a misprint that resulted in widespread repercussions in the

community28 * and where an employee was discharged for abuse of sick leave

benefits. In none of these cases was there a dispute about the employer's

right to discharge; the subject for arbitration was whether the discharged person

was entitled to severance pay. In many of these cases, arbitrators have attempted

to distinguish between "sim p le" and "g ro ss" neglect by a variety of criteria,

including intent of the conduct, the discharged person's past record, and effect

of the conduct on the employer's business and on the morale of other employees.

It would seem that, with the standard eligibility clause in the newspaper industry,

a discharged person would have to inflict serious damage to forfeit severance pay.

Another reason for which employers have attempted to avoid severance

payments by specific or implied exclusion is strike activity of employees. Eligibility for severance pay of employees separated during a strike depends on the

terms and intent of the plan. An arbitrator granted severance pay to employees

laid off because of a strike of a union other than their own, since the separation

was beyond the control of the employees and severance pay to nonstrikers is

"an ordinary, incidental cost of business operation. " 30 In another case involving

separated nonstrikers, the arbitrator ruled that closing of operations could not

be considered a normal "layoff or reduction in staff" intended by the parties in

creating their severance pay plan. 31 Two other cases involved one employer.

In the first, an arbitrator disallowed the claim for severance pay of employees

who had observed a picket line of fellow employees represented by another union,

at which time the employer had suspended operations; the violation of the no-strike

26 A.S. Abell Company and American Newspaper Guild, 32 LA 908.

Post Publishing Company and American Newspaper Guild, 22 LA 231.

27 Post Publishing Company and American Newspaper Guild, 24 LA 173.

Publishers Bureau of New Jersey and American Newspaper Guild, 40 LA 77.

2^ Stremich_v. A.S. Abell Company, Maryland People's Court, 1958.

38 Bell Aircraft Corporation and United Automobile Workers of America, 24 LA 324.

Sea-Land Service and Office Employees' International Union, 40 LA 1248.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
27

clause voided the employer* s obligation to pay the claimants, 32 When the em ­

ployer permanently closed his business a few years later, an arbitrator ruled

that employees on strike at time of the closing were eligible for severance pay

since the strike was only one of the reasons leading to the employer* s decision

to close, and the union*s demands during the strike were not excessive or responsible for the closing. 33

A problem of a different kind arises when employees otherwise ineligible

attempt to qualify for a benefit plan. Such instances may arise, for example,

when a firm grants severance pay to all terminated employees except those

terminating voluntarily. In several instances, a newspaper executive reported,

employees intending to leave of their own volition attempted to behave in such a

way that they would be discharged. Conversely, the union sometimes charged

management with harrassment to force an employee to quit rather than to dismiss

him. No recourse to eligibility rules will solve such problems.

Availability of Other Work. The desire on the part of management to

retain certain workers as well as the existence of other provisions in the collective bargaining agreement may engender other conditions under which severance pay will not be awarded. The integration of severance pay with seniority

has at times presented difficulties concerning eligibility for severance pay. In

some companies, employees otherwise eligible for severance pay must exhaust

their rights to other work in the company to which their seniority status entitles

them before they are awarded severance pay. 34 * A decision of the War Labor

Board held that employees in steel companies were not eligible for severance pay

if they were entitled to an equivalent job in the same plant or accepted such a

job with the company in the same general locality. ** Defining substantially

equivalent employment can prove troublesome, depending upon whether pay rates,

hours, working conditions, location of the work, or a combination are the criteria

employed.

Voluntary acceptance of lower rated work might appear to indicate

employee willingness to remain with the employer so as to assure continuity of

employment. Nevertheless, one arbitrator ruled that employees whose seniority

entitled them to lower rated work and who accepted such work has suffered a

break in service according to the terms of the contract and therefore were eligible for severance pay. 36 In another case where employees accepted lower rated

jobs in other plants of the employer in the same area after their plant had closed,

the arbitrator granted the employees severance pay since the purpose of the provision requiring employees to exercise seniority rights was to protect against

reduction in job class as well as loss of employment. 37

The problem is more complex when employees have no choice in the

matter of lower paying jobs offered to them. 38 Some plans specify that employees

must accept work with lower pay, up to a given percentage of their present wage

rates. Other plans remain vague and rely on the seniority provisions of the

agreement to guide administrators and arbitrators. One arbitrator ruled that an

employee who refused an offer of lower paying work was not "laid off11 as required

for severance pay eligibility. 39 The exact opposite view was expressed by an

32 Brooklyn Eagle, Inc., and New York Typographical Union, 26 LA 111.

Brooklyn Eagle, Inc., and American Newspaper Guild, 32 LA 156.

See BLS Bulletin 1425-2, op. cit.

Basic Steel Companies, War Labor Board, 1945.

U. S. Steel Corporation and United Steelworkers of America, 27 LA 438.

Republic Steel Corporation and United Steelworkers of America, 30 LA 392.

See BLS Bulletin 1425-2, op. cit.

R.H. Worral Company and International Association of Machinists, 22 LA 30.

205-662 0 -6 6 - 3

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
28

arbitrator in a similar case, largely on grounds that forcing an employee to accept

a lower rated job to which he is entitled by seniority would give such employee

less freedom of choice than employees with lesser seniority who did not enjoy

such "r ig h t s ."40 This is the crux of the matter. The junior employee offered

lower rated work may have the option of choosing the work or severance pay; the

senior employee has the option of accepting the work or "quitting. " In some

instances, as one case study illustrates, the senior employee may actually prefer

to forfeit severance pay and other benefits and leave. Recognition has been given

this problem in some steel industry plans which now disqualify from severance

pay employees entitled by seniority to a job in the same job class but permit

employees entitled by seniority only to a job in a lower job class to receive both

the job and severance pay.

Em ployees Control Over Separations. Exemptions from the severance

pay obligation may also be conceded to employers in circumstances over which

they have no control. 41 What constitutes separation beyond the control of the

employer has proven to be a problem in some instances. "Acts of God" generally qualify as being beyond the employer's province. In one case where the

pertinent clause provided exceptions to severance pay when separation was due

to "fire, flood, utility failure, or other similar circumstances beyond the control

of the company, " an arbitrator ruled that employees laid off because of a strike

by other employees should receive severance pay; the cause of layoff, though

beyond the sole control of the company, was not in the same vein as the listed

exceptions. 42 In another case, a company was excused from severance payments

to employees separated because of supply shortages, but had to pay other em ­

ployees performing related work who were also separated because their separation was motivated by business reasons and therefore within the company's

control* 43

Other Problems. There may be similar difficulties in defining terms

found in other clauses of the agreement which bear directly on severance pay

eligibility. Does a laid-off employee who accepts a trial on a new job and is found

wanting break his period of "continuous layoff"? If management feels it has

insufficient evidence to press a dismissal for cause and therefore lets an employee

"resign, " is the employee to be regarded as leaving voluntarily or involuntarily?

What time not worked since the employee's commencement of employment with

the company should be credited for determining benefit (including severance pay)

eligibility? Questions such as these are indicative of the interrelationships

among conditions of employment.

Options to Severance Pay

When a worker is marked for displacement from his job, other work

with the company or layoff with preferential recall may be available to him.

As the previous section indicated, the availability of other work prior to separation may disqualify the worker from severance pay eligibility, although many

plans contain safeguards protecting the worker from forced acceptance of onerous

or downgrading transfers. The offer of other work or layoff with preferential

recall may also be made to workers whose eligibility for severance pay is not

in question, either in addition to, or as an alternative to, severance pay. This

section is concerned with the latter, that is, offers which pose a choice between

severance pay and another job with the company or a chance of a job through

preferential recall.

Princeton Worsted Mills and Textile Workers Union of America, 25 LA 587.

See BLS Bulletin 1425-2, op. cit.

Joy Manufacturing Company and Office Employes International Union, 31 LA 341.

Color Corporation of America and various unions, 25 LA 644.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
29

When a worker accepts an available option, he continues to have a job

or a claim to a job, with rights to severance pay in any future separation usually

remaining intact; when he rejects an option, he takes his severance pay but

surrenders the opportunity for other employment in the company. Workers1

decisions in this regard are presumably based on available alternatives, the

amount of severance pay involved, and their evaluations of job opportunities

elsewhere. The related mobility issues for which information was sought through

this study are: What kinds of options are available to workers facing separation?

To what extent do workers reject alternatives involving a different job, moving, a

lower rate of pay, or different combinations of such disadvantages? The first

question is also pertinent to the subsequent discussion of employer efforts on

behalf of workers facing displacement or after displacement. The second question

leads to a broader inquiry regarding worker motivation, e. g. , is the severance

payment, which may be substantial, an incentive to give up an employment opportunity which otherwise might have been acceptable?

Because the timing of the options and workers* choices differ between SUB-related plans and other types, the two categories are discussed

separately below.

Other than SUB-Related Plans. Of 271 plans represented by responses

to an inquiry as to general practice, 151 were indicated as having one or more

options available to workers (table 6). Including multiple options, 85 companies

offered workers another job with the company at the same or higher rate of pay

in the same area, and 116 companies offered another job with the company at

a lower rate of pay. Transfer to another plant of the company in a different

geographic area (an option obviously possible only in multiplant companies) was

offered by 95 companies. Exclusive of plans under which workers retained recall

rights, 31 companies offered layoff with preferential recall rights as an alternative to severance pay. Ten companies reported other options.

Table 6. Options to Severance Pay in Other Than SUB-Related Plans by Type of Plan

All plans Lose recall

rights Retain recall Combination Other

Plan options Number

of

plans

Workers

covered

Number

of

plans

Workers

covered

Number

of

plans

Workers

covered

Number

of

plans

Workers

covered

Number

of

plans

Workers

covered

Total number of plans-------------- 271 1.158.368 72 219,913 183 778,855 11 152,350 5 7,250

Plans with no options--------------------- 120 483,411 31 88,380 84 387,781 1 1,200 4 6,050

Plans with 1 option or more------------

Another job in the same area with

151 674,957 41 131,533 99 391,074 10 151,150 1 1,200

at least same rate of pay----------

Another job in the same area at

85 334,576 22 55,281 59 217,995 4 61,300 - -

a lower rate of pay----------------- 116 535,749 31 103,406 74 279,993 10 151,150 1 1,200

Layoff with preferential recall----- 31 153,387 27 94,137 - - 3 58,050 1 1,200

Another job in a different area----- 95 444,063 23 76,910 68 304,453 4 62,700 - -

Other------------------------------------ 10 68,100 6 41,950 4 26,150 - - - -

NOTE: Plans and workers covered in each option are nonadditive since some plans reported more than 1 option.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
30

The affirmative responses to this inquiry should not be construed to mean

that every worker facing separation in these companies had an option set before

him. Options are not guarantees. Company policy may not be operative in the

event of a large-scale layoff or under other circumstances which rule out any

possibility of a job offer or a job promise.

To a further inquiry regarding experience in 1962 in worker acceptance

or rejection of options, only 32 companies were able to supply data. Their plans

covered a total of 159,766 workers, and made severance payments to 3,335

employees in 1962. The responses did not account for all separated workers;

hence, it must be assumed either that options were not offered to a large proportion of workers receiving severance pay or that records were incomplete.

This limitation plus the low rate of response suggest caution in generalizing on

the basis of the figures presented below.

The companies were not asked for the number of employees who had

accepted the option of another job with the company in the same plant or area,

since the process of placing workers in other jobs involves the seniority and

"bumping" procedures in effect and may stretch back too long in time to account

adequately for what happened. They were, however, requested to report the

number who had rejected such options for severance pay, and the number who

had accepted and rejected other options.

Only 74 workers rejected another job in the same plant or area with at

least the same rate of pay, but 421 workers rejected another job with a lower

rate of pay. Only 23 workers accepted the latter option with no appreciable

difference in rate of acceptance noted between plans where workers retain or

lose recall rights when awarded severance pay. Among plans in which workers

lose recall rights upon receiving severance pay, 167 workers accepted an option

of layoff with preferential recall rights, while 284 workers rejected this option.

Transfer to another plant in a different area at the same rate of pay or higher

was accepted by 299 workers and rejected by 353. Transfer to a lower rated

job elsewhere was accepted by 2 and rejected by 20 workers. Perhaps the chief

conclusion to be drawn from these data is that a substantial proportion of workers

tend to reject jobs involving disadvantages such as moving, a lower rate of pay,

or layoff in place of severance pay. What they would have done in the absence

of severance pay is, of course, not determinable.

The acceptance rate of options may be the result of several, sometimes

conflicting factors. One company with an elaborate program of inter plant job

offers and relocation allowances explained the ineffectiveness of the program

as follows;

Employees /eligible for/ severance pay are normally long-service employees, and

they are extremely reluctant to start at another company location at the bottom of the seniority roster and on a lower rated job with the possibility of working on the second or third shift.

Two of the case studies suggest, moreover, that options may be accepted temporarily to gain eligibility for a specific benefit rather than to ensure further

employment.

With regard to options to transfer to another location, companies were

asked whether it paid part or all of the moving expense of employees accepting

transfer. Eighteen of 45 companies replying did pay moving expenses. Thirteen

companies with this practice reported their experience in 1962 as follows:

Workers accepted Workers rejected

option to transfer option to transfer

Moving expenses paid

in whole or part----------

Moving expenses not paid252

41

314

58

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
31

These tentative data indicate that while the payment of moving expenses has a

strong influence on workers' decisions to transfer, in many cases it does not

counteract other reasons, against transferring.

SUB-Related Plans. Companies with SUB-related plans reported options

as follows:

Option

Total number of plans------

Plans with no options--------------

Plans with 1 option or more-----

Another job in same area

at lower rate of pay---------

Another job in different area

Other -----------------------------

Plans Workers

147 1,709,879

83 707,498

64 1,002,381

41 462,201

32 422,551

25 297,950

In the "other" category, respondents most frequently indicated other jobs in the

same area at the same or higher rate of pay, and layoff with recall. Other

SUB-related plans are known to offer an option of layoff in addition, after workers

have satisfied minimum waiting-period requirements. 44 The incidence of layoff

as an option underscores the fact that other possibilities are likely to have been

exhausted before the employee qualifies for severance pay. Also, among

SUB-related plans, extended layoff may provide some workers with more money

in supplementary unemployment benefits than they would receive from severance

pay provisions without affecting their seniority rights. Six SUB-related plans

which awarded severance pay to 1,118 workers in 1962 reported on options that

had been rejected:

Option Number rejected

Another job in same plant or area

at lower pay----------------------------------------------------------------------------- 45

Another job in different area with

at least the same rate of pay-------------------------------------------------------- 104

Other---------------------------------------------------------------------------------------------- 15

Administrative Problems. The arbitration cases cited in the previous

section illustrate some of the problems in distinguishing between offers that are

alternatives to, or preclusions of, severance pay. Agreement by the parties as

to what constitutes an option may not remove all difficulties, however. In one

situation brought to arbitration, employees had the option of severance pay or

layoff with retention of seniority. The company did not announce its decisions

regarding severance pay eligibility until after employees had been laid off. The

arbitrator ruled that the layoff had not been presented as an option at the time of

separation and that therefore employees could claim severance pay within a

period following the company's announcement of its decision. 45

According to some procedures, options may be offered only to those

making formal application. In one case study, for instance, only 60 of 500

eligible workers indicated an interest to transfer to another location and could

be offered the option; about 40 accepted the option.

Employees who become dissatisfied with an option they have accepted

create another kind of problem. Without a specific procedure to cover such an

eventuality, employees may have no choice but to quit, a prospect that may

44 See BLS Bulletin 1425-2, op. cit.

45 U. S. Steel Corporation and United Steelworkers, 37 LA 302.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
32

affect their original decision regarding the option. Companies may avoid the

problem by giving employees moving to another community a period of time during

which to renounce the option without penalty. Less liberal treatment is usually

afforded to employees becoming dissatisfied with options in the same plant

or area.

The Payment Process

Plan regulations and administrative machinery determine the timing of

receipt of severance pay by the displaced worker and thus affect its expenditure.

This section explores the payment process, including procedures for preparing

severance payments, waiting periods, and the manner in which the payments

are made.

Administrative Delays. This study brought to light some of the variety

of approaches taken with respect to employee application for severance pay.

Sometimes the procedure is automatic, that is, the company determines the

amount of severance pay due each worker and sends that amount. The procedure

is more complex in other cases, especially when the worker is faced with a

choice between severance pay and other options. Then the company or the union

may wish to explain the choices and the implications of various decisions. Such

explanations have been given by letter, through newspaper stories, and in group

meetings. Some companies have found it advisable to follow up explanations with

individual discussions with workers, particularly at the time each one is ready

to signify his choice. These last-minute sessions were designed not so much to

influence a worker's decision as to make sure that all questions had been answered and that the worker fully understood what rights and benefits would be

gained and lost by the choice.

When a worker is faced with a choice, the company may want to have

his decision in writing to signify that the decision is binding. Formally signed

applications for severance pay, however, may be required even when there is

no choice for the eligible worker. Where severance pay is financed through a

trust fund arrangement, signed applications may be necessary to authorize the

payments. Applications may also be designed to permit laid-off workers to

indicate by mail their understanding of the conditions under which severance pay

is awarded. A principal reason for severance pay applications requiring signatures is the recognition by specific statement that the severance payment ends all

rights and claims the signer may have with the company.

In a multiemployer severance pay fund, such as that of the ILGWU,

applications serve still another purpose. The fund administrators may not know

of the worker's claim for severance pay until he has submitted an application

which triggers a validating investigation. After the fund has determined that an

employer has gone out of business, affected workers have 30 days in which to

apply for benefits if they have not done so already. Fund administrators estimate

it takes 4 to 5 months after an employer shuts down to establish severance pay

eligibility and to calculate the payments due applicants.

Once applications have been received and/or eligibility has been established, the employer must calculate the amount of severance pay due the separated

worker and prepare the payment. In some firms this is a simple matter, but in

multiplant firm s, funded plans, and multiemployer plans the process may take

several weeks. Various echelons or parts of the corporate organization as well

as the trustees of the fund may be required to check eligibility and amounts due

before the payment can be made. One of the case studies traces the path of

severance pay authorizations: from plant to the local union, back to the plant,

to corporate headquarters, to the plant and corporate headquarters again, and

finally to the bank which keeps and disburses the fund; the entire procedure took

up to 8 weeks. The addition of central data processing for payroll and personnel

recordkeeping has provided a channel for severance pay authorizations in other

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
33

companies. In general, the more steps that are added, the greater is the possibility of extending the delay between application and actual payment. In some

companies, however, the applications are begun sufficiently before actual separation to permit payment close to day of separation; in the cases studied, this procedure was not the norm.

Administrative action of another sort may delay severance payments

following separation from employment. Where severance payments are conditional

on a particular set of circumstances, determination of whether the circumstances

have been fulfilled may take time. Determination can take the form not only of

checking, as in the case of the ILGWU fund, but also waiting for a given action

to occur. Thus, one plan which required complete plant shutdown to establish

severance pay eligibility waited many months after a major layoff before announcing the closing of the plant. Workers had received other benefits in the

interim but could not collect their severance pay until after the plant closing

announc ement.

Sometimes the delay is not due to internal administrative procedures but

to external problems. In one case, a severance pay fund was liquidated as quickly

as the securities in which the fund was invested could be prudently sold. The

rate of benefit applications outpaced the rate of security disposal, thereby causing

a backlog of applications for 2 months.

Waiting Periods. Another reason for delay of severance payment following layoff is that it is a requirement of the plan. Under some plans, the

waiting period amounts to another eligibility requirement. 46 Perhaps the extreme

practices are found in SUB-related plans; the auto industry plans, for example,

require a year of layoff before a worker can apply for severance pay; rubber

industry plans require a longer period.

Respondents having non-SUB-related plans were asked, nIs there a

waiting period between the time employment is severed and the time the employee

receives severance p a y ?" nIf 'y e s ,' how long is the waiting period?" A different approach was necessary in the case of SUB-related plans; this method is

discussed separately.

Almost a fourth of the 271 plans that were not SUB-related indicated the

existence of a waiting period. Whether a waiting period was required by the plan

or occurred through the administrative procedures established for payment, was

not determined. 47 The practice was more frequent among plans in which workers

retained recall rights, as shown below.

SUB-related plans

Type of plan No waiting period Waiting period No information

Plans Workers Plans Workers Plans Woikers

Lose recall rights........................ .........- 61 189,513 9 22,400 2 8,000

Retain recall

rights..................... 127 556,748 53 216,658 3 5,449

Combination------------------------------------ 9 147,900 2 4,350

No information

on recall rights------------------------------ 1 1,300 1 2,000 3 3,950

Most of the plans which maintained the recall rights of workers made

payment within a month after layoff. Longer periods, up to 12 months or more,

were required in 12 plans of this type, and in 6 plans in which recall rights

were lost.

46 See BLS Bulletin 142S-2, op. cit.

The question did not make a distinction between these two causes. Presumably, some companies took

administrative delays into account.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
34

Length of waiting period between termination of employment and payment of severance pay

More than 1 but 3 to less 12 months Depends on

1 month or less_____ less than 3 months_____ than 6 months and more circumstances

Plans Workers Plans Workers Plans Workers Plans Workers Plans Workers

Lose recall

rights-.................... 1 1,200 - 3 5,800 3 12,050 2 3,350

Retain recall

rights------------------ 41 185,815 9 24,525 1 1,250 2 5,068 - -

Combination— ---— - - 1 3,250 - - 1 1,200

No information

on recall

rights------------------ 1 2,000 - - - “ "

Companies with SUB-related plans were asked if the plan provided for

a waiting period before laid-off employees, who presumably are eligible for

regular SUB payments, became eligible for severance pay. Of those who responded in the affirmative, several additional questions were asked, designed to

bring out experience in 1962 relating to waiting periods and possible relaxation

of waiting requirements.

Of 146 plans responding to this inquiry, 43, with approximately 45 percent

of total worker coverage, indicated that a waiting period was required. 48 In

response to the question "Did the company in 1962 permit some employees to apply

for severance pay before completion of the normal waiting period?" 12 companies replied in the affirmative, of which 6 mentioned disability or retirement without a pension as the only reasons.

One way of evaluating the importance to workers of an eligibility waiting

period is to see how quickly they respond to the offer of severance pay once they

become eligible. SUB-related plans were asked to supply information on the

number of employees becoming eligible for severance pay in 1962 and the number

of these applying for severance pay as soon as eligible. Of the 43 plans with

waiting periods, 15 plans had no separations and 16 others were unable to supply

the information. The remaining 12 plans reported that 1,043 workers became

eligible for severance pay during 1962, but only 360 of these applied for severance

pay during the year. Other workers eligible from prior years applied, too,

raising the total number receiving severance pay from these companies. It

would seem, on the basis of these returns, that all workers do not seek to obtain

severance pay the moment they become eligible, even if they have had to wait

to establish eligibility. On the other hand, one company supplying supplementary

information for 1963 reported that 1, 300 to 1,335 workers applied for severance

pay as soon as eligible; similarly, one-half of the companies reporting on the

number of workers becoming eligible and applying for severance pay as soon as

eligible indicated that all workers applied immediately on becoming eligible.

Method of Payment. Another time factor is introduced by the method

of payment, that is, whether taken as a lump sum or in installments. In the

former instance, the worker receives all of his severance payment at once; in

the latter, his weekly pay is usually continued until his balance is exhausted,

e. g ., 20 payments over a 20-week period.

In SUB-related plans, it was presumed that severance payments would

normally be made in a lump sum. Other types of plans were queried as to their

procedures, with the following results.

48 Information on length of waiting period is provided in BLS Bulletin 1425-2, op. cit.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
35

Method of payment of severance pay

Type of

plan Lump sum only

Regular installments

only Optional or other No information

Plans Workers Plans Workers Plans Workers Plans Workers

All plans other

than SUBrelated plans -—---- 201 901,960 21 38,702 44 209,556 5 8,150

Lose recall

rights-------------------- 51 149,007 9 18,506 11 49,400 1 3,000

Retain recall

rights--------------------— 148 696,753 12 20,196 22 60,806 1 1,100

Combination------------ 1 55,000 - - 10 97,350 - -

No information

on rights--------------- 1 1,200 _ _ 1 2,000 3 4,050

Among the plans designated as "optional and other" were those which

gave the option to the workers, or to the employer, or varied the method of

payment according to certain circumstances. *9 Some of the plans indicating

payment in installments added that small amounts, e. g ., less than 4 weeks’ pay,

would be paid off in a lump sum. A few plans indicated that the method of payment affected the status of recall rights, i. e . , workers electing lump-sum

payments surrendered recall rights or preferential hiring rights they would maintain if receiving severance pay in installments.

Waiting periods and installment payments raise a subsidiary issue. Traditionally, severance pay plans have not made payments contingent in whole or

part on the worker remaining unemployed. That is, the separated worker was

entitled to his full severance pay even if he found a job immediately upon dism issal. A direct question to plans other than SUB-related elicited the information

that only 15 plans, covering close to 23,000 workers, did take the status of the

worker after separation into account. Nine of the plans covering half of the

workers, were plans under which workers retained recall rights. Seven of the

15 plans had a waiting period of over 1 month between separation and payment

of severance pay; 2 of the 7 always paid severance pay in installments. An

additional five plans reported that employment status following separation became

a determinant for eligibility only if the separated worker elected an option for

weekly benefits. It is possible that some respondents who stated that unemployment was a condition of eligibility confused employment with the company and

employment with others. Even so, the number remains small, leaving the

traditional nature of severance pay plans intact.

Liberalizing or Reducing the Severance Pay Obligation. Most SUB-related

severance pay plans are funded; the exceptions occur chiefly in the primary and

fabricated metals industries. Where severance pay is awarded from a SUB fund,

severance payments can be— and, in some cases, have been— reduced if the fund

falls below a minimum level. Of 81 funded SUB-related plans reporting,

42 indicated that severance payments are subject to reductions depending on the

level of the fund, and 20 of the 42 reported that in the past, payments had been

reduced. Some of these plans also reported that severance payments may be

deferred if fund levels so require.

49 See ELS Bulletin 1425-2, op. cit.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
36

One multiemployer plan reported that individual employers covered by

the plan sometimes awarded extra severance pay. Outside of this instance, only

seven of the plans studied (three in which workers lose recall rights and four in

which workers retain recall rights) answered in the affirmative the inquiry as to

liberalization of stipulated plan benefits. Reasons such as hardship and "com passionate" payments were cited. The case studies illustrate types of liberalization

of the severance pay obligation at the time of implementation, including distribution of excess funds, waiver of requirement of active employment within 90 days

of plant closing, and increase of minimum awards to represented employees to

levels commensurate to those granted nonrepresented employees.

Company Services

The survey of companies presented an opportunity to find out the extent

to which assistance other than severance pay is available to workers facing separation and after separation. Although such services need not be restricted to

separated workers receiving severance pay, they can affect the significance of

severance pay for recipients by providing directions to other employment.

The extent of company services for separated workers is likely to be

understated in a survey of this type. Company efforts may begin long before

worker separation is certain. Furthermore, many practices may be informal,

e. g. , those engaged in by supervisors on their own initiative. Despite these

limitations, the replies indicate the general nature and extent of current practices.

The questionnaire asked "What company services have been available to

employees before and after severance?" Specific inquiry was made concerning

four types of services: Training for other jobs with the company, testing and

guidance, company-sponsored employment referral, and training for jobs outside

of the company. Respondents could also indicate other pertinent services. The

results were as follows:

Plans Workers

Workers with severance

pay, 1962

Total----------------------------------------- 418 2,868,247 52,838

No services--------------------------------------- 165 725,496 11,301

1 or more services------------------------------ 247 2,133,795 41,537

Selected services:

Training for jobs with company---------- 156 1,220,054 24,612

Before-------------------------------------- 137 1,082,446 21,663

After--------------------------------------- 2 13,250 672

Before and after-------------------------- 17 124,358 2,277

Testing or guidance------------------------ 114 761,181 16,187

Before-------------------------------------- 90 492,583 11,171

After--------------------------------------- - - _

Before and after--------------- ;---------- 24 268,598 5,016

Company-sponsored

employment referral--------------------- 157 1,261,911 35,350

Before-------------------------------------- 53 384,647 12,302

After--------------------------------------- 1 46 504,729 10,184

Before and after-------------------------- 58 372,535 12,864

Training for jobs outside of company — 18 151,689 4,061

Before-------------------------------------- 5 19,415 2,030

After-------------------------------------- 7 35,174 984

Before and after-------------------------- 6 97,100 1,047

Other------------------------------------------ 5 20,650 295

No information on services-------------------- 6 8,956 _

* Includes 35 plans associated with ILGWU fund, which offers union-sponsored employment referral after employment termination.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
37

Services classified as "other11 include financial assistance for educational

purposes and aid in enrolling laid-off employees in retraining programs, such as

those authorized by the Manpower Development and Training Act.

The overwhelming majority of workers who received severance pay

in 1962 had recourse to one or more services from their employers. Except

for SUB-related plans, most companies with services offered more than one type.

About three-eighths of other-than-SUB-related plans provided three or more types

of services.

Companies are naturally interested in programs from which they are

likely to benefit. It is not surprising, therefore, that services which encourage

retention of workers— and, incidentally, save the expense of severance pay— should

be offered principally only before severance. This is apparent in the case of

training for jobs with the company.

Type of plan

SUB-related__________________ Lose recall rights

Plans Workers

Workers

with severance pay,

1962 Plans Workers

Workers

with severance pay.

1962

Training for jobs

with the company:

Before severance----

After severance-----

Before and after

severance----------

21 527,960 4,839 23

2

86,750

13,250

1,326

672

Retain recall rights Combination

Training for jobs

with the company:

Before severance---- 90 406,736 14,913 3 61,000 585

After severance----- - - - - _ _

Before and after

severance --------- 11 35,558 1,229 6 88,800 1.048

Many companies have regular training programs to upgrade worker skills and

to prepare workers to accommodate to technological changes. Some companies

provide special programs to rescue workers whose skills are obsolete and who

would otherwise be slated for termination. In-company training programs also

permit displaced workers to offer additional experience and vocational skills when

seeking other employment.

Substantially less common than the previous service, testing and guidance

was available to one-fourth of workers covered by severance pay plans.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
38

Type of plan

SUB-related Lose recall rights

Plans Workers

Workers 

with severance pay, 

1962 Plans Woikers

Workers 

with severance pay j 

1962

Testing and guidance:

Before severance— 6 149,521 615 14 72,400 1,002

After severance----- - - - - - -

Before and after

severance —------ 10 150,640 2,218 3 15,850 674

Retain recall rights Combination

Testing and guidance: 

Before severance— 67 269,312 9,494 3 7,350 60

After severance----- - - - - - -

Before and after 

severance--------- 5 13,308 1,076 6 88,800 1,048

Despite the lower incidence, twice as many separated workers had this available

“before and after11 separation as training for a job with the company. The difference is accounted for largely by SUB-related plans. Testing and guidance can

prove helpful in channeling the worker* s efforts toward subsequent employment.

The most prevalent service is company-sponsored employment referral.

Type of plan

SUB-related Lose recall rights

Workers 

with severance pay,

Plans Woikers 1962

Workers 

with severance pay,

Plans Workers 1962

Comp any-sponsored 

employment referral: 

Before severance-—

After severance-----

Before and after 

severance---------

Company-sponsored 

employment referral: 

Before severance—

After severance-----

Before and after 

severance---------

This alone of the three

16 258,410 4,093 12

41 485,402 10,102 -

12 160,540 2,951 5

Retain recall rights

25 114,287 7,165 _

5 19,327 82 -

35 99,895 8,019 6

major services is clearly

11,950 1,044

23,300 846

Combination_____

88,800 1,048

provided to help employees

after final separation. If company-sponsored employment referral is not a matter

of company policy, it may be invoked on an ad hoc basis. In all of the case

studies in which a large number of workers could not be offered other employment with the company, the company gave consideration to finding other employment possibilities. Where no system was established, it was due to lack of

other employers in the area who could use the available skills. Typical sources

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
39

in locating other employment opportunities were personal contacts, professional

societies, and industrial associations. Thus, in several of the case studies,

personnel directors called on their counterparts in other companies as well as

local organizations to uncover suitable openings for workers affected by plant

shutdowns. Large-scale formal efforts have not been uncommon in recent years

and have included newspaper advertisements, mailing of brochures and resumes,

and "job-hunting task forces. " The effectiveness of all these efforts remains

largely unmeasured. Where there is success, the separated worker probably

gets what he wants most— another job.

Company-sponsored training for jobs with other companies is uncommon.

Where available, it can lead separated workers to employment opportunities

elsewhere.

Type of plan

SUB-related_________ ________ Lose recall rights

Plans Woikers

Woikers 

with severance pay, 

1962 Plans Woikers

Workers 

with severance pay, 

1962

Training for jobs 

outside of company: 

Before severance--- 1 8,865 2 1 1,650 113

After severance—— 1 3,300 - 3 16,750 903

Before and after 

severance--------- 1 10,000 _ _ _

Retain recall rights Combination

Training for jobs 

outside of company: 

Before severance--- 3 8,900 1,915

After severance----- 3 15,124 81 - -

Before and after 

severance - —----- 5 87,100 1,047

Highly publicized experiments in retraining displaced workers were underwritten

by the Armour Automation Fund Committee. 50

Role of Union

Throughout this chapter, the role of the union was inferred rather than

explicitly stated. In these plans, which are all under collective bargaining, the

union represents and advises the workers involved in layoff and separation situations, and is also responsible for requesting, and bargaining over, modification

in plan provisions. Unions may also affect the extent of plan implementation.

The case studies uncovered some special instances of union participation which

merit mention.

The union may provide various kinds of services to workers at time of

separation, which parallel or supplement the services offered by employers.

When workers are faced with decisions, union officers may sit with management

officials to advise workers who are ready to make a commitment. In one case,

the union was assigned the responsibility of informing workers already separated

50 See Monthly Labor Review, August 1961, pp. 851-857 and January 1964, pp. 53-57.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
40

of a newly negotiated severance pay plan. In efforts to locate employment opportunities for displaced members, union locals have established worker committees to visit other employers in the area, A more extensive effort in one

situation was the establishment of a union committee at an office of the State

employment commission, to offer special assistance to displaced workers. More

elaborate and usually more successful employment assistance is provided by

unions with permanent, continuing facilities. Other union services include

arranging meetings for workers to hear about tax implications of severance pay,

training opportunities, public assistance programs, and similar topics.

Severance Pay and Unemployment Insurance

The relationship between severance pay and unemployment compensation

depends upon State statute or interpretation. As of January 1964, seven States

did not permit payment of unemployment compensation for the week in which

severance pay was awarded; 15 other States reduced the weekly benefit by the

weekly prorated amount of the severance payment, as follows:

No benefit is paid for week of receipt of severance pay:

Alabama Montana

Arizona51 North Carolina

Arkansas West Virginia

Connecticut

Weekly benefit is reduced by weekly prorated amount of the severance

payment:

California

Indiana

Maine

Maryland

Minnesota

Mississippi

Missouri

Nebraska

New Hampshire

Ohio

Oregon

Pennsylvania 52

Utah

Virginia

Wisconsin 53

There have been reports that at least one other State, Oklahoma, has

ruled that unemployment compensation was not payable while severance pay was

being prorated. 54 In a few States, however, severance pay is specifically

mentioned in the statute as not disqualifying the recipient for unemployment compensation; for example, Michigan and Rhode Island. 55 In other States, similar

conclusions have been reached by administrative agencies and courts. 56

The Ohio regulation regarding severance pay and unemployment compensation may illustrate the manner in which total benefits are reduced by prorating

severance payments.

1 Individual not ineligible for unemployment benefits if severance payment has no direct relationship to regular 

wagess |md is not allocated to any specific period.

Excludes severance payments up to $100 per week made to employees, permanently separated, upon their 

relinquishment of all accrued rights and benefits from services with separating employer.

Reduction as wages only when the severance payment definitely allocated by the close of such week, payable 

to the employee for that week at the full applicable wage rate, and the employee had had due notice of such allocation.

Edwin Young, "The Armour Experience: A Case Study in Plant Shutdown," in Adjusting to Technological

Change (New York, Harper & Row, 1963), p. 149.

H Michigan Employment Security Act, Sec. 48; Rhode Island Employment Security Act, Sec. 28-44-59.

For example: Colorado, Industrial Commission v. Serokman, 1957; Georgia, Meankins v. Commissioner, 1959; 

Illinois, Kroger v. Blumenthal, 1958; South Carolina, Southern Bell Telephone 8 Telegraph Company v. South Carolina 

Employment Security Commission, 1962.

Source: U. S. Department of Labor, Bureau of Employment Security, "Comparison of State Unemployment

Insurance Laws as of January 1, 1964," BES No. U-141.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
41

Severance pay will be deducted from any claims for benefits filed with respect to 

the period covered by severance pay. The Bureau will allocate severance pay on basis of 

•claimant's normal weekly wage to the first calendar week following separation and to each 

succeeding week until the total severance pay has been allocated. Normal weekly wage is 

full workweek without overtime.

Of the 15 States listed as reducing benefits by weekly prorated amount

of severance pay, only one State, Pennsylvania, distinguishes between various

types of severance pay plans. It restricts disqualification largely to employees

who retain recall rights.

Interpretations on eligibility for unemployment compensation must also

be rendered in situations that deviate from simple separation. Should the offer

of employment options to severance pay be considered as ’’suitable w ork?” If

so, what happens if the worker accepts an option and subsequently voluntarily

terminates ? Tfye manner in which severance pay is accepted may also be critical.

A 1958 decision of the Pennsylvania Supreme Court ruled that a worker who

voluntarily elects to receive severance pay when forfeiting seniority rights in a

technological displacement is disqualified from eligibility for unemployment

compensation. 57

The disparity of treatment of severance pay with respect to unemployment

compensation among the States may be largely explained by divergent views of

severance pay. Those favoring prorating of severance pay to offset unemployment

compensation regard severance pay as compensation for wages lost after separation. In this view, severance pay and unemployment compensation are redundant.

The employer is financially penalized if he is forced to pay twice (severance pay

and unemployment compensation contributions) for benefits covering the same

purpose. Those who favor leaving unemployment compensation unaffected by

receipt of severance pay relate severance pay to the worker’ s past service to

the employer. Hence, severance pay is considered as an accrued benefit, or

deferred wages, not related to the worker’ s employment status after separation.

Both views have legal precedent. The Social Security Act and the Federal

Unemployment Tax Act exempted severance payments from the definition of

’’wages” subject to tax between 1939 and 1950. Prior to 1939 and after the

effective date of the amendments, severance payments have been included in the

definition of "w ages” for contribution purposes.

Although it is not possible to determine how many workers eligible for

severance pay are affected by State rulings on unemployment compensation, a

rough indication of the significance of State practices is possible. Of 525 major

agreements with severance pay plans, 353 were limited to a single State and

covered one-third of the total number of workers with severance pay provisions

in their collective bargaining agreements. More than half of the workers covered

under these 353 plans may be affected by State unemployment compensation

statutes or interpretations on severance payments, although the type of plan or

the precise wording of th e statute might eliminate some from application.

57 Herbster v. Unemployment Compensation Board of Review and American Viscose Corporation, 42 LRRM 132.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
Chapter IV. Severance Pay Plans in Operation— Five Case Studies

To reveal the operation and effects of severance pay plans that lie beyond

the scope of agreement analysis and a mail questionnaire, five case studies were

undertaken. Each study focused on a partial or complete plant shutdown in which

severance pay was awarded. To place the severance pay plan in perspective, the

entire shutdown procedure was studied, including timing of separations, other

work opportunities offered by the company, and services provided to separated

workers.

The studies were conducted by reviewing company and union records and

interviewing company, union, and community officials, representatives of State

employment services, and to a limited extent, displaced workers who received

severance pay.

An attempt was made to find five diversified situations for study. Since

the plant shutdown had to be recent, the choice was greatly limited. Thus, these

situations are not necessarily representative. In order to assure as complete a

reporting as possible, the names of the cooperating companies, unions, and the

communities have been disguised, with only one unavoidable’exception— the identity

of the union in the fifth case.

205-662 0-66-4 43

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
1. Mt. Lion Electric Corporation

Introduction

The Coleville plant of the Mt. Lion Electric Corporation, manufacturers

of electrical equipment, was closed in July 1963. Its production was shifted to

the company's main manufacturing facilities and headquarters about 500 miles

away. Approximately 300 workers were employed at the plant at the time of the

shutdown and an additional 800 workers with seniority were on layoff status.

The plant had been opened by another company in 1932 and was acquired

by Mt. Lion 6 years later. Many of the employees affected by the plant closing

had worked there continuously since the days of the predecessor company. Peak

employment occurred in 1953, when more than 2, 000 workers were employed.

A steady decline followed: By 1958, employment had dropped to 600; by 1962,

to less than 300. In addition to the long-term decline, seasonality created

temporary variations in employment; some employees could expect only 4 to

8 months of work a year.

The work force contained a large number of women employed on wiring

and assembly work. In the fall of 1962, 75 percent of the work force was female,

mostly semiskilled. The range of skills among the men was more evenly distributed: 40 percent skilled, 25 percent semiskilled, and 35 percent unskilled.

Because of the usually long list of laid-off employees with recall rights, there

had been no hiring in recent years. Consequently, the average age of employees

working in the summer of 1962 was 45; the minimum seniority, with one exception,

was 13 years.

Employees of the Coleville plant, organized since 1938, were represented

by a national union affiliated with the AFL—CIO. Both management and union

characterized their relationship as "excellent." The only strike occurred in

1954. There had been three arbitration awards between 1951 and 1962.

Coleville had a population of 32,000. One hundred industrial establishments, the largest of which were plants of major manufacturing corporations,

employed 9, 000 workers. Home owners occupied 65 percent of the city's

dwelling units. The unemployment rate, which had been quite high in late 1961,

was in category C (3.0—5.9 percent) during the latter half of 1962, and had fallen

to under 3 percent by spring 1963.

Despite the continued decline in production, employees were not disheartened at the start of collective bargaining negotiations in 1962. Since the

previous agreement had been signed, the Mt. Lion Electric Corporation had been

purchased by a large diversified manufacturing corporation, which allowed Mt.

Lion to operate as an autonomous subsidiary. The prevailing feeling among

employees was, "They would not have bought us just to close the plant."

Moreover, many employees believed the company actually planned to increase

production and employment at Coleville in the immediate future.

A 2-year agreement was reached in May 1962. Included in the agreement

were several provisions that the union regarded as concessions to encourage

expansion of Coleville operations:

(1) Omission of a 5-cent per hour wage increase granted employees

of the main manufacturing facilities in the same bargaining round. However,

the parties did negotiate a wage increase for the second year of the agreement,

to be effective in May 1963.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
45

(2) Flexible assignment of overtime if certain skills were required.

Previously the union had insisted that overtime work be offered and assigned

strictly according to plant seniority.

(3) Retention of accumulated seniority by those leaving the bargaining

unit. Employees promoted out of the unit formerly lost all their seniority, thus

becoming ineligible to return because of the preferential recall rights of laid-off

bargaining unit employees.

Any optimistic expectation about the future was quickly shattered after

Labor Day. When the local union president arrived at work on September 7, 1962,

he noticed the plant manager dressed in a black suit and asked, "W hose funeral

are you going to ?" The reply: "O u rs.” Shortly afterwards, members of the

union plant committee were called to the plant manager's office and were read

the text of a telegram sent from headquarters that morning. The telegram

announced the closing of the Coleville plant early in 1963 because of "insufficient

economic justification to maintain separate manufacturing facilities."

Apart from the 256 employees1 in the bargaining unit then working in the

plant, approximately 800 workers were on layoff. Among the latter group,

seniority ranged from 3 to 13 years and length of layoff from 6 months to

3 years. It was estimated that from 150 to 200 of those on layoff, mostly men,

were working elsewhere at regular full-time jobs. About 300 workers on layoff,

as well as all working members of the bargaining unit, were eligible for benefits

from the pens ion-termination pay plan.

The Pension-Termination Pay Plan

As in several other plants of Mt. Lion, a funded benefit plan was established at the Coleville plant as the result of collective bargaining in 1949. The

plan, effective January 1, 1950, provided benefits for eligible employees at

retirement, death, or termination of employment for any other reason. There

had been no pension or termination pay plan for hourly paid employees before

1950. The prime motive for creating the plan was to provide pensions for retiring employees. Female employees at the main plant, unsure of the length of

their working careers, were concerned that they might not share in negotiated

pension benefits. The union thereupon successfully included termination pay

provisions in the plan. The Coleville negotiations, which followed the company

pattern, included identical provisions.

Employees could qualify for three kinds of pensions: a normal full

pension available to employees at age 65 with at least 10 years of service upon

retirement; an early pension, actuarially reduced in amount, to employees age

55 with at least 15 years of service; and a deferred pension (vesting) to be paid

at age 65 to those leaving the company with a minimum age of 50 and 10 years

of service. Employees qualifying for early or deferred pensions could elect

termination pay in lieu of a pension.

Termination pay, in the form of a lump sum, was available to employees

with 3 years of service who were terminated for any reason other than retirement. Acceptance of termination pay ended all employment rights of the employee.

The amount of pay was the product of the number of hours actually worked after

the effective date of the plan and a given cents-per-hour figure, according to the

following scale:

Hours woriced during Basis of pay per hour

1950-55------------------------------------- $0.05

1956 ---------------------------------------- .07

1957 ---------------------------------------- .09

1958-63-------------------------------------- . 10

205-662 0 - 6 6 - 5

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
46

Interest was computed on accumulated termination pay at the rate of 2.5 percent

compounded annually. Although termination pay was based on hours worked since

1950, prior service could affect the amount of termination pay accrued, since

seniority determined preferential right to overtime work and protection against

layoff.

The plan provided that no part of termination pay due to an individual

could be sold or assigned, with one exception negotiated in I960. Up to that

time, laid-off employees had no access to accrued funds in the plan without

terminating their employment and relinquishing their seniority. After I960,

employees who had exhausted their State unemployment compensation could apply

for a loan of up to 50 percent of termination pay due as of December 31 of the

previous year. If an employee had obtained a loan and subsequently terminated

his employment for any reason, his termination pay was reduced by the outstanding amount of the loan.

The pension-termination pay plan was funded by employer contributions.

The fund covering Coleville workers was kept in a bank in another city.

There had been two major grievances early in the history of the plan.

The first arose from overfunding as the result of increased social security

payments and consequent lower pension payments which were integrated with

social security. The union contended the company had reduced its contribution

beyond a permissible amount. Although the union won the grievance when it

went to arbitration, the problem was eliminated at the next negotiation with a

provision for pension payments independent of the level of social security payments. The second grievance was settled before arbitration. The company had

been withholding interest from accrued amounts in the fund when an employee

was on layoff. The union was successful in its protest that interest should be

included regardless of an employee’s work status.

One problem that periodically plagued the plan's administration was a

delay in receipt of termination pay after application. The issue had been serious

enough to be raised in contract negotiations. The routing of application forms

between company and union offices in Coleville, company headquarters, and the

bank took time. Frequently 6 to 8 weeks passed between the date an employee

filed for severance pay and his receipt of the payment. It was found possible to

reduce the time for processing the paperwork to 2 weeks.

Despite liberal rules for termination pay qualification, local management

and union officials agreed that few employees had left the company principally

to obtain termination pay. Approximately 50 to 60 workers had applied for

termination pay from 1959 to 1961; several hundred others qualified but preferred

to remain on the seniority rolls on layoff status. In part, this may have been

due to the late accumulation of significant amounts of accrued pay, and then only

by more senior personnel. The more cogent reason seemed to be that retention

of seniority outweighed any immediate monetary gain.

A choice between termination pay and layoff or between a pension and

termination pay could be influenced by eligibility for group insurance. The

company provided, on a noncontributory basis, life insurance and hospitalsurgical-medical (Blue Cross—Blue Shield) insurance to employees. It also

provided for and paid two-thirds of the cost of Blue Cross—Blue Shield insurance

for dependents. When an employee went on layoff, the company paid for 13 weeks

of continued life insurance coverage and 2 months of Blue Cross—Blue Shield

protection. Continued coverage of the latter insurance could be maintained at

the group rate for 10 months if the employee paid the full premium to the

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
47

company. In the 1962 collective bargaining negotiations, the company agreed to

provide Blue Cross—Blue Shield insurance to employees who retired after the

effective date of the agreement and to extend the group-rate option to laid-off

employees for the entire period of layoff.

Special Personnel Procedures

Following announcement of plant shutdown, local management promptly

proceeded to effect an orderly shutdown. A tentative layoff schedule of employees

still working at the plant was posted at the end of October. Although actual

layoffs differed somewhat from the schedule because of unexpected production

increases, the schedule fixed the order of layoff and permitted employees to

anticipate their approximate length of employment and amount of wages. A

comparison of scheduled and actual layoffs is shown below.

Scheduled Actual

Approximate

date Men

October 11—26------------- 8

November 9 --------------- 2

November 16-------------- 4

November 23--------------

December 7 --------------- 9

December 14-------------- 5

December 28-------------- 12

January 4-------------------- 6

January 11----

January 14-21

January 28------------------

February 1------------------

February 6------------------

February 15-----------------

Until closing--------------- 17

Total...................... 63

Women Men Women

39 7 47

12 - -

12 - -

- - 3

11 - -

19 - 23

18 - -

33 - -

19 - -

- 6 25

- - 12

14 - -

- 11 28

- 9 30

16 30 25

193 63 193

Lists of benefit eligibility were also compiled. All 256 employees working at the plant at the time of the shutdown announcement plus 297 on layoff,

a total of 553, qualified for benefits under the pension-termination pay plan.

Over half of those on layoff had borrowed against their accrued termination pay.

The distribution of benefit eligibility follows:

Regular pension-----____ 6

Early pension — ____ 45

Deferred pension— *____70

Termination payTM .____432

Both local union and company officials made separate efforts to develop

job leads in the area. The union drive consisted of delegations from the plant

committee visiting plants in the area. The delegations were received cordially

but produced few jobs. More successful was the work of the Mt. Lion personnel

manager who had developed many informal relationships with colleagues and employers in the area and utilized the resources of the county personnel association.

The personnel manager circulated work resumes of white-collar employees and

job descriptions of production employees. He telephoned associates to notify

them of available skills. Some employers interviewed prospective applicants on

Mt. Lion prem ises; others preferred that applicants come to them. In either

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
48

case, interviews could take place on company time. The presence of another

plant of the parent company in Coleville led the personnel managers of both

plants to arrange preferential hiring rights for qualified employees displaced by

the shutdown. The State employment service also registered employees on

company time, although interviews were scheduled for after-working hours at

the service's offices.

The company encouraged employees to leave ahead of their scheduled

layoff date if they had an offer of regular employment elsewhere. If the other

job proved temporary or unsatisfactory, the employee could return and work

until the time he would have been terminated with others of comparable seniority.

Only 1 or 2 of the 12 employees who left early took advantage of the company's

offer to return.

The company prepared letters for November distribution to employees

who were on layoff at the time of the shutdown but had not applied for benefits

from the pension-termination pay plan. The letters outlined the nature and

amount of benefits available, the optidns among benefits from which the employee

could choose, and a procedure by which the employee could apply for benefits

by mail.

Besides receiving benefits from the pension-termination pay plan and

pay for accrued vacation, employees working as of the shutdown announcement

and subsequently terminated were given 2 months of Blue Cross—Blue Shield

coverage by the company. When all insurance programs ended on April 1, 1963,

employees were paid an amount equivalent to their group insurance premium.

The union kept in close touch with company actions. When the president

of the union local was laid off in December, his place was filled by the vice

president of the local. Frequent union membership meetings were scheduled to

hear special speakers discuss company benefits, public assistance programs,

tax implications of termination pay, and training opportunities in adult academic

and vocational courses in the schools of the community. Publicity for these

meetings was given not only through local newspaper and radio media but also

through those of neighboring metropolitan areas so that as many employees as

possible would hear of the meetings. At each meeting union officers would also

report progress of union attempts to gain special benefits for employees affected

by the closing.

One union attempt to gain special benefits was to file a petition with the

U.S. Tariff Commission under the Trade Expansion Act of 1962 on behalf of 256

Coleville employees working since the effective date of the act. The union argued

that the workers were being displaced by increased imports which had resulted

from tariff concessions. In May 1963, the commission gave the petition an

unfavorable decision. There could be no appeal.

Transfer Agreement

The main union objective was to obtain for Coleville employees transfer

rights to the main plant about 500 miles away. Several impediments existed:

An existing layoff situation at the main plant, a long-standing rivalry between

the locals, and an adverse precedent in Coleville itself. From 1942 to 1954,

there had been a second Mt. Lion plant in Coleville, staffed with Negroes and

organized by the same union. When that plant closed, its employees were given

preferential hiring rights at the main Coleville plant; the hired workers retained

their benefit credits but started as new employees in terms of seniority. Mt.

Lion was now prepared to offer Coleville employees the same terms for employment at the main plant. However, court decisions in the Glidden and other cases

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
49

encouraged the union to demand more. These decisions held that seniority was

not necessarily related to a particular agreement or site; transfer of seniority

must therefore be extended to the company's current employees at a new location

to which work is moved.

In answer to a union civil suit asking for transfer with full seniority,

the company agreed to negotiate the matter if the two locals consented. With

the intercession of union headquarters, an agreement regarding transfers was

reached by the two locals and agreed to by the company in December 1962. The

agreement provided that all Coleville employees on the seniority rolls "with a

hiring date prior to December 31, 1953, would be eligible to transfer" with their

seniority to the main plant. Transfer was conditional upon recall of main plant

employees with the same seniority, and all transfer rights would end on

August 1, 1963.

There would be two opportunities for employees to indicate their interest

by signing transfer lists— March 1 and June 1, 1963. The two dates were designed

to give employees a chance to consider the offer and to stretch out transfers

over a longer period. There was no guarantee that transferring employees would

receive offers identical with prior jobs. Moreover, laid-off workers would receive no moving or travel allowances nor special benefits while awaiting transfer.

Those who did transfer were assured of an exemption from a physical examination,

an identical job classification without a further qualifying examination, transfer

of seniority, a comparable wage scale, and elimination of the waiting period

for benefit eligibility.

The agreement on transfer opportunity was reported in the local newspaper accompanied by an announcement that eligible people could indicate an

interest in transfer by signing up at union meetings or the plant. The agreement

was also explained in detail at union meetings. Union leaders urged qualified

people to sign transfer lists even if they were doubtful about actually going;

signing the lists was no commitment, but ensured maintenance of all rights.

Neither union nor management urged workers actually to make the

transfer. Privately, leaders of both groups doubted whether many of the workers

would be satisfied with transfers. The financial cost and emotional ordeal of

moving, the differences in the size and age of the communities, and the reputation of the main plant local union were considered major obstacles. The only

workers who were urged to accept transfer were those hired before 1953 who

needed relatively few hours to qualify for termination pay or full pension.

Administrative Issues

Both union and management agreed that on the whole the processing of

personnel affected by the shutdown was accomplished smoothly. Normal policies

and special procedures described above were implemented without difficulty.

There were no formal grievances; questions were resolved by conferences and

checking of records. The only problems reported were confusion about the

transfer agreement, rumors about the benefit fund's solvency, delay in liquidation

of the fund, and a dispute over uncommitted money remaining in the benefit fund.

A rumor of insufficient funding of the pension-termination pay plan spread

through the plant and community before completion of the transfer agreement.

Because the pension-termination pay plan provided for a priority of payment in

event of the fund's liquidation, there was a minor rush by some laid-off employees

to collect their termination pay before those still working could apply for their

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
50

benefits. In fact, the plan was overfunded, but union and management attempts

to reassure employees were only partially successful. The union was particularly

concerned because participants in the run on the fund were jeopardizing their

inclusion in other benefits the union hoped to obtain.

The time between application for and payment of benefits once again

became extended. The delay was in part due to the administrative work involved

in processing a large number of applications. A more significant reason was

the necessity of achieving liquidity of the benefit fund. As soon as the plant

shutdown was announced, the bank trustees of the fund drew up a schedule for

disposing of securities in which the fund's money was invested. The rate of

benefit applications outpaced the rate of disposal so that payments were held up

for a number of weeks. Three workers who left at different times reported

receiving their termination pay 7 to 8 weeks after applying for it. Management

was concerned about the payment delay and bothered by inquiries from employees.

The delay did not create as much of a problem as disposition of money

left in the fund after negotiated commitments had been met. Two reasons accounted for excess money in the benefits fund; generous funding and employee

choices among options. As of the day of the plant shutdown announcement, total

assets of the fund were $ 1, 592, 000 and total liabilities $ 1, 047, 000. Employees

eligible for early or deferred pensions had the alternative of receiving termination

pay based on actual hours worked since the effective date of the plan. The amount

invested in an individual's pension annuity was more than the amount he would

receive in termination pay. The union estimated that acceptance of termination

pay by all those eligible for a deferred pension would have reduced payments

from the fund by $ 300, 000. Prior to the shutdown, the union had usually urged

eligible employees to accept a pension. Now the union remained silent and,

indeed, some union leaders were themselves faced with the choice. A large

number of people elected termination pay in preference to a deferred pension.

The most common reasons given for the choice were: (1) Being able to use a

substantial sum at once, and (2) not knowing who would be responsible for

benefit funds or to whom later application for pensions should be directed.

The problem of excess money in the fund was not resolved until February

1964. The company had been arguing that money remaining after negotiated

obligations had been met reverted to the company. The union's contention had

been that all money in the fund was due workers displaced by the shutdown and

should be apportioned among them. The agreement provided that:

1. Employees with 3 years or more of service were entitled to the full

value of their pension benefits. Thus, those who had elected termination pay

would receive the difference between pension benefits and termination pay already

awarded.

2. Employees with less than 3 years of service who were on the payroll

when the shutdown was announced would also receive the difference, if any, between their pension benefits and termination pay previously awarded.

3. Employees with less than 3 years of service on layoff at the time

of the shutdown announcement were entitled to severance pay.

The Choices Made

Of the 553 eligible for some kind of benefit from the pension-termination

pay plan, all but 24 had made a decision by December 1963. A summary of

employee benefit eligibility and decision is presented as follows:

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
51

Number accepting, December 1963

Benefit

Number

eligible * Pension

Termination

pay Transfer Not applied

Regular retirement-------------- 6 6 _ - _

Early pension-------------- ------ 45 27 13 4 1

Deferred pension--------- ------ 70 1 60 4 5

Termination--------------- ------ 432 - 398 16 18

Total------------------ ------ 553 34 471 24 24

1 As of September 1962.

The overwhelming majority of the eligible employees (78 percent) qualified only for termination pay with an option to transfer. An even larger number

actually received termination pay. Fully 86 percent of employees eligible for a

deferred pension and 29 percent of those eligible for an early pension chose

termination pay in lieu of a pension. Only 1 of the 70 qualified for a deferred

pension accepted it.

Transfers. Approximately 60 of 500 eligible workers had indicated a

desire to transfer by signing the transfer lists. The company had expected that

only 20 would actually make the move when the offer was made and the time for

transfer had arrived. Thirty Coleville employees transferred to the main plant:

24 who qualified for benefits and 6 others. Most of the latter group worked the

limited number of hours necessary for them to gain eligibility for termination

pay. Among the 24, those eligible for early pension benefits transferred to build

up their social security benefits as much as their pensions. Twenty-two of the

transferees were women, mostly unmarried or widowed. It was considered likely

that more men would have transferred if the employment situation in Coleville

had been more difficult. The distribution of transferring employees by sex, age,

and seniority is as follows:

Age Women Men

60 years and over------------------------ 3 -

50-59 years------------------------- 3

40—49 years-------------------------

----- 7 4

30—39 years-------------------------

----- 5 1

Total.................................----- 22 8

Seniority

2 years and less-------------------- ----- 6 -

3-9 years--------------------------------- 6 -

10—14 years------------------------------ 3 -

15—19 years------------------------- 1

20—24 years------------------------------ 6 3

25 years and over-------------------

----- 1 4

Total--------------------------------- 22 8

The employees who transferred were, on the whole, reported as satisfied

with the opportunity to continue employment with Mt. Lion. The reception by the

local union was different from expectations; it was friendly and helpful both on

and off the job. Several employees who had transferred with the intention of

returning to Coleville after a few months enjoyed the new location to the extent

of remaining there. Among those who returned to Coleville, the reason given

was difficulty in adjusting to urban living rather than dislike of either plant

or job.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
82

Termination Pay. A total of $686, 568 was awarded in termination pay

between September 1962 and June 1964. Individual gross termination pay ranged

from $216 to $2,366, depending on the number of hours worked after the effective

date of the plan. Workers at the lower end of the benefit scale could receive

much less in net pay since they were more likely both to have been laid off and

to have borrowed up to one-half of their future termination pay. The maximum

paid to men was $ 2 , 366, to women $ 2 , 050, the difference due largely to more

overtime opportunities for men. Most of those working at the time of the shutdown announcement who were eligible for termination pay received more than

$ 1, 500. A distribution of termination pay awarded between September 1962 and

June 1964 follows:

Number of

Termination pay employees

$200“$299-------------------------- 2

$300-$399-------------------------- 2

$400-$499------------------------- 24

$500-$599------------------------- 26

$600-$699------------------------- 26

$70O-$799------------------------- 26

$800-$899------------------------- 30

$900-$999------------------------- 20

$1,000-$1,099------------------- 11

$1,100-$1,199------------------- 18

$1, 200-$1,299------------------- 16

$1,30O-$l, 399------------------- 26

Number of

Termination pay employees

$1,400-$1,499..................... 22

$1,500~$1,599.......... 24

$1,600“$1,699.................... 28

$1,700-$1,799.................... 33

$1,800^1,899..................... 36

$1,900~$1,999.................... 49

$2,000-$2,099—................. 43

$2,10O-$2,199............... 18

$2,200~$2,299..................... 6

$2,300-$2,399.................... 3

Total----------------------- 1 489

* The number of employees receiving termination pay includes 18 employees who

accepted termination pay between December 1963 and June 1964. These employees had

transferred or had not previously applied for benefits.

Although there was no extensive study of termination pay expenditure,

individual cases did come to the attention of the company, the union, and the

BLS representative. Analysis revealed two major categories of workers who

received termination pay: One consisted of employees, almost all men, who had

other jobs when they left Mt. Lion or found them shortly thereafter. The second

included women who were primarily long-time secondary wage earners in the

family. In both cases, termination pay was likely to be largely invested in savings accounts, home mortgage payments, and debt liquidation. In one instance,

termination pay was used to pay for remodeling of a home, a project begun

before the announcement of plant shutdown; the owner insisted the job would not

have been undertaken had she expected the shutdown. There were no known instances of creditors insisting that termination'*pay be applied to outstanding debts,

although some creditors did check to see if debts could be met. At least two

employees used the money to start their own businesses, one of which failed

within 3 months. Others bought new homefurnishings, one a car to look for work,

another a car for a son. Pay received around Christmas contributed to money

spent on gifts. Relatively few people used termination pay for self-maintenance;

those who did were people who were their own self-support and who had exhausted

their unemployment compensation. In no known instance was termination pay

spent in an obviously frivolous manner; i.e., not in conformity with normal expenditures of available cash.

Other Jobs. A major distinction in placement of male and female employees was obvious— men got jobs relatively quickly. Mt. Lion was the only

major industrial employer of women in the community. Other employers were

reportedly reluctant to employ women, not so much because different skills or

physical effort were required but because State legislation on overtime work for

women reduced employer flexibility in meeting variable production loads.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
53

As far as was known, all men displaced by the shutdown were working

at regular jobs by November 1963. Approximately 24 men were employed at the

local parent company plant, a result of the preferential hiring arrangement worked

out by the personnel managers. Women, on the other hand, had little opportunity

for employment; age was often another obstacle they had to overcome when

applying for jobs. Their principal opportunity lay in retail store selling. Many

women were reluctant to apply for such jobs, however, preferring the atmosphere

and work of manufacturing jobs with which they had long been associated. Nevertheless, a number did accept retail store work when it was available. Others

became waitresses or typists if they had the skill. A few found factory jobs;

one woman admitted the only reason she was employed temporarily on a second

shift was because of 11 inside pull.11 One woman received training as a medical

secretary under the Manpower Development and Training Act of 1962. Most

women remained unemployed. All those interviewed claimed they would have

remained working until retirement if the plant had not closed. Further, they

would return to work if the plant were to reopen or if another manufacturer

could utilize their services.

White-Collar Employees

The situation of white-collar employees was different from that of workers in the collective bargaining unit. Instead of a pension-termination pay fund,

salaried workers had a pension plan with vesting provisions which permitted

a lump-sum settlement in lieu of a deferred pension. Until the change in

ownership a few years earlier, salaried employees also participated in a

profit-sharing plan, benefits of which could be accumulated or withdrawn periodically. These two sources could provide salaried workers from very little to

a substantial amount of money. A manager with 25 years’ service received over

$ 10, 000. One man who remained with the company had available an individual

account of $ 70, 000 in accrued benefits. On the other hand, some white-collar

employees received less money when they left than blue-collar employees with

similar service periods.

All salaried personnel, including clerical personnel, were offered jobs

with the company, though not necessarily at their previous levels. At the same

time, the company did not discourage people from looking elsewhere and leaving

at their convenience. Local plant officials were active in aiding placement of

salaried personnel. Many decided to leave the organization and remain in the

local area. A few went into business for themselves.

Impact on the Community

The small number of people actually working at the time of plant closing,

together with a rapid increase in area employment, minimized any serious adverse

effect that the shutdown might have had on the local economy. Community businessmen pointed out, however, that the larger group of employees on Mt. Lion’s

seniority rolls were already on layoff at the time of plant closing. Many of these

employees experienced long periods of unemployment and had thus been a loss

to the economy prior to the formal closing. Continual employment erosion at

Mt. Lion since the m id -1950's may also have restrained consumer purchases

among those fearing future layoffs. Both points suggest that the effect of the

shutdown began long before the plant closing.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
54

2. The Navy sail Corporation

Introduction

The Navy sail Corporation manufactures a variety of consumer and

industrial products in many plants throughout the United States. Its Ohio plant was

part of a division whose headquarters were 350 miles away. The plant had begun

operations in 1951 in a building erected for the company by the community at a

cost of $120,000. Navysail had agreed to a 10-year lease of the building, at the

expiration of which it renewed the lease through 1966.

In July 1963, the Ohio plant of the Navysail Corporation was closed.

The Ohio plant was located in a city of about 5,000 people in the

Appalachian region of southeastern Ohio. A decline in coal mining had created

a substantial excess of workers over available jobs in the area. Some light

industry had been introduced, including a shoe company that was the only other

major employer in the city.

In 1963, the Ohio plant employed approximately 130 wage and salary

employees, somewhat lower than its peak employment in the m id -1950*s. The

employees were organized by an affiliate of the A FL—CIO in 1952. (The division

headquarters plant had been organized earlier by another affiliated union.)

Relations between management and union were peaceful and no time had been

lost due to work stoppages.

Of the 116 employees in the bargaining unit in March 1963, 71 were

women and 45 were men, distributed among nine labor grades, as follows:

Grade

2~

.3-

4—

5~

6-

7~

9-

10- 

11.

Wage rate Women Men

$1.78 62 2

1.87 9 1

1.98 - 5

2.10 - 2

2.26 - 1

2.42 - 7

2.73 - 15

2.91 - 10

3.03 - 2

The 116 employees were distributed by age and length of service, as

follows:

Years of service

Age 1—4__________ .5=9_________ 10-14_________ Total

Men Women Men Women Men Women Men Women

29 years or less------------ 1 - 2 2-13 3

30-39 years............................. 1 10 17 8 14 18 32

40-49 years — --------— 4 - 7 20 6 16 17 36

50-59 years--------------- - - 1 - 4 - 5 -

60 years and over---------- - - - - 2 - 2 -

Total------------------ 5 1 20 39 20 31 45 71

Because of the steady work, above-average wages, and working conditions,

the plant was regarded as a highly desirable place to work. Many employees

felt the company was nthe best thing that ever happened to the a re a .11

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
55

Plant Shutdown

On March 19, 1963, management announced its intention to close the

Ohio plant, starting in May and ending in September. The announcement stated

that termination pay provisions would be in effect when the plant closed.

The decision to close the plant was based exclusively on economic

considerations. The cost of transporting raw and finished materials, and of

overhead in multiple plants outweighed the advantages of continuing separate

operations, including the wage and efficiency differentials the company enjoyed

in southeastern Ohio. The decision was part of the company*s continual realinment

of production facilities. Although the Ohio plant was the first in its division to be

closed, experience with shutdown procedures in other divisions proved applicable.

Reaction to the plant closing announcement was shock and disbelief among

employees, the union, and the community. There had even been some hope of

production being moved from division headquarters. City and union leaders

volunteered **to do whatever is necessary” to keep the plant open. Only after

they had been assured that the decision was irrevocable did they turn their

attention to coping with the shutdown.

Community officials were concerned with the mortgage remaining on

the plant building and the loss of business resulting from the plant closing. The

company offered a financial settlement for the outstanding portion of the lease.

The city attempted to interest other employers in locating in the city, but 1 year

after the shutdown announcement no new industry had been attracted.

Union leaders met with management to discuss and negotiate plant closing

procedures. The major revision in existing provisions was "reverse seniority

in layoffs,” i. e. , a senior employee had the right to choose layoff if a junior

employee scheduled for layoff could perform the work. This change was designed

to permit senior employees to accept other jobs without forfeiting severance pay.

The company also unilaterally offered to extend severance pay eligibility to

employees laid off more than 90 days before plant closing; this change in the

severance pay plan was implemented without being negotiated.

Management, meanwhile, was busy preparing movement of equipment,

scheduling layoffs, and explaining benefits available to employees. The rate of

layoffs depended on the rate of moving equipment which, in turn, was largely

dependent on the ability of the division headquarters plant to absorb additional

machinery. The first schedule of layoffs, posted about May 1, spread layoffs

from May until September. The rate of shutdown, however, proceeded more

rapidly than management had expected, largely because of the number of Ohio

plant mechanics who accepted employment at division headquarters. By early

June, the local newspaper reported movement of one-half of the production

machinery and a revised anticipated closing date of August 1. The movement of

equipment was actually completed on July 10, and the keys to the plant returned

to the city on the next day.

Approximately 10 days before layoff, employees met with the plant

manager who explained in general terms the available benefits and the steps

necessary to obtain them. Each person was then given a form with details of

benefits, including amounts, dates due, and procedures, as they applied to the

individual. (See last page of this section.)

The company decided not to sponsor any employment referral program

since there were no other employers directly interested in the skills possessed

by Navysail workers. Cooperation was given to the State employment service,

and all employees were referred there for job placement counseling as well as

filing unemployment compensation claims.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
56

Some management anxiety about the process of closing the Ohio plant

proved unwarranted. There was no instance of employees leaving before scheduled

layoffs apart from the few employees who exercised their right to leave if junior

employees could fill their positions. Moreover, there was no last minute filing

for workmen’s compensation, as the company had experienced in some other

plant closings.

Management’s principal personnel concern was administration of the

policies and programs proposed unilaterally by the company or previously agreed

to in collective bargaining: Offers of johs at other company locations; monetary

payments available at the time of plant closing including severance pay, savings

and retirement account, and savings and security account; and other benefits, such

as pensions and insurance plans. Each of these will be discussed in turn.

Job Offers with Navy sail

Shortly after the initial announcement of plant closing, the company

informed employees that, in accordance with policy established in prior plant

closings, it would give preferential consideration to terminated employees interested in employment at division headquarters. Interest would be indicated by an

employee signing a list, but this act did not commit either the company to offer

a job or an employee to accept a job. Those who accepted employment at division

headquarters would be considered new employees for layoff purposes but would

be able to transfer length-of-service credits for benefits, such as pensions and

vacations. Although employees accepting employment would receive no moving

expenses, they would get severance pay and would otherwise be treated as

terminated employees. While no one was excluded from employment consideration

at division headquarters, the company was most interested in offering jobs to

the 35 mechanics at the Ohio plant. From experience in other plant shutdowns,

management did not expect that many employees would accept employment at

division headquarters.

About 20 employees, including three women, indicated interest in being

considered for employment at division headquarters. The plant manager made

job offers on the basis of seniority and job availability. The division headquarters'

wage scale was approximately 10 percent higher than that of the Ohio plant, and

no one was offered a job at a lower grade than at which employed when the plant

closed. Although some employees withdrew their applications, 15 went to division

headquarters, beginning at the end of May. They went as soon as their machines

were moved, or as soon thereafter as suited them. Only 1 of the 3 women,

accepted a job. The 14 men, most of whom were in their late thirties, were

mechanics. While not all of the senior mechanics went to division headquarters,

the company was pleased that so many did, -for this facilitated the movement of

equipment.

Employees who did not express interest in or accept employment at

division headquarters offered a variety of reasons, including financial and

community differences, employment factors, and personal considerations. Moving

involved immediate out-of-pocket expenses. Most people owned homes which were

likely to be sold at a loss. The headquarters community reputedly had higher

cost-of-living and tax rates. Even its superior school system was viewed as a

deterrent by parents who feared their children would have to transfer into a lower

grade. Another objection frequently raised was the absence of layoff seniority

for employees moving to division headquarters, which made employment appear

tenuous. Futile attempts to work out an arrangement for transfer of seniority

were complicated by different union representation at the two plants. There were

also individual reasons for choosing to remain. A ll of the company employees

regarded southeastern Ohio as their home. Proximity to relatives and lifelong

friends was hard to give up. Perhaps most important, of all, those who remained

believed that they would be able to find employment somewhere in the area*.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
57

The attitude of those who chose from the outset not to leave was

reinforced by those who went to division headquarters and then returned. Only

6 of the 14 men who went in the summer of 1963 remained there by spring of

1964. These six had moved their families before beginning work at division

headquarters. Each of the other eight was head of a family who was "trying out",

the job and living conditions before moving his family. Some of the returnees

felt that they had to work harder at division headquarters than previously. Being

assigned to instruct employees who had more seniority, moreover, aggravated

their uneasiness over job security. Maintaining two places of residence and

commuting 350 miles each way on weekends proved expensive. Distance also

created family disruptions. Some men quit to return to seek work in Ohio. Most

of those who returned, however, waited until they were certain of employment

near home to avoid missing a paycheck.

Payments Available at Time of Plant Closing

Several plans and provisions provided terminated employees with financial

resources: A savings and retirement plan, a savings and security plan, and a

termination pay plan.

The savings and retirement plan, begun in 1942, was designed to

serve a variety of purposes and to meet "special problems peculiar to our

company . . . such as the large percentage of women in our employ, many of

whom leave before retirement a g e." The plan provided an annuity at time of

retirement or disability, a death benefit, or termination pay for employees

leaving for any other reason. Employees who elected to join could participate

in the plan after 1 to 3 years of service, depending on the employee^ age at

time of employment (3 years for those hired before their 35th birthday, 2 years

for those between their 35th and 40th birthdays, 1 year for those after their 40th

birthday). Benefits were paid from individual employee savings accounts accumulated from a 3-percent payroll deduction, and annual share of 6 percent of the

company^ net profits before taxes, and interest. The company made additional

contributions of one-half of employee accumulated contributions in case of laid-off

and retired employees. No attachment to or withdrawals from membership

accounts were permitted during employment. Over 98 percent of employees

participated in the plan. Member accounts were frozen in 1961, when the company

converted the plan into a noncontributory pension plan.

The contributory and profit-sharing provisions of the savings and retirement plan were incorporated into a new plan, the savings and security plan.

Members contributed 3 percent of earnings through payroll deductions, and the

company contributed 6 percent of net profit before taxes annually. Employees

could withdraw money from their accounts after 12 months of participation. The

plan encouraged thrift and permitted withdrawals at time of layoff or emergency.

Its primary purpose, however, was financial aid at retirement or separation from

employment.

In the I960 collective bargaining negotiations, management proposed a

termination pay plan to be effective the first of the following year. Union

negotiators at the Ohio plant accepted it. The plan also applied to nonrepresented

employees in organized plants and employees in unorganized plants of the

company. The termination pay plan was limited to employees involved in complete

plant closings. Employees laid off within 90 days of plant closing were deemed

eligible for benefits. The amount of pay awarded was related to length of

continuous service, with 8 hours1 pay at straight-time hourly rates for each of

the first 5 years of service, and 40 hours at such rate for each year thereafter.

Experience with the plan indicated no administrative difficulties. Management

attributed this record to the simplicity and clarity of the agreement provision.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
58

Every hourly paid employee on the company*s rolls at the Ohio plant at

time of plant closing announcement was eligible for termination pay. A memorandum on the amount of termination pay due each employee was sent to the

company*s central computing and payroll headquarters. Termination pay was then

mailed together with the individuals final week of wages approximately 1 week

after separation. A total gross amount of $45, 198 in termination pay was paid

to the 116 employees in the bargaining unit: $19,812 to 45 men and $25,386 to

72 women. An additional $708.59 was awarded to four women clerical and staff

personnel, and $1,927.16 to the two foremen of the plant. Individual termination

payments of bargaining unit personnel ranged from $14. 96 for a grade 4 man

employed 1 year to $931.20 for a grade 11 man with 12 years of service.

Termination payments were distributed as follows:

Termination pay

$0—$99----

$100—$ 199

$200—$299

$300—$399

$400—$499

$500—$599

$600—$699

$700—$799

$800—$899

$900—$999

TotalMen Women Totals

5 1 6

2 8 10

9 18 27

1 13 14

8 25 33

6 6 12

5 - 5

7 - 7

1 - 1

1 - 1

45 71 116

Aside from taxes, the only deduction from termination pay was outstanding amount

of "employee s a le s ," i. e. , sale of company products at reduced prices and on

credit to employees. Maximum credit of such sales was restricted to $250, but

only 10 percent of employees had outstanding debt at any one time.

Other payments were available from the company at time of separation.

Almost every employee was a former member of the savings and retirement plan,

and a substantial though smaller proportion had chosen to subscribe to the savings

and security plan. To some employees, one satisfaction from the shutdown

situation came in being able to get their otherwise untouchable savings and

retirement funds. Terminated employees could apply to close their savings

accounts or leave them for 18 months to draw additional interest; no employee

chose the latter option. Processing applications for closing of savings accounts

took approximately a month. Amounts received from the savings plans varied

more widely than those of termination payments, since the amount of employee

contributions depended on rate of pay and actual hours worked. For a man at

the top of the pay scale with 10 years of service, the largest return from the

savings and retirement plan could be over $3,000; senior women employees would

receive about two-thirds of that amount. The short period of effectiveness of the

savings and security plan and the spotty participation in the plan made it of

lesser significance, but payments to participants ranged up to $400.

Maximum total payments at termination from all sources were over

$4,000. More typical perhaps were the following amounts: A grade 6 employee

with 11 years of service received $2,675 in total, of which $630 was termination

pay; a grade 9 employee with 8 years of service, over $1,600, of which $400

was termination pay; a grade 3 employee with 9 years of service, over $1,700,

of which $375 was termination pay.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
59

The amounts of money, substantial in many cases, were spent in various

ways: To meet debt obligations, to make new purchases, or to invest in savings

or similar programs. Most people used at least part of the amount to pay

outstanding debts or to meet future obligations. Typical expenditures of this type

were mortgages, car payments, and other forms of installment-purchase debt.

Many employees had incurred new financial obligations shortly before the announcement of shutdown that they otherwise would have avoided; in this category

were new automobiles and home remodeling projects. While there was no feeling

of creditors unduly pressuring to collect or accelerate repayments, at least one

woman had to surrender a car for delayed payments, and others were concerned

about their ability to keep up payments without new sources of income. As far

as could be determined, few people made additional purchases on the strength

of their severance pay; only two instances were cited of people buying a new

car or taking an elaborate vacation after receiving shutdown payments. Some

workers had already committed part of their shutdown payments; as one employee

who had been extended credit at a local auto service station on condition of

repayment from severance pay. Management believed that employees who moved

their families to division headquarters probably used shutdown payments to defray

moving expenses. Returnees who were interviewed had given thought to spending

the money as a down payment on a trailer or a house, in the new community, but

found other uses for the money. As of March 1964, no former employee had

moved except to division headquarters. Only one undertook training for another

trade by enrolling at a barber school. Finally, some workers banked the money

"for a rainy day" or, more rarely, "as a kind of pension." Money banked for

future emergencies sometimes slipped away more quickly than planned. Workers

subsequently earning lower incomes had the problem of maintaining former standards of living. Those without current income had a more acute problem. One

man, unemployed 9 months, claimed to have exhausted his shutdown payments of

over $2,000 as well as previous savings. Workers who retained much of their

shutdown payments were likely to be women whose husbands were working at w ellpaying jobs or men who quickly found other employment at comparable wages and

who, in both cases, made a conscientious effort not to touch the money. These

workers were very few; the overwhelming majority had little, if any, of their

shutdown payments left after 9 months.

Other Benefits

Besides the financial payments, benefits were available at time of plant

closing, from the current pension and insurance plans.

The noncontributory pension plan instituted in 1961 provided for normal

retirement at age 65, early retirement at age 55 with 15 years of creditable

service, and vesting at age 40 with 10 years of creditable service. For

service prior to 1961, creditable service was defined as continuous service

less 1 to 3 years, depending on age when joining the company, as in the case

of eligibility for the former savings and retirement plan. One employee received

an immediate full pension, and three others qualified for a vested pension. Since

individuals eligible for a vested pension had to get in touch with the company

when they reached 65 years of age, it was imperative that they understood their

eligibility. Interviewed employees knew of no cases of pension vesting. In any

case, pensions vested in 1963 would have been small, for they would amount

to 1 percent of total compensation earned after September 1, 1961, i. e. , probably

under $100 annually after age 65.

The company provided employees and dependents with group coverage

of life insurance and hospital-surgical-medical insurance. The former terminated

at the end of the last month of employment but could be continued at group rates

for 18 months if the employee paid the full premium. The latter normally ended

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
60

at the end of the month following the month in which employment terminated.

Employees were offered continued coverage for 18 months by paying the entire

premium at the group rate to the company in monthly installments. The cost

for a family was $14.'88 per month. Fifty-one employees (45 percent of those

eligible) took advantage of the option. Cost was the most frequent reason given

by those not maintaining the insurance; in several instances workers were

hospitalized at heavy expense after the termination of their insurance with the

company.

State Unemployment Compensation

Payments from the State unemployment compensation system were

available to all terminated employees without other work. The compensation

lasted for 26 weeks and consisted of a maximum basic weekly rate of $42 plus

maximum "dependents1 allowance" of $11. An official of the system estimated

that about one-half of the employees involved in the Navysail shutdown had used

up the full 26 weeks of eligibility by March 1964. Some workers accepted employment at wage rates that yielded less than unemployment compensation, to preserve

eligibility for unemployment compensation for a time when they would again be

laid off. Others chose to remain on. unemployment compensation until obtaining

"suitable" employment.

At the time of the shutdown, the receipt of termination pay did not affect

employee eligibility for unemployment compensation. Effective October 1963, the

Ohio law was revised to affect instances where termination pay was awarded.

Had this provision been in effect 6 months earlier, terminated employees would

have been disqualified for up to 8 weeks of unemployment compensation.

Subsequent Employment Experience

The employment situation in southeastern Ohio in early 1964 was much

the same as it had been in the latter half of 1963. The county in which the

Navysail plant had been located had an unemployment rate of 7. 8 percent. The

figure was low relative to neighboring counties because a substantial portion of

the county’s labor force was employed in government services and nonprofit

institutions. The next county, in which there was more manufacturing, had an

unemployment rate of 18. 9 percent; women constituted one-fourth of the unemployed. The job situation was aggravated by the simultaneous closing of Navysail and a furniture manufacturer employing 160 in a nearby community.

Nevertheless, most former Navysail employees had other jobs by March 1964,

although some had been without work for many months.

Almost all employees who remained in southeastern Ohio registered

for employment placement with the State employment service, if only to establish

eligibility for unemployment compensation. Some registered at several offices

in the area to improve chances for finding employment. Each office could offer

job vacancies in its own area since the interoffice clearance system provided

openings only for skilled and professional personnel. Although no separate figures

were collected, State employment service staff believed that they placed a

significant number of Navysail employees, especially after a new plant opened

in the area in the summer of 1963. In addition, the service conducted special

surveys for potential employers interested in locating new industry in the area.

The outstanding success of the State employment service placement

program was with a rubber company plant, which commenced operations in

July 1963. By spring 1964, employment had climbed to 300. The employer's

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
61

initial requirements were rigid, including minimum height, weight, and intelligence

test scores. The tests were selected and administered by the State employment

service office to about 650 workers. As the company’s labor requirements rose

in early 1964, some screening requirements were waived. Over time, several

dozen former Navysail employees found jobs at the rubber company, though at

substantially lower wages than they earned formerly. Others interviewed stated

that they would gladly have accepted employment there but had been turned down.

Other former Navysail employees who had found jobs by March 1964 did

so singly or in small groups. Work was frequently obtained through referral by

friends. One woman was hired at a local shoe factory 3 weeks after termination;

six other women were hired there 9 months later. Several women obtained

manufacturing work at a lens company. Some accepted cooking and service jobs

at nonprofit institutions at less than $1 an hour, or one-half of their former wage.

A local hospital employed two women as nurse’ s aides. Some men accepted jobs

in glass, clay, aircraft, and service industries. Commuting 30 to 60 miles for

work was not uncommon, with some going as far as 80 miles from home each day.

In the absence of other work, construction was always a seasonal possibility for

men, if only to qualify for further unemployment compensation. Most of those

interviewed regarded construction as a temporary and unsatisfactory solution.

One man worked 3l/z months on construction until laid off in November; he had

not obtained other employment by the following March. Another worked 5 months

on residential construction before being laid off. Both men stated that they would

be willing to work at lower paying but steadier jobs. Even those able to get

regular full-time work were not certain of future employment; layoffs and bumping

threatened to displace some of those with jobs or to cut their wages to the point

where they felt they could no longer afford to commute to work.

With the exception of two women who chose to withdraw from the labor

force, all of those without jobs in March 1964 claimed to have looked extensively

for work by applying directly to employers and through State offices within a

60-m ile radius. Wages above a given minimum also, were not a prime concern

of these people, who were willing to work at less than 60 percent of former

wages. None of the unemployed attributed age as a deterrent to being hired since

they could point to older coworkers of similar skills who had been hired. Yet,

the director of the local State employment service office admitted that age became

a factor when people reached 40. A ll of those interviewed who were not employed

were 40 years of age or older.

The desire for ’’good” employment was stressed repeatedly, even by

those who had jobs. ’’Good” was interpreted as secure jobs with the possibility

for future advancement opportunity. In concrete term s, the concept explains the

eagerness to gain employment at the rubber company rather than at the local

shoe factory and similar institutions. Ironically, Navysail had been regarded as

a place of ’’good” employment. The plant closing experience had convinced some

that the future of local manufacturing would remain tenuous and that the

only ’’good” employment remaining was in utilities, government, or nonprofit

institutions.

A ll of the interviewees, when asked, expressed interest in training if

it would lead to a job in the area. Few had any ideas of what sort of training

would be advantageous, and none had seriously considered the possibility of

training. The interviewees would have been willing to pay tuition for training

leading to a job if they had money available.

205-662 0 - 66 -6

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
62

Exhibit 1

Form Given Employee Prior to Termination

Date_________________

Name ____ ___________________________________________ S.S. No. _______________

The following is general information concerning your "Layoff Lack of Woric Due to Plant Closing:"

1. Last day woiked will be_____________________________ .

2. ____________________________ will be your day of the week to report to the unemployment office to register

for unemployment compensation.

3. The following are sbme of the more important points relating to continuing your group insurance coverage following

your separation from the payroll.

(a) Your life insurance and H-S-M insurance may be continued monthly up to 18 months following your

separation from the payroll.

(b) Life insurance premiums are payable on the date of your separation for the following month. The present

monthly rate is $.310 per $1,000 of insurance. This amount is subject to change from time to time at which

time you will be so notified. Each subsequent payment is due on or before the 20th of the month.

(c) Your H-S-M insurance premium is payable on or before the 20th of each month following your separation.

The present rates are $4.31 for single coverage and $14..88 for family coverages. These amounts, also, are

subject to changes from time to time. Failure to submit your insurance premium on or before the 20th of each

month will result in automatic cancellation of your insurance.

(d) Your first life insurance premium, due on the date of your separation, is to be made at the Ohio plant.

Each subsequent payment and your H-S-M premium payments are to be paid by check or money order made

payable to: "Navysail Petty Cashier" and mailed to:

Personnel Department

Division Headquarters

Navysail Corporation

(e) Following the 18-month period, you may convert your insurance policies to a direct payment plan by

contacting your local insurance agent. The rates for this will undoubtedly be higher than under the group plan.

4. You will receive______________ hours of termination pay for plant closing based on your present straight-time

hourly rate.

5. You will receive your regular pay, accured vacation pay, and termination pay on_____________________ .

Balances due on employees purchases will be deducted from your final check.

6. You may cancel your employee stock purchase plan by completing Form ESP 41 which will allow the funds credited

to your account to be refunded in cash or allow you to purchase full shares applicable from the funds credited

to your account and the remainder of such amount to be refunded in cash.

7. Former S S R members may withdraw the funds credited to your pension account or withdraw the funds anytime

subsequent to your separation up to 18 months at which time you will be so notified to withdraw. After the

Ohio operation ceases, the forms are available upon request from the Personnel Department at Division Headquarters.

8. S & S members may make a normal withdrawal of funds credited to your account 30 days following your

separation date.

9. Important items to remember:

(a) Change of address notices should be mailed to Personnel Department, Division Headquarters, Navysail

Corporation.

(b) Forms for H-S-M claims should be requested from the Personnel Department at Division Headquarters.

(c) All insurance claims will be handled by the Personnel Department at Division Headquarters.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
63

3. Moonwitch Company

Introduction

The management of Moonwitch Company announced in the summer of

1962, that it would close one of its two plants and shift production to the other

plant in a nearby community. Over 800 employees were affected by the shutdown, less than 15 percent of whom were women. The majority of Moonwitch

jobs were semiskilled or unskilled; skilled jobs constituted less than 20 percent

of manual employment.

Moonwitch, established in the late 19th century, was a fabricated metal

manufacturer. The company made a line of consumer products under the "B e ­

witched" trade name and a variety of other articles on a contract basis. Through

a 1937 merger, the company expanded its operations to a second location, 23 miles

away. A subsequent purchase of the company by Hecate Corporation was challenged as a violation of antitrust statutes. The corporate entity and name of

Moonwitch Company were reestablished with the sale of operations to a new group

of owners in 1961.

The company was situated in a highly industrialized, heavily unionized

area. It had been organized in 1937. There had been only one full-fledged

strike, in 1946, when workers staged a 6-week sympathy strike with workers

in basic steel. Labor relations at the newer plant were regarded as more

restless, as exemplified by a problem with "wildcat" strikes. Nevertheless,

both management and union termed relations between the parties in both plants

as "g o o d ."

Since 1952, the two plant locals of the union negotiated jointly for a

master contract with the company. In general, the agreements followed the

pattern of the basic steel contracts, although there was sometimes a substantial

time lag; for example, severance pay was first included in the Moonwitch agreement in 1952, whereas it originally appeared in the U .S. Steel contract in 1947.

The Moonwitch agreement also contained pension and supplemental unemployment

benefits.

Seniority for layoff and transfers was determined by departmental length

of service; there were separate seniority lists for men and women. Employees

retained seniority following layoff for a period equal to length of continuous

company service prior to layoff.

The shifts in corporate ownership affected financial responsibility for,

but not the substantive language of, benefit programs contained in the labor

agreement. As part of the purchase of Moonwitch, Hecate Corporation received

by transfer a $3, 500, 000 pension fund established for Moonwitch employees, which

it merged into its own pension fund. No further contributions to the fund were

made during Hecate* s ownership. In the 1961 sale agreement, Hecate agreed

to finance pensions already granted, to pay for past service costs for vested

pensions at the newer plant, and to give Moonwitch $500, 000 for its pension fund.

The new owners would assume the past service costs of the pension plan at the

older plant, and current charges for both plants. In addition, Hecate Corporation

would be responsible for severance pay costs up to $500,000 in the event of a

plant closing within 3 years, a provision which brought Hecate into the negotiations following announcement of the shutdown.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
64

The 1958 Department Shutdown

In an effort to. cut costs and improve efficiency during its period of

ownership, Hecate consolidated the manufacture of all Bewitched products into

the newer plant in 1958. The headquarters of the Bewitched Division was moved

at the same time. Part of the older plant was closed, resulting in the termination of approximately 300 employees. This was the first time the severance

provisions of the collective bargaining agreement were applied.

The severance pay plan was similar to plans negotiated in the basic

steel industry. Employees with at least 3 years of continuous company service

gained eligibility if they were terminated as the result of a permanent plant or

department closing and were not entitled by seniority to another job. The company could offer an option of employment in the same job class and general

locality. Moreover, all eligible employees could elect a limited period of layoff

with supplemental unemployment benefits and retention of seniority, the SUB to

be deducted from severance pay if the employee was not recalled. The scale of

severance pay was 4 to 8 weeks1 pay based on recent average hourly earnings.

The union advised acceptance of the layoff option by those employees

close to retirement or vesting of their pension rights. Though employees choosing

layoff had no transfer rights to the newer plant, management and union informally

agreed that these employees would be considered for employment at the newer

plant as new employees.

Between 30 to 50 employees who were terminated chose layoff in preference to severance pay. Many of these people were employed at the newer plant,

but some applicants were turned down. Eventually all of the employees who

selected layoff were recalled to the older plant, the last being recalled in

May 1962.

The 1962 Plant Shutdown

In early 1962, Moonwitch decided to close one of its plants. Financial

problems and the sales volume of Bewitched products made retrenchment necessary. Management1 s principal consideration in choosing between the two plants

seemed to be marketability of the plant facilities. (By October 1963, the general

offices and warehouse of the newer plant had been sold; the main factory building

remained unsold.)

On July 9, 1962, the union was notified of the impending plant closing

and movement of production of the Bewitched line to the older plant. On the

following afternoon, notice was given to employees through an announcement on

the plant bulletin boards. The story appeared in local newspapers on July 11.

Employees at the newer plant were stunned; they had believed that the

more modern and efficient facilities foreclosed the possibility of a shutdown at

the newer plant before the older one. Even after reading the official announcement, some employees refused to accept it and counted on an upturn in business

to save the plant. That such hopes were unrealistic was realized only with the

receipt of individual notice of employment termination.

Employment at the newer plant had declined long before the closing

announcement. From 1957 to 1961, employment dropped from 1, 100 to 400 employees with only one major reversal— i. e ., when 200 employees were recalled

in 1958 because of the transfer of production from the older plant. At the time

the plant closing was announced, almost two-thirds of the employees who eventually received severance pay were on layoff.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
65

Management anticipated initially that the transfer of operations to the

older plant would be completed in March 1963. The auction sale of metal stamping

presses at the end of October 1962 left assembly and shipping work for 250

people. Additional major layoffs occurred in December 1962 and March 1963,

and the headquarters of the company was returned to the older plant in September

1963. By January 1964, 10 employees remained working at the newer plant

becau.se of lack of space elsewhere.

The Shutdown Agreement

The announcement of the plant closing brought forth union demands for

a special agreement. The union wished to obtain protection of pension and employment rights and more security than the regular agreement granted. Because

Hecate was still involved in financing pensions and severance pay, tripartite

negotiations were conducted with representatives of Hecate, Moonwitch, and the

union. The two companies wanted to limit their financial liability. Moonwitch

was also concerned with the effect pf the shutdown on employee morale in the

older plant.

The content and conduct of bargaining had repercussions within union and

management. Employment rights of terminated personnel were subject to bargaining. The sensitivity of this matter for the union locals concerned was

heightened by the previous rejection of employment rights for personnel affected

by the 1958 shutdown. When preferential hiring and transfer of seniority of

newer plant employees were first discussed in 1962, the resultant hostility between the locals required the mediation efforts of the international union. Another

reaction occurred because top officials of the corporations and international union

did the actual bargaining. Local union and management personnel at the newer

plant were too involved with the shutdown to take a major roll in bargaining, but

they were kept informed of the progress of negotiations. Even though company

and union personnel at the older plant were affected by the outcome of negotiations, persons on neither side were consulted in the process. Only when the

final agreement had been reached did they learn of its significance for operations.

The shutdown agreement enlarged the scope and applicability of pension

and insurance benefits available to affected employees but restricted choice among

benefits and other options relating to the SUB plan. The agreement also introduced interplant employment rights for certain terminated employees. There

was no change in severance pay provisions. The effective date of plant closing

for determination of benefits was established as October 31, 1962.

The changes in company benefits affected by the shutdown agreement

are summarized in exhibit 1, page 70. The company1 s pension plan was modified to permit younger, long-service employees to qualify for immediate pensions.

The only choice for employees eligible for a pension was between a regular or

a special early retirement pension; the choice became relevant with consideration

of insurance features. Employees aged 60 to 64 with at least 20 years* service

who wanted life and medical insurance coverage had to decide whether it would

be more advantageous financially to choose a regular actuarially reduced pension

and company-paid insurance or a special full pension with the company contributing 50 percent of the insurance premiums.

Although seniority was to cease with termination of employment, certain

employees receiving severance pay were to be offered preferential hiring rights

as new employees at the older plant. Qualifying for preferential hiring were

employees on the active payroll any time after November 1, 1961; employees

laid off before that date if 38 years old with 13 years* service; or employees

with a minimum of 15 years* service. Eligible employees were to indicate in

writing whether or not they wished to be considered for employment at the older

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
66

plant. Company insurance at group rates would be available to employees awaiting

employment offers. Job openings at the older plant not filled by employees on the

seniority list would be offered to the ranking employee on the preferential hiring

list who had "the ability to perform the work. " An employee who failed to accept

a job offer "without reasonable cause" was to be removed from the list. Em ­

ployees entitled to preferential hiring but requested by the company to remain

at the newer plant would have their seniority at the older plant begin as of the

day employment there was offered. All preferential hiring rights were to remain

in effect until October 29, 1964. These rights were designed to enable employees

with the greatest interest in the pension plan, and least chance for other em ­

ployment, an opportunity to continue with the company and accumulate new

pension rights.

Employees on the preferential hiring lists would be able to purchase life,

hospital, and surgical insurance at group rates if they did not obtain equivalent

coverage on a noncontributory basis elsewhere. The only choices for employees

eligible for severance pay and preferential hiring were whether to enroll for

such employment rights and, if so, whether to buy life and medical insurance

from the company plans.

Implementing the Shutdown Agreement

The negotiations for the special shutdown agreement were not concluded

until mid—November 1962. The protracted negotiations caused confusion among

management and workers. For instance, the shutdown agreement terminated all

SUB payments as of October 31, 1962. Employees laid off from the newer plant

were still hopefully applying for SUB during November, awaiting the outcome

of negotiations.

Parts of the agreement were actually implemented before the end of

negotiations but after the outline of principal benefits was settled. Employees

were asked, first informally and later officially, if they wanted to transfer.

The addition of the insurance benefits persuaded some employees who had little

interest in working at the older plant to sign for preferential hiring.

A more formidable problem was raised by the union in September 1962

after preferential hiring rights had been discussed in negotiations. The union

objected when the older plant hired 12 former employees who had severed employment in 1958. Hiring new employees, the union argued, would jeopardize the

employment rights of terminated employees. The 12 workers were laid off and

their jobs offered immediately to employees with the most seniority at the newer

plant who had preferential hiring rights.

Once the shutdown agreement had been negotiated, the parties began to

make arrangements for compliance. The company drew up lists of employees

eligible for benefits, a summary of which follows:

Number

All employees on seniority lis t ------------------------------------------------------------ 824

Employees eligible for pensions----------------------------------------------------------------- 120

Regular full pensions-------------------------------------------------------------------------- 6

Regular early pensions------------------------------------------------------------------------ 11

Special pensions------------------------------------------------------------------------------- 103

Severance p a y ------------------------------------------------------------------------------------- 680

Eligible for preferential hiring--------------------------------------------------------------- 327

Not eligible for preferential hiring--------------------------------------------------------- 353

Employees not eligible for benefits------------------------------------------------------------- 24

Recalled to older plant----------------------------------------------------------------------- 13

Insufficient qualification--------------------------------------------------------------------- 11

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
67

Of employees eligible for severance pay, 327 men qualified for preferential hiring

rights. No preferential hiring lists were drawn up for women since a large

number of women at the older plant were on layoff, with little prospect of recall.

Separate letters were composed for employees eligible for pensions and

severance pay (exhibits 2a and 2b, pages 71 and 72). The appropriate letter

with pertinent data typed or checked was sent to each employee at his last mailing

address in late December 1962. Two days later, an announcement appeared in

the newspaper that severance pay or special retirement pay could be obtained at

the company offices in the newer plant beginning December 24. Employees still

working in the newer plant in December 1962 would get their benefits upon employment termination.

Some employees chose to discuss their choices with company officials.

Line management was given no specific role in explaining the shutdown agreement or advising on decisions. The personnel manager, contacted informally by

a number of employees, urged eligible employees to sign for preferential hiring

in order to qualify for group insurance.

Union staff was available to employees who wished to discuss benefit

rights and choices. The local president received office space in the plant and

leave of absence from his job for 10 weeks to devote full time to assisting m em ­

bers. In addition, the union opened a special downtown office where employees

could obtain information. Close cooperation between company and union was

illustrated by the fact that the union checked with the company personnel office

to establish individual employee rights and benefits under the agreement. The

union also encouraged members to take advantage of preferential hiring and insurance opportunities.

Employees coming to the company office for benefit pay met with the

personnel manager of the newer plant and the union pension representative.

These men described the available benefits and choices, and answered employee

questions. The employee then signed a form releasing his claim against the

company and, if appropriate, signed applications for insurance benefits and preferential hiring. Filing of applications could be postponed until the deadline date, but

the release forms had to be signed before an employee received a benefit payment.

Severance pay was paid in lump sums. Standard deductions from gross

pay for Federal and local taxes were about 20 percent. The company made

further deductions from the pay of three employees who had collected supplemental unemployment benefits while ineligible.

Four employees protested the amount of severance pay received and four

others, their alleged ineligibility for shutdown benefits. The company corrected

discrepancies in amounts due upon finding errors in the basis of computation.

One employee was granted a pension when his birth certificate showed an earlier

date than the one on his original employment application. Company denial of

three requests for severance pay because of the employment status of the petitioners at time of shutdown were promptly presented as formal grievances. By

mutual agreement of the parties, the grievances were submitted at the third step

of the grievance procedure and were settled at 50-percent payment of the claims.

The company permitted employees who had found other employment to

request early termination or, if laid off, to refuse recall to the newer plant

without jeopardizing seniority and benefit status. The company arranged schedules

or found substitutes for all 10 workers requesting early releases. Most active

employees continued working as long as possible because of the scarcity of

alternative employment opportunities in the immediate area. Laid-off employees

with preferential hiring rights who had found other jobs while awaiting employment

at the older plant were likely to refuse recall to the newer plant.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
68

As of October 31, 1962, an estimated 200 workers eligible for shutdown

benefits were still employed at the newer plant; at least 360 were working elsewhere; and approximately 240 were without work. The employment outlook in

the area in which the newer plant was located at this time was still critical:

Throughout 1962, the area was classified as "D n (6- to 8.9-percent unemployment)

by the U.S. Department of Labor. Only with the upturn of the steel business in

spring 1963 did employment increase sufficiently for the area to be classified in

the nCM category (3- to 5.9-percent unemployment).

Company and union provided employment assistance in relatively few

instances. Long unemployment of some workers, few openings in the community,

and the existence of preferential hiring rights inhibited any major effort. The

personnel manager attempted to place some skilled workers in local companies

where he had personal contacts. The union looked for work in the local area;

it did not receive requests from members for work in other areas. Most workers

who found jobs did so on their own or through the offices of the State employment service.

Results and Reactions

A total of $633,000 in severance pay was awarded by the company in

connection with the plant shutdown. Individual gross payments ranged from

$368 to $ 1 ,2 4 2 .6 4 . (Distributions of employees receiving severance pay are

presented in exhibit 3, page 73, by selected characteristics and severance pay

amount.) The maximum number of weeks* pay was given to more than 90 percent of employees receiving severance pay. Although women generally had more

continuous service than men, generally lower job classifications provided them

with lesser amounts of severance pay. The median gross severance pay among

men was in the $ 800—$ 899 range; among women, $700—$799. Only 26 percent

of the men and 19 percent of the women were under age 40 when they received

severance pay. Twenty-six percent of the men and 30 percent of the women

receiving severance pay were more than 50 years old.

When the shutdown agreement was negotiated, management privately estimated that employment openings at the older plant might eventually accommodate

125 workers eligible for preferential hiring. It anticipated that many employees

would refuse employment offers because the job would not necessarily be identical

to the last one held and because some would consider working conditions inferior.

Moreover, the 23-m ile distance between the two plants and lack of public transportation would create difficulties and expense for many employees with preferential hiring rights.

Opportunities materialized more quickly and in greater number than had

been expected. By June 4, 1963, the two preferential hiring lists had been

exhausted. The result of employment offers was as follows:

Total eligible for preferential hiring-------------------------------------------------------- 327

Rejected option to enroll--------------------------------------------------------------------------- 20

Rejected offer of employment--------------------------------------------------------------------- 75

Accepted offer, quit by October 1963 ------------------------------------------------------------ 20

Total with preferential hiring rights employed at 

the older plant October 1963---------------------------------------------------------------- 212

Some employees went directly from active employment at the newer plant to the

other; others had an involuntary break without knowing how long it would last.

Among the latter, some accepted employment in other companies but returned

to Moonwitch when jobs became available at the older plant. A few people left

for homes outside the State and returned upon being offered jobs at the older

plant. Some employees were unable or unwilling to find another job while waiting

for employment offers.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
69

The 353 workers eligible for severance pay but not for preferential hiring

had various employment experiences. A sizable proportion, perhaps over one-half

of the group, was already employed by another company when they received their

severance pay. Another group was unemployed at the time of severance payment

but obtained employment thereafter. A final group remained unemployed almost

a year after final termination from Moonwitch.

The State employment service calculated that the plant shutdown had led

to a 3-percent increase in area claimants for unemployment compensation. The

State office placed about 70 workers, but women and older men usually had to

accept lower-paying jobs in nonmanufacturing industries. Four displaced employees qualified for an automotive course sponsored under the Manpower Development and Training Act.

Although neither union nor company made special inquiries about the use

of severance pay, some generalization^ and specific illustrations can be cited.

Many of those who had long been out of work mentioned to the personnel manager

that they would use their severance pay to meet overdue bills. The union believed that only a few employees, not more than 3 percent, squandered their

severance pay. A small group of workers, mostly older persons and without

preferential hiring rights, moved to Florida or California but returned to the

local area when they were unable to secure employment. Another man purchased

a second-hand car with his severance pay to be able to commute to the older

plant and accept a job offer. Several people failed to claim their severance pay

by October 1963.

There were no reports of creditors harrassing workers who received

severance pay, including those long unemployed with accumulated debts. However, both company and union received inquiries from employee creditors about

names and amount of individual severance payments; the union furnished no information; the company provided only names of recipients. Loan company officials

maintained that they instituted no special collection procedures when they learned

of severance, in the announcement in the local newspapers. A credit manager

of a major department store stated that overdue accounts are reviewed and special

collection efforts made by his organization whenever special lump-sum payments

of any nature became known.

According to management, union officials, and employees who were

interviewed, most of those involved in and affected by the administration of severance pay were satisfied with the procedures used in the plant shutdown.

Primary criticism was directed at the timing and method of shutdown negotiations.

The span between announcement of the shutdown and conclusion of shutdown

negotiations made for uncertainty, confusion, and, in the eyes of some employees

already laid off, an unnecessary delay in their being awarded severance pay.

Management also recognized that it would have been desirable to involve the staff

of the older plant in negotiations.

A more fundamental issue regarding severance pay was raised by some

members of management. They questioned the propriety of awarding severance

pay and preferential hiring rights to the same individual. While employees with

preferential hiring lost competitive seniority and had no guarantee of a job offer,

they received benefits not available to workers terminating employment. A ccording to these officials, a distinction should have been made between temporary

and permanent loss of employment, with severance pay reserved for the latter.

A union leader, asked about the possibility of scales of severance pay depending

on an individuals employment status with the company, believed that such a

suggestion would have encouraged rejection of preferential hiring rights, particularly since job opportunities at the older plant originally appeared limited.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
70

Exhibit 1

Changes in Benefits Resulting from Shutdown Agreement

Benefit Existing provision Modification by shutdown agreement

Pension Eligibility for regular pension:

Full--- age 65, 15 years' service.

Reduced--- age 60, 15 years' service.

Vested--- age 40, 15 years' service.

No change.

Eligibility for special full pension only in 

case of plant closing:

Age 55, 20 years' service, within 2 

years of closing.

Same, except that those age 53 with 18 

years' service would be eligible immediately for actuarially reduced pension.

Life insurance 

Hosp ital - surgi cal 

insurance

Offered at no cost to those in first two 

categories of regular pension.

Offered at 50 percent of premiums to 

those on special pensions because of 

plant closing.

Not available to terminated employees. Available at 100 percent of premiums to 

employees on preferential hiring lists. 

(See below.)

Severance allowance Eligibility: 3 years' service (no pension). Same.

Option to employment termination for 

layoff with SUB.

Option withdrawn. All SUB payments to 

cease on effective date of shutdown.

Preferential hiring 

rights

None. Two groups gain eligibility:

1. On active payroll any time after 

November 1, 1961, or, if laid 

off before that date, at least 38 

years old with 13 years of continuous service on effective date of 

termination.

2. Others receiving severance pay 

with at least 15 years' continuous 

service.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
71

Exhibit 2 a

Sample of Letter Sent to Employee Eligible for Pension

December 28, 1962

Dear

Under the terms of the pension plan and the applicable company-union agreements covering the shutdown, 

your employment is terminated effective_______________ , 1962.

Company records establish that you are eligible for immediate:

( ) Normal retirement (65/15)

( ) Early retirement (60/15)

( ) Special retirement (55/20) or (53/18)

Our records show that you are eligible for a special retirement payment in an amount equal to___weeks

of vacation pay, or $ ________ . This special retirement payment is in lieu of the first three (3) monthly pension

payments.

Further, if you are eligible for normal retirement (65/15) or early retirement (60/15), you will be provided 

limited life insurance and limited hospital-surgical coverage without cost.

If you qualify for special retirement (55/20 or 53/18), you may elect limited life insurance and/or 

hospital-surgical insurance coverage under the company's group insurance program by paying one-half (Vjj) the cost 

of such insurance. The company pays the other half.

If, by February 28, 1963, you have not elected to participate in the company's group insurance program, 

you will be considered to have elected not to receive such insurance coverage.

To receive the benefits to which you are entitled, you must apply to:

Personnel Manager 

Personnel Office 

Moonwitch Company

Employees applying for a pension must furnish a birth certificate.

If you have any questions regarding any of the above matters, please contact the personnel office.

Yours very truly,

Manager, Industrial Relations

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
72

Exhibit 2b

Sam ple o f L etter Sent to E m p loy ee E lig ib le fo r S ev era n ce P ay

Decem ber 20, 1962

Dear

In accordance with the provisions of applicable company-union agreements, your employment is terminated

effective____________________ , 1962.

Our records establish that you are eligible to receive ____ weeks of severance pay in the amount of $___________ .

Further, two preferential hiring lists have been established for the purpose of according preference to certain

employees (exclusive of those eligible for im mediate pension) over new hires for employment opportunities at the

older plant.

The "First Preferential Hiring List" (designated as List 1) consists of the following employees ranked in the

order of continuous service at the new plant:

1. A ll persons on the active payroll list at any time since November 1, 1961, and all persons who, on

October 31, 1962, were at least thirty-eight (38) years of age and had at least thirteen (13) years of continuous service.

The "Second Preferential Hiring List" (designated as List 2) consists of the following employees ranked in

the order of continuous service at the new plant:

2. A ll persons not on List 1 who, on October 31, 1962, had at least fifteen (15) years of continuous service.

Our records establish that you are eligible to be placed upon

( ) List 1; ( ) List 2; ( ) Neither List 1 or 2.

Those who are placed upon either of the preferential hiring lists may elect to participate in the company's

group insurance program by paying the prorated cost per em ployee.

If you are eligible and desire to be placed upon the applicable preferential hiring list, you must file your

request with the company no later than January 31, 1963, or you w ill be considered to have waived your right to

placem ent on such list.

To receive the benefits to which you are entitled you must apply to:

Personnel Manager

Moonwitch Company

If you have any questions regarding any of the above matters, please contact the personnel office.

Yours very truly,

Manager, Industrial Relations

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
73

Exhibit 3

Distribution of 93 P ercen t of E m ployees R eceiving Severance Pay

by September 1963

Years of continuous service

Item 20 or more 1 5 -1 9 1 0 -1 4 5 -9 Under 5 Total

Men W om en Men W om en Men Wom en Men W om en Men W om en Men W omen

Year of birth:

Before 1 9 0 3 ---------------------- _ _ 3 1 1 12 _ 2 _ _ _ 17 1

1903 12---------------------------- 41 4 56 18 23 2 4 2 - - 124 26

1913 22----------------------------- 117 12 108 21 32 10 3 4 1 - 261 47

1923 32---------------------------- 6 - 55 4 51 10 11 3 2 - 125 17

1933 and on---------------------- - - - - 5 - 6 - 4 - 15 -

T o ta l------------------------------ 164 16 222 44 123 22 26 9 7 - 542 91

10 or more 7 -9 5 - 6 3 - 4 Total

Amount of gross severance pay:

$ 1 ,0 0 0 or more------------------ 71 _ _ _ _ _ _ _ 71 _

$900 $999-------------------------- 152 6 1 - - - - - 153 6

$800 $899-------------------------- 153 21 - - - - - - 153 21

$700 $799-------------------------- 124 41 8 - 1 - - - 133 41

$600 $699-------------------------- 7. 12 16 8 - - - - 22 20

$500 $599-------------------------- 2 2 - 1 - - - - 2 3

$400 $499-------------------------- - - - - - - 1 - 1 -

$300—$399-------------------------- - - - - - - 6 - 6 -

T o ta l--------------------------------- 509 82 25 9 1 - 7 - 541 91

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
74

4. The Riner Company

Introduction

In early 1963, the Riner Company announced the closing of a major

portion of its Mayer Street plant, A total of 140 employees were affected by

the partial shutdown. Company and union officials realized that there was little

chance of recall for most of the employees to be laid off.

The Riner Company was a major manufacturer of paper products and

had more than 3,000 employees in 13 plants throughout the United States, A lthough most of the plants had union representation, they were organized at different

times by different unions. Workers at the Mayer Street plant and at three other

Riner plants in the same city voted in 1956 for representation by a national union

affiliated with the AFLr-CIO. The four plants bargained jointly and were covered

by a master agreement. According to the company, competing companies in the

area remained unorganized.

Plant Closing Allowance

At the union's request, a plant closing allowance was included in the

1958 collective bargaining agreement. The clause provided for an allowance to

employees who had a minimum of 5 years of continuous company service and

who were separated because of complete plant abandonment. The allowance, consisting of a day's pay for each year of service (to a maximum of 20 years), was

to be paid to eligible employees who did not choose to accept a job in another

company plant. Job posting at other plants was to be waived temporarily on jobs

offered to employees from the abandoned plant. Employees who accepted jobs

at another company plant were to retain company seniority for benefit purposes

and receive reimbursement for expenses incurred in moves of over 30 miles.

Although there had been no history of plant closings, it was apparent that some

of the company's outmoded facilities were unprofitable and would eventually be

abandoned. The threat became a reality before long.

Plant closing allowances were first paid in 1958 when 1 of the 4 Riner

plants in the city was closed. Not long thereafter, another of the company's

plants in the city was closed in two stages separated by a 6-month interval. An

unexpected change in shipping rates led to a decision by management to convert

a partial plant closing to a complete one and transfer production facilities to an

area closer to customers. According to management's interpretation of the plant

closing allowance provisions, only employees affected by the second stage of the

closing were technically eligible for the special pay, since the plant had not been

abandoned until then. Management agreed, however, to make the provision retroactive to include all employees working in the division before the partial closing.

Mayer Street Plant Partial Closing

In April 1963, the company announced that part of the Mayer Street plant

would be closed beginning at the end of the following month and production equipment moved to a modern plant in another city 200 miles away. The first notice

to employees on the company bulletin board was followed by a meeting in which

management explained the decision and applicable personnel policies. The reason

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
75

for curtailing operations at the old, multistoried plant was the expectation of

improved efficiency in manufacturing and distribution of goods. About 60 workers

would be needed to operate the equipment left at the Mayer Street plant; the

remainder of the 199 employees in the bargaining unit at the beginning of 1963

would be laid off. The numbers of affected employees by skill and sex were:

Men Women Total

Skilled.............................. -.......... 15 _ 15

Semiskilled-------------------- ........... 19 49 68

Unskilled---------------------- ........... 40 17 57

Total--------------------- ........... 74 66 140

The seniority of these employees ranged from almost none to 16 years.

Policies in Effect at Time of Layoff

Management discussed with employees affected by the partial closing, the

relevant provisions contained in the collective bargaining agreement and policies

followed unilaterally by the company. Subjects included pensions and the role

of seniority in allocation of jobs.

Employees eligible for a pension had the option of either retiring or of

remaining at Riner if they had sufficient seniority to qualify for jobs. Eligibility

for pensions required a minimum of 15 years' service (or 10 years if employment

commenced before October 1, 1956) and a minimum age depending on type of

pension (65 years for a normal pension and 55 years for an actuarially reduced

early pension). ,To qualify for a deferred vested pension, an employee had to be

at least 45 years old and have 15 years of service. In case of complete plant

abandonment, the age factor was waived for deferred pension eligibility; since

the present situation did not involve complete plant abandonment, the waiver of

the age requirement was not in effect.

Management was prepared to allocate the remaining 60 jobs in accordance

with regular layoff provisions. The plant seniority system was structured by

sex and by skill classification in eight grades. In the top three grades, seniority

was by grade and skill classification; in the lower five grades, seniority applicable to layoffs was plantwide. A laid-off employee from one of the top three

grades could not bump an employee in another skilled grade; he could acquire a

semiskilled or unskilled job only if he had more plant seniority than the man

with the least seniority in the lower grade. Seniority of laid-off employees was

protected for a period equal to length of service up to 18 months. Employees

temporarily working at another company plant retained seniority in their home

unit; if they accepted permanent work there, they surrendered accumulated seniority in their home plant.

Management proposed to offer laid-off employees jobs at other plants

with job vacancies. The plant manager and superintendent were to determine on

the basis of employees' past performance who would be offered available jobs.

The company was to pay expenses of employees to visit plants offering jobs and

to move their households if acceptance of the job required relocation in excess

of 30 miles. Employees accepting offers were to carry their company service

for purposes of computing benefits, but they were to be regarded as new employees

as far as plant and job classification seniority were concerned. Employees rejecting offers incurred no penalties.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
76

A management suggestion of preferential hiring rights for laid-off Mayer

Street plant employees at the fourth company plant in the city was rejected by

employees of the fourth plant. The suggestion would have permitted the company

to bypass posting procedures in offering jobs to qualified Mayer Street employees;

refusal of the offer would have meant forfeiting seniority.

On the matter of plant closing allowances, management decided the provision was inapplicable to the situation at hand. The company did not contemplate

complete abandonment of the plant, and laid-off employees retained recall rights.

A strict interpretation of the provision was necessary, management believed,

lest the application of the provision become more liberal than the contractual

commitment to the employee. In meetings with management following the closing

announcement, the union tried to convince management that jobs were being permanently abolished with the movement of machinery. Management stood firm, although privately some of its members were embarrassed at the prospect of laying

off employees with little chance of recall and no special financial compensation.

The subject was closed until the next regularly scheduled negotiation in fall 1963.

Implementing the Policies

Meanwhile, implementation of personnel policies began as plant manager

and personnel manager interviewed employees eligible for pensions and those

entitled by seniority to remain at the Mayer Street plant. Among the former

employees, 10 chose retirement— 2 employees received normal full pensions,

while 8 of 13 eligible employees elected early retirement with reduced pension

benefits. The latter group of employees were told of the job and shift available

to them. About one-fourth of the retained personnel had to accept a lower graded

job than they previously held; most of the downgrading involved skilled men

accepting unskilled jobs, which could mean up to a 30 percent reduction in pay.

Two employees who had a choice between continued employment at a lower grade

level and pension chose a pension. At least one man refused an offer to a downgraded job and was considered a quit. On the whole, however, employees were

willing to accept offers of downgraded jobs to acquire eligibility for retirement

or to qualify for possible later promotions.

Beginning in June, management interviewed employees it considered qualified for job opportunities available at other company locations. There was no

general announcement about the job program or when it would terminate. Interviewed employees who were interested in an offer would contact the appropriate

plant and arrange for an employment interview. The number of available jobs

were limited in number and kind, occurring mostly in the skilled classifications.

Not all men with a skill in demand received offers of other jobs, nor were offers

made on the basis of seniority. For instance,-only 6 of 14 laid-off machine adjusters received offers at other plants. Although some people investigated plant

and living conditions at other locations, few took advantage of the company's offer

to pay for the trips. Apparently they felt that requesting reimbursement involved

an obligation to accept offers of employment. The acceptance of jobs was related

to the distance of their location from the city of residence. Four job openings

available at the fourth plant in the city in June 1963 were quickly filled, as were

6 permanent positions and 30 temporary ones later. Three employees accepted

employment at a company plant which required about 2 hours of commuting daily;

they were joined by a fourth employee who successfully applied at this plant on

his own. Of the eight employees who took jobs in other States requiring a transfer

of residence,, four soon returned because of the higher cost of living in, and

unfamiliarity with, the new community. These two reasons were also given by

employees rejecting job offers at other plants, along with the hope for recall or

other local employment. Several openings in more distant plants remained unfilled.

Management had expected that more employees would take advantage of job offers

in other company locations.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
77

Layoffs

Employees were laid off beginning in mid-May, sometimes with as little

as 24-hours' notice of layoff. Employees on layoff received 3 months' coverage

of hospital and medical insurance paid for entirely by the company. Pension

eligibility accumulated for 18 months after layoff if the employee had acquired an

equivalent amount of seniority before layoff. An employee laid off and subsequently

recalled, even temporarily, again qualified for a full period of benefits upon layoff.

The union advised employees to remain with the company, if only on

layoff status, to protect their seniority. While the union took no position with

regard to employees accepting jobs at other plants, it urged employees not to

quit on their own or by default. Only a few did so.

By the end of summer 1963, after a few changes in available positions,

the disposition of Mayer Street plant employees was as follows:

Disposition Employees

Working at Mayer Street plant-------------------- 70

Working at other company plants--------------- 16

Retired------------------------------------------------ 10

Quit---------------------------------------------------- 4

On layoff---------------------------------------------- 99

Total---...............-........ —................... 199

Subsequent Employment Experience

Laid-off employees faced a relatively difficult local labor situation.

The average unemployment rate in the area for the last 7 months of 1963 was

6.4 percent, ranging from a monthly high of 7.1 percent in June, to a low of

5.3 percent in October. In addition, Riner employees had to contend with limited

transferability of some skills, and a history of above average wages that might

influence their attitude to available employment. All laid-off employees seeking

work qualified for unemployment compensation consisting of a maximum basic

payment of $40 plus dependents' allowance for up to 30 weeks.

To help laid-off employees find new jobs, management and the State

employment service offered aid and special programs. The plant manager sent

letters to companies in the area which he felt might be able to use the workers'

skills. In addition, he arranged for the County Metal Trades Association to send

a letter to its membership describing the laid-off personnel and offering to arrange

interviews. The plant manager received many telephone calls in response to the

mailings. He compiled and distributed to employees a list of 30 companies expressing interest in receiving applications. No followup was made to determine

how many workers found jobs by using the list.

The State employment service interviewed 125 employees, including some

who were later recalled, and found them above average in aptitude and ability.

Employment counselors told of available jobs, contemplated training programs,

and application procedures. The counselors urged workers to take a battery of

tests on a voluntary basis in order to know their abilities and potentialities better,

to receive more meaningful counseling, and to assess their qualifications for

specific employment and training programs. Only about one-fourth of those interviewed agreed to take the tests; those who refused seemed to fear the consequences

of possible poor results. At least three women were successfully placed as result

of tests at a local steel company. Six other workers were also placed, though

sometimes at lower wages than they had been receiving.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
78

The employment service was also able to refer workers to training programs established under the Manpower Development and Training Act (MDTA).

Despite wide interest in the programs, the number enrolled was limited by requirements of demonstrated or tested ability, age under 50, and willingness to

complete the program. Three men took an MDTA training course to become

general machinists, and several women to become clerks.

Most laid-off workers apparently sought work on their own through friends,

newspapers, and direct factory gate applications. A few employees decided layoff

provided a good opportunity for a break with their present occupational skills;

although several skilled men had job offers from nonunion companies, they chose

to seek physically lighter, though less skilled and lower paid work.

The employment experience of one man following layoff illustrates the

difficulties in subsequent employment encountered by many laid-off employees on

account of wage differentials, incomplete knowledge of employment opportunities,

and uncertain stability of employment because of lack of seniority. The man,

a skilled worker in his forties, looked for work solely through friends and direct

applications; he avoided the State employment service. His first offer was as

a machinist learner at $1.40 per hour, exactly one-half his former job rate. He

rejected the offer since his unemployment compensation was greater than earnings

at this job would have been. Three weeks following layoff, the man accepted

a job on the midnight shift in a carpet factory. He switched employers after

3 weeks to become a metal buffer on the day shift in a factory nearer home.

This job had lasted 6 months when a lack of orders caused an indefinite layoff.

Displacement Allowance

The collective bargaining agreement expired on October 1, 1963, almost

6 months after the partial shutdown had first been announced and several months

after it had been effected. As part of its initial demands, the union proposed

a broadening of the plant closing payments to provide a displacement allowance

for all employees leaving for reasons beyond their control. During negotiations,

the com p a n y co u n te re d w ith a p ro p o s a l that fo r a ll intents w as the one in clu d ed 

in the final agreement. The proposal was framed to supplement the existing plant

closing arrangement and to cover employees affected by the partial closing of

the Mayer Street plant. Adoption of the proposal came as a welcome surprise

to many former employees.

The displacement allowance provision negotiated in 1963 was as follows;

Any employee with 5 years or more of uninterrupted service with the company who

is laid off for a period of 6 consecutive months, and who has not declined a lateral or

downgrading transfer to which his seniority entitles him, has the following options:

1. At the end of said 6-month period, of accepting an allowance of 1 day's pay for

each year of service and forfeiting all recall rights.

2. Decline this displacement allowance and retain the balance of the 18 months accrued

to him for recall rights.

Any employee who takes the option 1 above, and is later reemployed by the company

will forfeit all accumulated seniority and length of service benefits, and his reemployment

will be on the basis of a new employee.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
79

In many ways the displacement allowance provision was similar to the plant closing

payment. It differed in that it required a waiting period following the end of

active employment, contained no maximum pay limit, and offered a layoff option.

It also did not include waivers of age for a deferred pension and of job posting

for jobs at other plants.

Employees on layoff from the Mayer Street plant, the only workers

immediately eligible for the displacement allowance, were informed by letter from

the union of the new provision and of a special union meeting to discuss it. A lthough the special meeting was poorly attended, many former employees chose

to talk informally with local union officials, who provided details of the plan but

would not advise on choices. A statement of the displacement allowance and the

implications of accepting it were also given by the plant manager and union

financial secretary to employees who came to the plant office to apply for a displacement allowance. Both union and company were eager to warn employees

close to recall or within 18 months of pension qualification what they would lose

if they chose a displacement allowance; several employees reconsidered their

choice as a result of these warnings.

Upon receiving an application for a displacement allowance, the company

computed the amount due and forwarded the forms to the company's central dataprocessing center. Displacement allowance checks were mailed from the center

to the individual approximately 1 month after the original date of application.

Since the checks would not reach applicants until after Christmas, the company

agreed to advance partial payments to applicants who came to the office of the

other plant in the city; the balance due was mailed to the individual later.

Because the displacement allowance was negotiated relatively late in the

6-month period of layoff of many employees, management and union agreed to

extend the deadline for filing applications in this one instance. December 31, 1963,

became the deadline for all employees on continuous layoff since the partial closing

announcement. If employees had worked at any company plant since July 1, their

6-month waiting period would begin as of the last day of work.

The displacement allowance eligibility and choice among laid-off employees as of January 1, 1964, can be summarized thus:

Eligible for displacement allowance---------------------------- 58

Chose displacement allowance------------------------------- 38

Chose additional layoff

(retained seniority)------------------------------------------- 20

Not eligible for displacement allowance---------------------- 41

Insufficient company service---------------------------------37

Insufficient layoff---------------------------------------------- 4

Total employees on layoff---------------------------------- 99

A few workers chose layoff to gain enough seniority to qualify for a pension.

The remainder choosing layoff apparently believed either that they were high

enough on the seniority list to have a chance of recall or that future events, such

as complete plant shutdown, would improve their benefits. Yet, some workers

relatively high on the seniority rolls preferred the displacement allowance on

205-662 0-66-7

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
80

the grounds that recall probably would involve a downgraded job on a late shift,

with threat of frequent layoff. Many eligible employees had already secured other

jobs; company officials believed that only 2 of the 14 men electing a displacement

allowance were without work at the time. One person with a displacement allowance was old enough to qualify also for a deferred pension. A breakdown of em ­

ployees choosing displacement allowance, by skill, sex, and seniority, follows:

Women Men

Seniority Unskilled

Semiskilled Unskilled

Semiskilled Skilled Total

5-9 years---------------- 3 6 2 4 - 15

10-14 years------------- 4 8 1 2 4 19

15-19 years-------------— 3 - - 1 4

Total-------------- 7 17 3 6 5 38

The amount of gross displacement allowance ranged from about $90 to

$280, with an average payment of approximately $200. Total cost to the company

for the group above was about $7, 500. Deductions from gross pay were limited

to income and social security taxes.

Although no special effort was made by company or union officials to

follow the disposition made of the displacement allowance, information was received on an individual basis. The employee credit union, which did not have

direct call on the displacement allowance, was contacted voluntarily by several

former employees who wished to apply their displacement allowance to outstanding loans. Others used money to pay accumulated bills or to buy Christmas gifts;

in one case the allowance served as down payment for a car. No reports were

r e c e iv e d about c r e d ito r s h a ra ssin g w o r k e r s w ho had r e c e iv e d a d isp la cem en t, 

allowance. Union officials believed that most recipients of the displacement

allowance regarded it as a windfall.

Employees Remaining at the Mayer Street Plant

Employees who remained at the Mayer Street plant reported that they

viewed the events of the partial shutdown with mixed emotions. On the one hand,

they were pleased to have steady employment, even if it meant lower wages and

less desirable hours. Knowledge that former junior employees were working in

other company plants, at their old classification and wage rate, disturbed the

more senior employees who had been forced to accept downgrading. On the other

hand, the remaining employees were wary about the future prospects of work at

the Mayer Street plant. They felt that the plant might close in the not-too-distant

future and that the company might move out of the city altogether not long thereafter. Some employees hoped that these closings would take place soon. If the

Mayer Street plant were to close completely, lower pension eligibility requirements would permit many of the younger employees to qualify for a deferred

pension. Jobs at other company plants, especially in the city, might be scarce,

however, and largely filled by employees laid off earlier. To prepare for a

possible complete shutdown and to have more skill to offer in the labor area,

a few employees went to trade school on their own time and at their own expense

to learn new skills and renew old ones.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
81

5. The Closing of a Newspaper

The management of a large newspaper in a major city ceased publication

with the announcement of the sale of the paper. More than 300 employees were

affected by the action. Management was committed by agreement to award

approximately 150 employees represented by the American Newspaper Guild

(AFL—CIO) up to 42 weeks of severance pay. It offered to give employees in

printing departments 2 weeks' severance pay in addition to accrued vacation pay

although there was no contractual obligation to do so. This study, in the main,

deals with the operation of the severance pay plan as it affected workers represented by the Guild.

Background

The newspaper had been founded more than 50 years ago. A steady

rise in circulation following World War II was reversed in the m id-1950's. In

recent years, the paper had suffered a decline in subscriptions despite rapid

growth in the population of the metropolitan area it served. A continuing financial

loss led to the decision to end publication and to sell the building, property,

equipment, supplies, and other assets.

Of the more than 300 workers employed at the time of sale, 287 were

considered eligible for union organization. All but those engaged in display

advertising, about 30, were represented by unions. A local of the Guild had

been established before World War II to represent employees engaged in gathering

and editing news, distributing the papers, soliciting advertisements, conducting

business and financial operations, and maintaining the building and power equipment. The Guild represented about 150 employees. Craft employees had been

organized earlier; they were represented by the International Typographical Union,

International Stereotypers' and Electrotypers' Union of North America, International Printing Pressm en and Assistants' Union of North America, International

Mailers Union, and Lithographers and Photoengravers International Union.

The age distribution of the 287 employees was as follows:

Number of

Age employees

18—29 years----------------------------------------------- 75

30—49 years----------------------------------------------- 95

50 years and over---------------------------------------- 117

The seniority distribution followed parallel lines. A number of employees had

over 30 years of service, with average length of service about 10 years. Although

only men were employed in the mechanical departments, women comprised about

25 percent of the total force.

The sale came without advance notice about a month before expiration

of the labor agreement with the Guild. Employees were told by their respective

department heads and by posted notices that the last edition of the paper would

be printed that day and that all contractual commitments would be met. All personnel engaged in writing, producing, and distributing the paper were terminated at

once. Some employees in the business and maintenance departments were asked to

remain to help close the paper. If they wished to leave for another job, however,

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
82

they were not to be considered as leaving voluntarily (an action that would have

disqualified them from receiving severance pay). Ten weeks after the closing,

10 employees were still working full time and several former employees helped

on weekends.

Severance Pay

Only the agreement with the Guild contained provision for severance pay.

Although the scale of payments had been increased, the basic terms of the plan

had remained unchanged for more than two decades. The clause in the agreement provided for 111 week's pay for every 6 months (or a major fraction thereof)

of continuous employment with the publisher, the maximum payment not to exceed

42 weeks' pay which may be paid on a weekly basis at the option of the person

entitled to the benefits under the clause." Discharge for "just and sufficient

cause" constituted eligibility for severance pay; only workers terminating their

employment voluntarily were ineligible.

The pay used in calculating the severance amount was the employee's

highest straight-time weekly salary for any 2 consecutive weeks within the

42 weeks prior to dism issal. The Guild had negotiated minimum wage scales for

each job, with length-of-service increases. For instance, the weekly salary for

a secretary in 1963 was $55.25 at the beginning and $64 after 1 year of experience; a seven-step weekly scale for editorial employees ranged from $65 at the

start to $ 126 after 5 years. Individual employees could deal directly with

management for higher wages than those specified in the agreement. Most

editorial and top circulation department employees with more than 10 years'

service earned more than the scale negotiated by the union.

Although there was little turnover, and much of that was voluntary, the

company had had experience with severance pay. Because pay was awarded to

those leaving for any reason other than voluntary termination, occasional difficulty

was encountered with management charging that an employee invited dismissal

in order to collect severance pay or with the union accusing management of

attempting to force an employee to quit rather than dismissing him. Management

had expressed to Guild representatives a desire for a "policeman" to oversee

application of the severance pay provision so as to restrict payment to employees

terminated for reasons beyond their control.

Although employees covered by other agreements were not entitled to

severance pay, management decided to give all employees on the payroll on the

day of the closing announcement a minimum of 2 weeks' termination pay. Thus,

employees who were not contractually entitled to severance pay received 2 weeks'

pay and those covered by the Guild agreement were assured at least 2 weeks'

pay, even if they had less than 9 months of continuous employment. In addition,

management offered a special plan to terminating employees in nonrepresented

departments.

A lump-sum severance payment was mailed to all terminated employees

3 weeks after the announcement of the sale of the newspaper. Employees continuing to work with the paper received the payments on their day of termination.

There were no major problems raised about the amounts received; a few clerical

miscalculations were corrected, and other inquiries were readily answered.

Because of the nature of the severance pay arrangement, the range of

payments actually made was broad. Amount of pay depended on the applicable

plan, regular salary, and length of service. A recently employed charwoman

or messenger, the lowest paid employees on the staff, would receive $ 98. An

editorial employee with 21 years' continuous service would be assured at least

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
83

$ 5, 292 and would receive more if, as was likely, his salary was above the

scale. It was estimated that up to 45 percent of employees represented by the

Guild had sufficient service to receive maximum severance payments, i.e.,

21 years. The distribution of payments was:

Number of

Severance pay employees

Less than $1,000 ---------------------------------------- 157

$1,000—$2,999 .......-............ - ..................... 67

$3,000-$5,999 - ....................... -........ ........ 46

$6,000 and over------------------------------------------ 17

Although the total amount paid by the company was not available, it is

probable that at least $ 500,000 was awarded in severance pay following the sale

of the newspaper. Excluding the craft employees who received 2 weeks’ severance pay, severance payments averaged about $ 2, 600.

Other Benefits

In addition to severance pay, employees were eligible for other benefits

at the time of separation following the end of publication.

Arrangements were made to permit employees to convert life insurance

and Blue Cross—Blue Shield insurance from group coverage to individual policies.

Employees received up to 3 weeks' salary as vacation pay, depending

on length of service and time elapsed since the last anniversary date of employment. Accrued vacation pay was sent together with severance pay.

A variety of pension plans were in effect. The end of publication did

not affect the membership of some of the craft employees who were covered by

union-operated plans. Nonrepresented employees were part of a company-initiated

plan, which was dissolved according to the terms of the plan. A jointly administered noncontributory pension plan for Guild members had been negotiated

3 years earlier. According to this plan, an employee needed 10 years' service to

be eligible for normal retirement benefits under the plan. If the plan were

dissolved within the first 10 years of operation, accumulated funds would be

apportioned on an actuarial basis to employees eligible for benefits, including

those already on pension. The plan was terminated upon completion of actuarial

studies and approval of the joint pension plan agreement committee and the

Internal Revenue Service, as follows:

1. Eligible participants in the plan with calculated benefits of at least

$10 per month at age 65 would receive insured benefits under a group annuity

policy contract, purchased with a lump sum from the trust fund. Those 65 years

or older would start to receive benefits for life. In the event of death, the

beneficiary would receive monthly benefits for the balance of the 60-month period

since the benefits originally went into effect.

2. Eligible participants with calculated benefits of less than $ 10 per

month at age 65 would be paid a cash lump sum in lieu of a pension, regardless

of their age.

Employees without immediate employment were qualified to file for unemployment compensation. The State system provided for a maximum weekly

payment of $37 for 26 weeks. Money paid by an employer as wages in lieu of

notice lengthened the waiting period for benefits by an equivalent number of

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
84

weeks. Severance pay, including that paid to craft employees, was not considered

in the same category as wages in lieu of notice, however, and did not affect the

amount or timing of payments. All of the newspaper's employees could file for

unemployment compensation without penalty.

Subsequent Employment Experience

The suddenness of the closing of the newspaper prevented employees

from planning and seeking other employment in advance. Although the general

employment outlook in the area was relatively favorable (3.1 percent of the labor

force unemployed), the highly specialized skills possessed by many of the workers

presented problems. However, a large number of the displaced workers were

employed immediately and many others soon afterward. The speed of these

placements surprised all concerned.

Other newspapers in the community were the prime source of immediate

employment. The company buying the newspaper offered jobs on the same day

as the sale to all district managers of the circulation staff. Those accepting

were not guaranteed permanent employment and were hired as independent contractors rather than salaried personnel. Most accepted the offer, although some

later left. About 18 of the 50 editorial employees were either retained by the

purchasing paper or hired by another newspaper in the community. Several

advertising department employees as well as printers and other craftsmen were

also employed by these newspapers to help expand their operations.

The company had offered to advertise the available skills and operate a

formal employment service, if necessary. The rapid placement of many em ­

ployees made such large scale formal efforts unnecessary. The responsibility

for assisting employees was delegated to department heads, who would know of

suitable contacts for positions and could assess the needs and abilities of their

staff members.

Management of the editorial department informed employees that telephone interviews for jobs in other cities would be arranged for interested

personnel. A number of interviews were arranged. In addition, out-of-town

newspapers called to offer jobs to editorial personnel. Among the contacted or

contacting papers were several affiliated with the same chain as the closing

newspaper. Eight writers and reporters and one circulation man accepted jobs

in other cities throughout the country. There was no standard policy regarding

the moving expenses of these workers since the matter was left to individual

negotiation between the worker and his new employer.

The Guild made separate efforts to assist employees in finding new jobs.

Immediately after the sale announcement, the union arranged for a spokesman

of the State employment commission to address a meeting of all employees the

following Sunday. At the meeting, affected employees were told of the mechanics

of unemployment compensation and benefit rights, given forms for initial claims

and application for employment, and scheduled for interviews at the placement

offices during the next week.

The Guild also established an employment committee. The union received a few calls directly from papers in other cities regarding available jobs.

An arrangement was reached with the State employment commission whereby

office facilities and staff assistance would be made available to the committee

at one of the commission's downtown offices. Volunteers from the union committee manned the special facility for 3 weeks to receive calls from employers,

review the commission's employment files and assist workers. During the

period, approximately 60 persons of all skill categories, craftsmen as well as

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
85

Guild-represented employees, came to the special office to receive information

on unemployment compensation claims and available jobs. The Guild announced

that approximately 50 Guild members had filed for unemployment compensation.

Employment applications were forwarded for processing to the State

employment commission's offices specializing in certain occupational classifications, e.g., industrial jobs, professional jobs. The State employment commission

did not maintain separate figures on unemployment compensation claims and

placements of the newspaper workers. Commission officials who were interviewed

knew of at least five office workers and two mechanical craftsmen who had been

placed.

Displaced workers used other resources to locate employment. A few

paid private employment agencies to help find suitable employment. A far

greater number utilized personal contacts and direct applications. Eight editorial employees joined local public relations and advertising firm s. Others

decided to freelance or accept jobs with public agencies. Advertising solicitors

and classified salesmen not employed by other daily newspapers mostly joined

various smaller publications, went into business for themselves, or became

salesmen. Office and bookkeeping personnel found similar jobs in other firms.

Three workers retired from the labor force and two died shortly after the

closing. Three women, formerly in classified advertising, began courses to

qualify for positions in real estate and insurance.

Within a few weeks of the sale, over 90 percent of the displaced editorial

workers were employed elsewhere. The reemployment record of other groups

was not as good. Those formerly engaged in soliciting classified advertisements

found age and past wage levels to be definite handicaps. The State employment

commission and members of the Guild employment committee believed that at

age 45 and over employment opportunities were severely limited. Age indirectly

affected employment in another way; older workers were likely to have earned

length-of-service wage increases which made it more difficult for them to accept

the lower wage rates of available jobs. Several workers still unemployed

Z months after the shutdown were considering job offers or planning to intensify

their job campaigns for 11 suitable" jobs in the local area and elsewhere. For

others, including a few older printers, the job prospects were dim.

Severance Pay Expenditure

Neither the company nor the Guild had comprehensive information on how

employees used their severance pay. From interviews with officials and some

separated workers, certain impressions were formed. Use of severance pay

outside of normal expenditure patterns was exceptional. Some recipients of

severance pay paid outstanding bills. Although creditors did not generally press

recipients to settle accounts, at least one worker receiving a small amount of

severance pay and not reemployed at his former wage level had his mortgage

foreclosed. A few others made major new purchases, such as autos, or took

extended vacation trips on the strength of severance payments. Those beginning

an enterprise invested the money in their businesses. Severance pay also gave

three women the opportunity to pursue training in real estate and insurance.

Apparently, the majority of recipients of substantial amounts of severance pay

banked all or the greater part of their pay. For some, the banked money

represented a fund to assist them in meeting current living expenses until reemployed; for others it was an investment or contingency reserve.

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
Appendix. Questionnaires

2826 A---- Conventional Severance Pay Plans

BLS 2826 A Budget Bureau No. 44—6326

Approval expires March 31, 1964

U.S. DEPARTMENT OF LABOR

BUREAU OF LABOR STATISTICS

Wa s h in g to n 25, D.C.

Study of Severance Pay Plans

IDENTIFICATION:

Location of establishment for which data are

desired if different from mailing address.

Union__________________

Number of workers

covered by agreement

Occupation of workers covered:

Production and maintenance -

Clerical--------------------------------

Professional, technical, sales

Other--------------------------------------

1. In which year was a severance pay provision first included in the collective bargaining agreement?----

2. Prior to that time, did the company have a formal severance pay plan for these employees?------------ Yes_____ No____

3. How many employees under the agreement were awarded severance pay in each of the following

years? (If severance pay was awarded in installments, count employees only in year pay was Number of

first awarded. Answer only for years in which plan was under agreement. ) employees

1962 (or corresponding fiscal year)--------------------------------------------------------------------------------------------

1961 (or corresponding fiscal year)-------------------------------------------------------------------------------------------

1960 (or corresponding fiscal year)-------------------------------------------------------------------------------------------

4. Of those employees awarded severance pay in 1962, approximately how many were in each of the

following categories of length of company service?

Under 3 years-----------------------------------------------------------------------------------------------------------------------------

3 and under 10 years-------------------------------------------------------------------------------------------------------------------

10 and under 15 years----------------------------------------------------------------------------------------------------------------

15 and under 20 years----------------------------------------------------------------------------------------------------------------

20 years and over-----------------------------------------------------------------------------------------------------------------------

5. For employees awarded severance pay in 1962, what were the reasons for severance?

Check as appropriate and, if possible, estimate the number of employees receiving

severance pay for each reason. Check

Involuntary separation due to lack of \^ork (lack of business, closing or

consolidation of plants, technological change)--------------------------------------------•---------- ---------

Retirement or disability without being eligible for retirement annuity--------------------- ---------

Discharge for cause or inability to perform work-------------------------------------------------------- ---------

Voluntary separation -------------------------------------------------------------------------------------------------- ---------

Other (specify)_______________________________________________________________________ ______

87

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
88

6. How much severance pay did employees receive in 1962?

a. Total gross amount (do not include payments in lieu of separation notice)----------------------- $ _________________

b. Total net amount (gross amount less all deductions)---------------------------------------------------------- $ _________________

7. Have severance payments ever been liberalized beyond amounts required by the plan?----------------- Yes_____No

If "Yes, " under what circumstances? _____________________________________________________________________

8. Is there a waiting period between time employment is severed and time employee receives

severance pay?-------------------------------------------------------------------------------------------------------------------------------- Yes____ No_

If "Yes, " how long is the waiting period?---------------------------------------------------------------------------- --------------------

9. How are severance payments paid? (Check one)

Only in lump su m ----------------------------------------------------------------------------------------------------------------- -------------------

Only in regular installments ------------------------------------------------------------------------------------------------- ---------------_----

Other (specify)____________________________________________________

10. Are severance payments in whole or in part contingent on the worker remaining unemployed?------ Yes____ No___

11. Does an employee lose all recall rights to employment with the company when he accepts

severance pay?------------------------------------------------ ‘------------------------------------------------------------------------------ Yes____ No___

12. What company services have been available to employees before and after severance?

Check as appropriate. Before After

N one-----------------------------------------------------------------------------------------------------------------------------

Training for other jobs with company-------------------------------------- -----------------------------------

Testing or guidance-------------------------------------------------------------------------------------------------------

Company-sponsored employment referral----------------------------------------------------------------------

Training for employment outside of company--------------------------------------------------------------

Other (specify)________________________________________________________________ _

13. Options to severance pay:

a. Does an employee have the option to choose between severance pay and each of the following? Check. (If employee loses severance pay when rejecting offer, check "No. ")

Another job with the company at the same or higher rate of pay in-the same

plant or area---------------------------------------------------------------------------------------------------- •»------------------ Yes____ No_

Another job with the company at a lower rate of pay in the same plant or area----------------- Yes____ No_

Layoff with preferential recall----------------------------------------------------------------------------------------------- Yes____ No

Transfer to another plant of the company in a different geographic area---------------------------- Yes____ No_

Other (specify)

If an employee has any of the above options, please answer questions "b " and "c. "

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
8 9

13. Options to severance pay— Continued

b. During 1962, how many employees were offered and chose each of the following options in lieu of severance pay,

and how many rejected one or more of the options in order to receive severance pay? (For employees receiving

severance pay, indicate all options offered and rejected by each employee. Because employees may have been

offered none, one, or more options, the total number of employees rejecting options to take severance pay will

not necessarily coincide with the total number receiving severance pay.) XT . r n

’ Number of employees

Rejected

option (and

received

Accepted severance

option pay)

Another job with the company in the same plant or area at the same or higher

rate of pay----------------------------------------------------------------------------------------------------------------- xxx

Another job with the company in the same plant or area at a lower rate of pay-------- xxx

Layoff with preferential recall------------------------------------------------------------------------------------- ------------- ----------

Transfer to another plant of the company in a different geographic area at the

same or higher rate of pay----------------------------------------------------------------------------------------- ------------- ----------

Transfer to another plant of the company in a different geographic area at a

lower rate of pay-------------------------------------------------------------------------------------------------------- ------------- -----------

Other (specify)__________________________________________________________________________ _

c. Did the company pay all or part of moving expenses of employees accepting option to

transfer to a different geographic location?------------------------------------------------------------------------------ Yes___ No

14. What other kinds of monetary payments are available from the company to employees at time of

severance (e. g. , individual thrift funds to which employer has contributed, profit sharing, etc. )?

15. Does company pay severed employees for accumulated vacation time?--------------------------------------------- Yes___ No_

16. Does company offer employees in the bargaining unit a life insurance plan to which it contributes

all or part of premium?------------------------------------------------------------------------------------------------------------------- Yes___ No

If "Yes, " please answer questions "a " and "b. "

a. When does coverage under this plan end? (Check one)

At time of layoff--------------------------------------------------------------------------------------------------------------

When employee accepts severance pay----------------------------------------------------------------------------

Other (specify) _________________________________________________________________________

b. When employee is no longer covered by the company, may he pay for continued coverage

at group rate?------------------------------------------------------------------------------------------------------------------------------ Yes___ No

17. Does company offer employees in the bargaining unit hospital, surgical, and/or medical

insurance plans to which it contributes all or part of premium?------------------------------------------------------ Yes___ No

If "Yes, " please answer questions "a " and "b. "

a. When does coverage under this plan end? (Check one)

At time of layoff--------------------------------------------------------------------------------------------------------------------- ------------------

When employee accepts severance pay------------------------------------------------------------------------------------ ------------------

Other (specify)__________________________________________________________________________________________ __

b. When employee is no longer covered by the company, may he pay for continued coverage

at group rate?---------------------------------------------------------------------------------------------------------------------------- Yes___ No

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
9 0

18. Does company have a pension plan for employees in the bargaining unit?---------------------------------------- Yes___ No_

If "Yes, " please answer questions "a, " "b, " and "c. "

a. Is there any vesting?.-------------------------------------------------------------------------------------------------------------------- Yes___ No_

b. How many employees receiving severance pay in 1962 had earned vested rights

to accumulated pensions?---------------------------------------------------------------------------------------------------------- ------------------

c. Can severance payments be deducted from deferred vested pensions?------------------------------------------ Yes___ No_

19. Does company offer a severance pay plan to nonsupervisory white-collar employees

(professional, sales, technical, clerical) not in the bargaining unit?--------------------------------------------- Yes___ No_

If "Yes, " please answer questions "a, " "b, " and "c. "

a. Is severance pay plan for these employees similar to the one for employees in the

bargaining unit?----------------*------------------------------------------------------------------------------------------------------- Yes___ No_

If plan is different, please send copy of the plan or describe briefly the major features of the plan.

b. How many employees are covered by such a plan?--------------------------------------------------------------------------------------------------

c. How many employees were awarded severance pay under this plan in 1962?-------------------------------- -------------------------

20. Would you please comment on aspects of your severance pay plan and its operation which have helped workers find

new jobs, learn new skills, or move to new locations. Equally important, we would appreciate your comments on

aspects which tend to diminish the effectiveness of the plan as far as mobility of workers is concerned. (Use additional sheets if necessary.)

Name of person reporting Title Date

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
91

2826 B-----SUB-Type Severance Pay Plans

BLS 2826 B Budget Bureau No. 44—6326

Approval expires March 31, 1964

U.S. DEPARTMENT OF LABOR

BUREAU OF LABOR STATISTICS

Wa s h in g to n 25, D.C.

Study of Severance Pay Plans

IDENTIFICATION:

Location of establishment for which data are

desired if different from mailing address.

Union

Occupation of workers covered:

Production and maintenance--------

Clerical------------------------------------------

Professional, technical, sales------

Other---------------------------------------------

Number of workers

covered by agreement

1. In which year was a severance pay provision first included in the collective bargaining agreement?---------- --------

2. Prior to that time, did the company have a formal severance pay plan for these employees?--------------Yes_____ No_

3. How many employees under the agreement were awarded severance pay in each of the following

years? (If severance pay was awarded in installments, count employees only in year that pay

was first awarded. Answer only for years in which plan was under agreement. )

Number of

employees

1962 (or corresponding fiscal year)-

1961 (or corresponding fiscal year)-

1960 (or corresponding fiscal year)-

4. Of those employees awarded severance pay in 1962, approximately how many were in each of the

following categories of length of company service?

Under 3 years------------------------------------------------------------------------------------------------------------------------------

3 and under 10 years------------------------------------------------------------------------------------------------------------------

10 and under 15 years-----------------------------------------------------------------------------------------------------------------

15 and vuider 20 years-----------------------------------------------------------------------------------------------------------------

20 years and over------------------------------------------------------------------------------------------------------------------------

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
9 2

5. For employees awarded severance pay in 1962, what were the reasons for severance? Check as

appropriate and, if possible, estimate the number of employees receiving severance pay for

each reason.

Number of

Check employees

Involuntary separation due to lack of work (lack of business, closing or consolidation

of plants, technological change)---------------------------------------------------------------------------------- ------------ -----------------

Retirement or disability without being eligible for retirement annuity------------------------------------- -----------------

Discharge for cause or inability to perform work------------------------------------------------------------ ------------ -----------------

Voluntary separation------------------------------------------------------------------------------------------------------ ------------ -----------------

Other (specify)_______ ___________________________________________________________________________________________

6. Does the severance pay plan provide for a waiting period (e. g. , 1 year in auto industry, 2 years

in rubber industry) before laid-off employees become eligible for severance pay?----------------------- Yes___ No___

If answer is "Yes, " please answer questions "a " and "b. "

a. Proportion of employees applying for severance pay as soon as eligible.

(1) In 1962, how many employees became eligible for severance pay after normal

waiting period?-------------------------------------------------------------------------------------------------------------------- -----------------

(2) How many of these employees applied for severance pay as soon as eligible?--------------------- -----------------

b. Did the company in 1962 permit some employees to apply for severance pay before

completion of normal waiting period?-------------------------------------------------------------------------------------- Yes___ No____

If "Yes, " under what circumstances?______________________________________________________________________________

(1) In 1962, how many employees were eligible to apply for severance pay earlier

than normal?------------------------------------------------------------------------------------------------------

(2) How many of these employees applied for severance pay as soon as eligible?—

7. How much severance pay did employees receive in 1962?

a. Total gross amount----------------------------------------------------------------------------------------------------------------------- $_

b. Deductions because of prior payments of Supplemental Unemployment Benefits----------------------- $_

c. Total net amount (gross amount less all deductions)-------------------------------------------------------------------- $_

8. How many employees receiving severance pay in 1962 had SUB payments deducted from

gross severance pay?------------------------------------------------------------------------------------------------------------------------- ------------

9. Is severance pay financed from SUB fund?------------------------------------------------------------------------------------------ Yes___ No_

If "Yes, " please answer questions "a " and "b. "

a. Can severance payments be reduced if fund falls below a minimum level?------------------------------- Yes___ No

b. Have severance payments ever been reduced because of level of fund?-------------------------------------- Yes___ No

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
9 3

10. Have severance payments ever been liberalized beyond amounts required by the plan?-------------------------Yes____ No

If "Yes, " under what circumstances?_____________________________________________________________________________ _

11. What company services have been available to employees before or after severance? Check. Before After

None------------------------------------------------------------------------------------------------------------------------------------------------------------------ --------

Training for other jobs with company-------------------------------------------------------------------------------------------------------------- --------

Testing or guidance------------------------------------------------------------------------------------------------------------------------------------------ --------

Company-sponsored employment referral------------------------------------------------------------------------------------------- ------------- --------

Training for employment outside of company------------------------------------------------------------------------------------------------- --------

Other (specify)____________________________________________________________________________________________________ _

12. Options to severance pay.

a. When an employee becomes eligible for severance pay, does he have the option to choose

between severance pay and each of the following? Check. (If employee loses severance

pay when rejecting offer, check "No. " ) ---------------------------------------------------------------------------------------- Yes____ No_

Another job with the company at a lower rate of pay in the same geographic area------------------------Yes____ No_

Transfer to another plant of the company in a different geographic area------------------------------------------ Yes____No_

Other (specify)_________________________________________________________________________________________________

b. If an employee has any of the above options, how many employees who received severance

pay in 1962 rejected each of the following? (Because employees may have been offered

none, one, or more options, the total number of employees in this question will not

necessarily coincide with the total number receiving severance pay. )

Number of

employees

Another job with company in the same geographic area at a lower rate of pay------------------------------- -----------------

Transfer to another plant of the company in a different geographic area at the same or

higher rate of pay--------------------------------------------------------------------------------------------------------------------------- -----------------

Transfer to another plant of the company in a different geographic area at a lower rate

of pay--------------------------------------------------------------------------------------------------------------------------------------------- -----------------

Other (s p e c ify )______________________________________________________________________________________________________________

13. What other kinds of monetary payments are available from the company to employees at time of

severance (individual thrift funds to which employer has contributed, profit sharing, etc. )?

14. Does company have a pension plan for employees in the bargaining unit?------------------------------------------- Yes___ No_

If "Yes, " please answer questions "a, " "b, " and "c. "

a. Is there any vesting?------------------------------------------------------------------------------------------------------------------------- Yes___ No_

b. How many employees receiving severance pay in 1962 earned vested rights to

accumulated pensions?------------------------------------------------------------------------------------------------------------------- -----------------

c. Can severance payments be deducted from deferred vested pensions?--------------------------------------------- Yes___ No

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis
9 4

15. Does company offer a severance pay plan to nonsupervisory white-collar employees (professional,

sales, technical, clerical) not in the bargaining unit?------------------------------------------------------- Yes___ No_

If "Yes, " please answer questions "a, " "b, " and "c. "

a. Is severance pay plan for these employees similar to the one for employees in the

bargaining unit?---------------------------------------------------------------------------------------------- Yes___No_

If plan is different, please send copy of the plan or describe briefly its major features.

b. How many employees are covered by such a plan?-----------------------------

c. How many employees were awarded severance pay under this plan in 1962?

Number of 

employees

16. Would you please comment on aspects of your severance pay plan and its operation which have helped workers find 

new jobs, learn new skills, or move to new locations. Equally important, we would appreciate your comments 

on aspects which tend to diminish the effectiveness of the plan as far as mobility of workers is concerned. (Use 

additional sheets if necessary. )

Name of person reporting Title Date

U. S. GOVERNMENT PRINTING OFFICE : 1966 0 -2 0 5 -6 6 2

Digitized for FRASER 

http://fraser.stlouisfed.org/ 

Federal Reserve Bank of St. Louis