(1) What is outplacement?

Outplacement is a consulting service designed to assist companies through some difficult processes, ranging from performance-based terminations of individual employees to mass layoffs and downsizings based on the company’s long-term strategic needs.

Typically, an outplacement consultant will first assist the company in planning and executing a termination, and will then provide guidance and resources for the displaced employee as he or she seeks new employment.

(2) Why do companies use outplacement?

There are many reasons why companies provide outplacement to their displaced employees. The decision is usually based on some combination of the following:

To ensure a smooth transition and minimize the chance of litigation and other negative actions:
Outplacement focuses the candidate toward the future and away from the past. It replaces recrimination with optimism and channels the terminated employee’s energy towards positive action. An ex-employee who is excited about the future is less likely to sue, disparage, or sabotage his or her former employer.

To help maintain the morale of remaining employees:
“Survivor syndrome” can be a very negative force inside an organization. Too many companies came through the massive downsizings of the late 1980s and early 1990s with their surviving employees guilty, paranoid, demoralized, overworked, underproductive, and waiting for the other shoe to drop. Using outplacement demonstrates to your employees that layoffs are not capricious bloodbaths undertaken on a whim, but, rather, a necessary part of the company’s strategy for change and growth. Outplacement also demonstrates that compassion, fairness and consistency remain a part of the corporate culture, even after a lay-off.

To preserve the company’s reputation as a good corporate citizen:
Large layoffs can have an immense impact on the community. Outplacement services can mitigate that impact by shortening the time your ex-employees are unemployed.

To reduce the stress-level of managers involved in layoffs:
All too often, the manager who “does the deed” in a termination or layoff is the most stressed-out of all the parties involved. The assistance of outplacement consultants in planning and executing a layoff can make the process significantly less painful. In addition, access to outplacement services makes managers more willing to terminate marginal employees and lay off excess employees.

As a critical component of the company’s change management strategy:
Correct use of outplacement helps a company plan for long-term growth and change. It encourages consistency and confidence in decision-making and minimizes precipitous action. In many companies, outplacement is seen as a standard corporate benefit akin to dental or health coverage.

Out of a genuine desire to "do the right thing":
Most companies are run by compassionate human beings who want to do all they can to help their laid-off employees.

(3) What is the structure of the outplacement industry?

In general, we will be discussing the “Corporate-Sponsored Outplacement Industry” as opposed to the “Retail Outplacement Industry.” In the former, all or most of the fees received by outplacement firms are paid by corporate clients – the companies whose employees are being displaced. In the latter, all or most of the fees are paid by individuals. It is always a good idea to inquire about the source of an outplacement firm’s revenues, since you are hiring them to provide an essential service for your company.

Like other consulting industries, the Corporate-Sponsored Outplacement Industry consists of a handful of large national firms with offices in most major metropolitan areas, plus numerous smaller firms with regional or local focus. Many of the smaller firms are linked by alliances with firms in other markets, giving them the kind of national scope offered by the largest firms. There are around 250 firms nationwide, and of these, the three largest firms account for 25% of all revenues.

Consider both regional/local firms as well as large national firms when selecting an outplacement company. Because of the scale of their operations, national firms may be attractive on price; however, smaller firms offer greater flexibility in program design and superior knowledge of the local job market. Even in the case of a national, multi-site layoff, you should consider a networked alliance of smaller firms.

(4) Are there differences between outplacement firms and/or outplacement models?

Although there are similarities between all outplacement programs, there are also some significant differences in emphasis and philosophy. There are two main models for outplacement:

• The traditional “Psychological/Counseling” approach
• The newer “Market Model” approach

In order to understand the difference between these two approaches, it helps to understand a little about the development of the Outplacement Industry.

Corporate-sponsored outplacement first came into existence during the 1970’s. It grew out of career counseling, and was developed in the context of job-loss as a single, once-in-a-lifetime, traumatic event that probably resulted from some character flaw in the terminated employee or a mis-match between the employee’s skills/personality and choice of career. It was generally understood that the terminated employee (usually an executive) would be able to find a position though his or her network, once the issues that caused the termination had been dealt with. In this type of program, heavy emphasis was placed on psychological testing (often administered by a licensed Psychologist on the outplacement firm’s staff), use of personality and skills assessment tools, hands-on career counseling, and provision of an environment where an executive could feel comfortable while making networking calls.

As the pace of corporate layoffs picked up in the early-to-mid 1980s, a new outplacement model was developed. It became clear that layoffs were an increasingly important part of corporate strategy, that employees at all levels in companies were included in layoffs, that employee performance was no longer the sole reason (or even the main reason) for job loss, and that employees were beginning to see job-loss and the resulting job-search as a normal part of the world of work. Moreover, the job market was becoming increasingly competitive, and candidates needed self-marketing skills in order to succeed.

The new type of outplacement program that resulted from these realizations regarded the job search as a marketing opportunity. Resources were devoted to market research, technology and proactive job development. Instead of focusing almost entirely on counseling, this new type of program also provided hands-on campaign management and skills training. The firms tended to espouse a multi-channel approach that included newspaper ads, recruiters, direct mail and other job-search resources in addition to networking, and they provided services and resources attuned to such an approach, including resume writing, on-line databases, PCs, voice-mail, and, more recently, Internet access.

As the 1980s progressed into the 1990s, the success of this newer “Market Model” approach became apparent, and many of the more traditional firms added elements of it to their programs. Hence, many outplacement firms now offer, to a greater or lesser degree, job development, database resources, voice-mail, and use of PCs. There now exists somewhat of a continuum between the traditional and the newer outplacement models, with many firms in the middle, mixing elements of both.

(5) How can I evaluate outplacement firms?

It is important to research an outplacement firm carefully before deciding to assign any of your displaced employees to the firm. Be sure to examine the firm in detail: ask about the firm’s values and culture; review the firm’s program and processes and all related materials; visit the facilities; meet the firm’s management and staff; speak with current and former candidates and check client references.

How long has the firm been in business? What is the firm’s history?

Is outplacement the firm’s primary business, or is it one of several lines of business?

Is the firm primarily corporate-retained or does it primarily work with individuals?

Does the firm have any specialties in terms of industries or types of companies?

Does the firm have experience working with people similar to your employee base?

What is the firm’s philosophy and/or culture? Are they compatible with your company’s?

What are the firm’s values and how are they reflected in day-to-day operations?

What is the firm’s “product”?

How does the firm differ from its competition?

Does the firm measure performance and maintain statistics?

What kind of feedback does the firm give to its corporate clients?

Is the firm able to serve as a long-term, valued resource to your company?

Can the firm provide references from corporate clients and former candidates?

Is the outplacement program “complete” in terms of covering all the elements of job-search?

Are programs available at multiple levels to serve diverse groups of candidates?

Can the firm bundle/unbundle elements of programs to meet individual candidate needs?

What is the degree of flexibility when it comes to customizing programs for individual candidates or candidate populations?

Can the firm meet special candidate needs, such as entrepreneurial programs?

What is the quality of training and support materials?

Does the firm take a pro-active role in marketing candidates to prospective employers?

Does the firm set time limits on services, or are programs open-ended?

What are the backgrounds of the firm’s managers and consultants?

Does management effectively monitor the quality of program delivered to candidates?

How does management measure the performance of individual consultants?

What kind of case load do consultants carry?

Do consultants have other responsibilities in addition to servicing candidates (e.g. marketing)? What percentage of the consultant’s time is spent in candidate support?

How are candidates assigned to consultants?

Are consultants full-time employees of the firm, or are they independent contractors or “ stringers” hired on a by-the-project basis?

Do the consultants have in-depth knowledge of the local job market, employers and recruiters?

Are the consultants credible, and do they have the strength of character needed to work with people who are in crisis?

Are the firm’s managers and consultants energetic and motivated? Do you trust and respect them?

What is the degree of diversity among the firm’s employees?

Are the firm’s offices accessible for your displaced employees?

Is there enough space, and is the space suitable for different levels of programs?

Is there space for both private counseling and group sessions?

Is the telephone system adequate? Does it provide private, personalized voice-mail for candidates?

Do candidates have access to computers? Are computers, peripherals and software up-to-date?

Are online resources available? Do candidates have access to the Internet?

Are the support staff dedicated, well-trained and professional?

How comprehensive is the reference library? Is it easy to use?

What kinds of limitations are placed on mailings, printing, and so forth?

It is worth investing time in researching outplacement firms well before you begin planning a termination or layoff, since it will be very difficult for you to do so once the process is under way. It is also a good idea to maintain relationships with outplacement firms between layoffs, so that they can remain aware of ongoing changes within your company.

(6) How much does outplacement cost? How is it paid for?

Outplacement fees are generally calculated in one of three ways:

1. As a percentage of the employee’s compensation
2. As a fixed fee
3. Billed at an hourly or per-diem rate

1. Percentage-of-compensation fees reflect the idea that the higher a candidate’s salary, the more effort it will take to find a new job. This is generally true, and so the outplacement firm receives a fee that roughly parallels the “degree of difficulty” of the employee you are assigning to them. This is the approach that is usually adopted when a single employee or a small number of employees are being outplaced. Most outplacement firms charge a fee of around 15% of annual compensation for an executive-level candidate. For that fee, you should expect a well-rounded program that includes extensive one-on-one consulting, plus office space, voice-mail and other support services. Outplacement firms will often omit use of office space and related services and charge a lower percentage; they may also charge higher fees for additional services, or for particularly difficult assignments.

2. Fixed fee programs charge a fixed sum depending on the level of candidate assigned or the level of services to be provided to candidates. These programs are often used in the case of large lay-offs, or when the client company anticipates a series of layoffs, either group or individual, over an extended period of time.

3. Hourly or per-diem billing usually applies for special project work, such as conducting job market research or developing training materials.

Most firms do not set a salary minimum for candidates; however many firms have a minimum fee, especially in the case of percentage-of-compensation fees. Outplacement firms will frequently bill-back out-of-pocket expenses, especially those incurred during delivery of large group programs.

Almost all outplacement firms will negotiate fees, especially if they see the potential of a continuing relationship with your company. Remember, however, that you really do get what you pay for—cost is always an issue, but be sure to pay attention to the quality and appropriateness of the program to be provided your displaced employees, and the capability of the outplacement firm to deliver it effectively. Be suspicious if an outplacement firm is overly eager to cut their price, or responds to an RFP with a bid that is well below that of the other respondents.

Since a significant portion of the outplacement firm’s costs are incurred at the front-end, outplacement fees are almost always billed as an upfront retainer at the commencement of an assignment. Some companies have been tempted to “incent” their outplacement firm by making part or all of the fee payable upon placement of the displaced employee. Few outplacement firms will accept this arrangement.

(7) What should I expect from my outplacement firm?

You should expect your outplacement firm to be a fully participating member of your strategic planning team. You should expect them to be valued advisors providing critical reality checks during some very difficult times. You should expect honest, real-world answers to your questions—and you should expect them to disagree with you on occasion. You should expect them to spend the time to get to know your company well, to understand its unique history, culture and values, and to develop programs that are not “cookie-cutter” outplacement, but are customized to your company and your employees.

You should expect your outplacement firm to take very seriously the responsibility they assume for your displaced employees. Outplacement consultants have a unique dual-customer relationship. You hire them and pay them, but you hire them to become advocates for your displaced employees. The outplacement consultant enters a situation where he or she is responsible for promoting the mutual interests of parties who are sometimes at odds—an employer and an ex-employee. The best outplacement consultants take pride in being honest brokers who bring about a result that is in the best interest of both parties—rapid and satisfying re-employment of the displaced employee with minimum disruption to the operations or reputation of the employer. Sometimes that role will cause them to disagree with you, or try to persuade you to do something “for your own good” that might not be your preferred course of action. In cases like that, trust their experience—it’s what you pay them for.

With regard to the outplacement firm’s impact on your ex-employee, don’t expect miracles—it’s hard to make a silk purse from a sow’s ear! In the case of a performance-based termination, the same flaws that caused the employee’s demise may well continue to cause damage during the job search—what used to drive you crazy will drive your outplacement consultant crazy as well.

While it’s almost impossible to cure a lifetime’s worth of negative behaviors overnight, outplacement firms can sometimes accomplish a remarkable turn-around with a problem candidate. Often “bad performance” is related more to environment than character, more to chemistry that competence, more to poor personality mix than bad attitude. Being taken out of a situation that simply isn’t working out, and being shown that there are other options in life, can herald a new beginning for even the most underperforming employee.

As part of the preparation process, you should expect your outplacement consultant to ask you for honest input regarding your employee’s weaknesses and strengths, as well as the interpersonal dynamics that may have brought about the termination. That input will be invaluable in planning the candidate’s job-search and identifying potential new employers.

During the job-search itself, you should expect regular feedback on your ex-employee’s progress unless he or she specifically requests that it not be provided. This is your ex-employee’s right and you should respect it. Bear in mind that much of the success of an outplacement assignment depends upon the trust that develops between your ex-employee and the outplacement consultant. Jeopardizing that trust is counterproductive to your interests, and you should avoid the urge to get involved unless your ex-employee welcomes it.

(8) What are the typical elements of outplacement programs?

Pre-Termination Consulting
Representatives of the outplacement firm meet with company human resources staff and operating managers to help plan layoffs and terminations in advance. The scope of this consulting can include designing severance packages and outplacement programs, training and counseling the terminating managers, developing responses for managers to issues ranging from reference checks to media inquiries, writing internal announcements and press releases, planning termination logistics, and advising on legal issues such as W.A.R.N. notices.

Termination Assistance Representatives of the outplacement firm are present on the day of the termination to assist in the process. An outplacement consultant meets with the terminated employee immediately after the news is delivered. The consultant’s aim is to help the terminated employee cope with his or her emotions and not burn any bridges. The consultant may also help the employee plan how to communicate the news to family, friends and others. If needed, the consultant may help the employee gather his or her belongings and make a gracious exit from the building. This first meeting begins building the trust that will be such an essential part of the employee’s relationship with the outplacement firm.

Assessment and Packaging In the beginning stages of the job-search campaign, the outplacement firm works with the ex-employee (now usually referred to as a “candidate”) to assess skills and strengths, examine his or her career in detail to identify possible target markets, and assess values and preferences that may influence the shape of the job-search. Some firms may administer psychological or skills tests at this time; others may use structured interviews. The candidate may have other needs, such as financial planning and special spouse and family issues. Once assessment is completed, the outplacement firm develops one or more resumes for the candidate, or the candidate is guided though the process of writing his or her own resume. Most firms also assist the candidate in developing some form of “job-search strategy” or a “self-marketing plan.”

Job-Search Skills Training The outplacement firm trains the candidate in skills needed to conduct a successful job-search. This may be provided in one-on-one or group training sessions. Topics include interviewing, networking, working with recruiters, job-market research, and negotiating job offers. The firm may use video as part of the interview training, and may also include basic computer training if they are particularly technology-driven.

Support and Resources Executive candidates may receive administrative support including office space, access to computers, mailing privileges, reception/voice mail services, and access to reference materials and publications.

Ongoing Campaign Management In most cases, candidates receive follow-up support for a period of time, or for the duration of the job-search. This can include strategic and tactical advice on the job-search campaign, emotional support, motivational counseling, marketing of the candidate to potential employers, introductions to recruiters and networking contacts, and help with decision-making and negotiations. If the candidate wants to start or buy a company, the outplacement firm may help with advice on setting up a business.

(9) Are there different levels of outplacement programs?

Most outplacement firms are willing to customize outplacement programs to meet your needs or budget. Various levels of outplacement programs are offered, with services that can be bundled or unbundled in response to individual company and/or candidate needs. Generally, outplacement programs fall into the following categories:

Top Level or Key Executive Packages This level of program provides extensive and highly personalized one-on-one consultation/counseling, hands-on guidance and coaching services, plus access to administrative resources including a private office or cubicle, secretarial services and/or use of a computer, Internet access, mailing privileges, telephones and reception/voice-mail services.

Senior Manager Packages These programs are similar to the above package, excluding use of office space and other administrative services. This type of program may be appropriate and cost-effective when your employee has a home office, or will continue to use similar resources at your location.

Manager/Professional Programs These programs provides services somewhere between the highly personalized programs and the group programs. Where cost is an issue, or there a large group of managers or professionals are being outplaced, a combination of personalized coaching and group learning may be a cost-effective solution. In the case of large layoffs, access to job-search resources and services may be provided through a dedicated “career center” that is set up and managed by the outplacement firm.

Group Outplacement Programs In this type of program, the majority of services are provided to candidates through group training sessions, with or without some degree of follow-up. These classes can vary in size and duration depending upon the employee population and your budget. Follow-up services range from help with resumes, to recruiter contacts, job development and ongoing counseling.

(10) Should I provide outplacement for all my employees?

The decision on how extensively to use outplacement should be based on what objectives you wish to achieve by providing it, and what funds are available to pay for it. Many companies that use outplacement for their executives also provide it for other employees in the organization, and some provide it for all their employees, including hourly plant workers. When outplacement is truly part of a company’s change management strategy, it is usually made available throughout the organization.

(11) What about limited-time programs?

Some outplacement firms may propose limited-time programs, where services are provided to the candidate for a fixed period of time, e.g. three months, after which services cease. This is usually proposed as a way to control your costs; in reality, it is a very effective means for the firm to control theirs.

The problem with time-limited programs is that they do not take into account the differences between candidates. There are great variations in the emotional process candidates need to go through before they can effectively start looking for work. There are also great differences in their competitiveness on the job market once they start looking. Some candidates come straight out of the gate, chomping at the bit, while others need a considerable amount of time for psychic healing before they are ready to compete. Some candidate have hot skills that are very much in demand; others may be looking for a needle-in-the-haystack job. Some candidates may be interested in a job just like the one they just left; others may wish to explore very different options.

Telling a candidate who doesn’t yet have a new job, “your time is up, good luck with the rest of your life” seems cruel and inflexible, especially when that candidate has come to trust the outplacement consultant as a guide and mentor. All the good work in deftly removing a problem employee from your organization may be undone by cutting him or her off too soon. The strategic thinking that goes into a large layoff may be wasted if your displaced employees are subjected to a cookie-cutter approach that doesn’t take into account individual differences.

It is reasonable to expect your outplacement firm to seek to control costs. However, you should be concerned if they seem willing to compromise program quality and the well-being of your employees in order to do so.

(12) Are outplacement services a taxable benefit to the ex-employee?

In most cases, outplacement benefits are not viewed by the IRS as taxable income for individuals. In 1992, IRS Revenue Ruling 92-69 excluded employer-provided outplacement services from an employee’s income as a working condition fringe benefit under Section 1.132(a)(3).

The IRS further recognized the substantial business benefits to an employer of providing outplacement services—such as maintaining positive corporate image, sustaining employee morale, and avoiding wrongful termination lawsuits—that are distinct from the benefit a company might derive from merely increasing an employee’s compensation.

(13) Should I allow displaced employees to “shop” among outplacement firms?

Some companies do not select an outplacement firm prior to the termination, but instead require their displaced employee to choose from among a short-list of outplacement firms. There are two reasons why, under most circumstances, this is not a good idea:

If the outplacement firm is brought in after the termination, you miss out on their valuable assistance in planning and performing the termination. This can lead to mistakes in the process, as well as potential emotional problems for the candidate.

People who have just been fired are not in the best condition to make rational decisions. They may be swayed by factors (such as luxurious office space) that are not directly relevant to their needs, and make decisions for the wrong reasons. At the same time, outplacement firms who are competing for business may “oversell” their services, promising a level of service they cannot provide within the fee you will pay. In either case, the result will be an unhappy ex-employee.

You should get to know several outplacement firms well, so that you can differentiate their models, values and strengths. As you begin planning a termination, select an outplacement firm based on who will be the best fit with the affected employee or employee population. Then involve that firm fully in the pre-termination planning in order to make full use of their expertise. Factors that determine fit could include the firm’s philosophy and/or model, their prior experience with similar assignments, the personalities and backgrounds of the firm’s consultants, and the resources and technologies they have available.

(14) Should I offer the choice between severance and outplacement?

Offering the choice of a severance package or outplacement presents the candidate with an impossible dilemma at a time when he or she is already emotionally vulnerable. Ask yourself—“do I believe in outplacement or not?” If you have decided that outplacement is an important component of your company’s change management strategy, you should provide it to your displaced employees.

(15) How should I structure the employee’s severance package?

Most companies provide some form of severance to their displaced employees, both as a reward for faithful service, and as a financial cushion to carry them through the process of finding a new job. The decision you make about severance will be based on your company’s strategic needs, its financial resources, current job market conditions, and upon policy and precedent. This is a critical area in which to seek your outplacement consultant’s advice and involvement.

In layoffs or downsizings, most companies provide severance based upon length of service of the employee. The formula used to calculate severance may be a week of salary per year of service, or two weeks of salary per year of service, or a month of salary per year of service.

Some companies provide a minimum amount of severance, for instance, a month’s salary or two weeks of salary per year of service, whichever is greater. Some set a maximum amount, for instance two weeks of salary per year of service, to a maximum of six months of salary.

Sometimes, the amount of severance is set by precedent or policy, for instance an employee at Vice President level or higher will receive a full year of salary, no matter how long his or her tenure. For individual executives, the amount of severance may also be established by an employment agreement.

(16) How should I pay severance?

Severance may be paid as a single lump sum payment, or as salary continuation for a period of time after the termination date. Sometimes the candidate is offered a choice (each option has its own tax advantages and disadvantages for the employer and the employee). There may be accounting and cash flow advantages to the company in continuing salary payments for the period of severance, rather than paying a lump sum at the beginning, especially if health and other benefits also continue during the period. However, if possible, the best approach is to pay severance as a single, one-time payment, since this provides the kind of “clean break” the displaced employee needs to move on with his or her life.

(17) What are common mistakes companies make with severance?

Some companies pay severance continuation on a contingency basis. For instance, salary will continue to be paid until the candidate lands a job and then it will stop, or severance will be paid out in stages: a payment immediately, another payment if the candidate is still looking for a job after three months, yet another if he or she is still looking after six months, and so forth.

These may seem like ways of saving money, based on the idea that the sooner the candidate lands a new job, the less severance will be paid out. More often than not, however, contingency severance serves as a disincentive for even the most motivated candidate. The less effort the candidate puts into the job search, the longer the checks will keep coming.

To counter this, companies will sometimes construct milestones for the candidate, or require the outplacement firm to police the candidate to make sure he or she is really looking for a job. This is usually counterproductive, since the candidate resents the employer’s efforts to influence his or her actions, and can come to mistrust the outplacement consultant.

In another effort to cut costs, a company may give its displaced employees an official “termination date” some time in the future and tell them to begin looking for a new job immediately, even though they are still on the job. This has the effect of placing employees in a kind of limbo, uncertain of their status in the company, not fully committed to the future and not fully cut off from the past. Nobody wins in these "continue to work until you find a job" deals—the all-too-common result is a job search that extends well beyond the candidate’s termination.

 When a termination is based upon performance, some companies deny severance altogether. However, even when an employee has been terminated for cause, it is in the employer’s best interest that the ex-employee find new work as quickly as possible. Providing a financial cushion will make this more likely, and thus help reduce the possibility of legal action.