"They called us in as a group and said, 'You'll be learning from your department head today if you're in or out,'" says a worker who was laid off from Barnesandnoble.com earlier this year with seven weeks of severance after working at the company for four years. "So you'd see a person walking by with flattened boxes and know they'd be going. It was a bad way to handle it."
Nobody understands the harsh realities of the Internet job market better than Strati Papageorge. A marketing associate at financial newswire Bridge Information Systems, Papageorge was laid off in January and told he would receive in the mail a severance check covering two weeks of his salary. Instead, he got a notice that his former employer had filed for bankruptcy - and that he could make a claim for what he was owed. Recalls Papageorge: "I called the HR director and said, 'Are you kidding me?'"
No kidding. Papageorge also stands little chance of seeing any money. First the attorneys and trustees take their slice of the remaining assets. Then back taxes are paid. Employee claims come third, followed by creditors. "The issues are, 'Say goodbye [to severance],' grimly jokes Cliff Palefsky, a San Francisco labor attorney who frequently gets calls from people owed severance they'll likely never get.
No one knows exactly how many people get the boot without a severance check to soften the blow, but some recruiters report that the percentage is high. "Eighty-seven percent of our candidates are coming from companies that are laying off or downsizing," says Steven Pope, a recruiter with the New York-based firm GT Solutions. "I'd say that 60 percent were laid off without severance."
Of course, setting aside money to pay severance was never part of the plan for most dot-coms. They weren't going to revolutionize the business world if they were worried about how to handle layoffs. "You came in here because you wanted to reach the moon, not for the downside insurance," explains former Petstore.com CEO Josh Newman, whose company went belly-up last June.
Still, some struggling dot-coms have made it a point of pride that they treat workers well - or at least say the right things. Bolt, a Web site for teens, laid off 35 employees in February, granting each of them two weeks of severance. "We wanted to do something for our employees," says Tracey Wilk, Bolt's director of human resources. At Ask Jeeves, a manager who was laid off in December received two months of pay. "I thought it was very generous," she says.
When dot-coms do give severance, they follow some familiar patterns. Almost 80 percent of the companies in the Unifi survey of large Internet firms had no formal, written policies; many simply made up the rules as they went along. As a result, employees at some companies have received vastly different severance payouts from one round of layoffs to the next, and remaining staffers had no assurance that they would get anything. Teligent, the telecommunications company, provided less severance with subsequent rounds of layoffs, to the point where some got zero, according to employees. By contrast, 64 percent of Fortune 500 companies have written policies, according to the Unifi study.
One way to ensure a decent severance is to negotiate it up front, before you accept the job. Typically this perk is reserved for senior executives. Seventy percent of the large dot-coms surveyed by Unifi had top executives under employment contracts that included severance; 81 percent of traditional corporations used such employment contracts for senior execs. "You have to be pretty strategic to an organization to command some guarantee upon exit of anything," says Dee DiPietro, founder and CEO of compensation consultancy Advanced-HR.
The typical executive severance spelled out in these contracts ranges from one to four years of base salary plus a bonus, according to executive recruiters. But there's no limit to the creativity - and generosity - bestowed on those in the corner offices. Take Webvan, the online grocer whose stock has plunged from a 52-week high of $9.38 to 13 cents. Former CEO George Shaheen left the firm in April - with a package giving him $375,000 a year for the rest of his life (and for the rest of his wife's life, if she survives him). Heidi Miller, the former CFO at Priceline, lasted only eight months, but that was long enough for the company to forgive her $3.3 million loan as part of a severance deal. Earlier this year, as NBC was poised to buy NBCi, a $2 million bonus was added to CEO Will Lansing's goodbye package, which included his $1.7 million annual salary and bonus and forgiveness of a $4 million housing loan. Still, that's chump change compared with the notorious case of former Mattel CEO Jill Barad, who walked away with $50 million last year after her company lost $171 million in a quarter.
These lavish payouts don't sit well with the rank and file. Former employees of eToys who say they were denied their accrued vacation pay were upset when they learned founder Toby Lenk was paid $500,000 in consulting fees as the company was shutting its doors. "It sent a message that if you weren't management, you didn't count," says Kathy Hernandez, who was employee No. 5 at eToys and got two months of severance.
Companies provide severance for a range of reasons. Firms genuinely want to help their former employees; they want to be known as benevolent so they can, perhaps in the future, recruit top talent; they want fired workers to have some reason to sign legal agreements designed to protect the company.
