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Severance Costs: Fewer, but Higher
Friday, May 11, 2018

One of our hobbies here at Calcbench is researching obscure financial reporting topics, to see what clues they might give us about Corporate America and life overall. Today we’re revisiting one of our favorite: severance pay.

Companies do sometimes report employee severance costs. You can find that detail on our Multi-Company search page, as one of the many standardized metrics we offer as search terms. You can also look up severance costs on our Data Query Tool if you want aggregate numbers across large groups of filers.

We last looked at severance costs one year ago. We found that total severance costs had risen mildly from 2014 to the start of 2017, but average severance costs per company had spiked 88 percent.

Well, yesterday we updated the numbers to include all of 2017 and Q1 2018 — and what a difference a year makes!

As you can see from Figure 1, below, total severance costs were much lower in 2017. That, in turn, tilted the trendline for 2014 to 2018 from upward to downward.

On the other hand, average severance costs per filer continue to rise upward; see Figure 2, below. From the start of 2014 through first-quarter 2018, average costs are up 55.8 percent — not as much as we reported one year ago, but still a big increase.

That may be a statistical anomaly that will resolve over time. First-quarter 2018 costs are way above the trend for 2017, but not all companies have filed first-quarter 2018 numbers yet. Larger companies file first, and larger companies typically will have higher severance costs than smaller ones, so that bar for Q1-2018 may end up lower within a few more weeks.

Or, on the other hand, maybe Q1 2018 will continue the accelerating rise that happened throughout 2017. Something to think about as you read those headlines about another corporate restructuring and another round of layoffs.

We also looked at the total number of companies reporting severance costs at all. It’s never been a high number, only in the mid-300s at the best (worst?) of times. But again, the trendline tells all: we have fewer companies reporting severance costs today than in previous years. See Figure 3, below.

In total, we have fewer companies reporting severance costs, so the total amount of cost is lower; but they are paying more average cost per firm. Are they being more generous with the package? Laying off better-paid workers whose packages are calculated from higher salary levels? Something else?

We’re not sure. It’s your job to ask the precise questions when you get the CFO in a meeting or on an earnings call. But the data is there to let you pose the right question that matters most — and with a few quick keystrokes, you can find it.

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