Redundancy payouts decrease

New research on redundancy settlement payments in the Ireland since the start of the current crisis suggests a gradual downward drift in the level of payouts, particularly in those sectors most directly affected by the downturn. Payments in sectors less affected by the crisis have held up, according to a survey of over 400 agreements negotiated between 2008 and 2012. The areas with the highest settlements remain pharmaceuticals and medical device manufacturers.

Decreasing redundancy payments

The economic crisis of the past five years, during which a total of almost 250,000 jobs have been lost, has resulted in employers generally providing lower redundancy payouts than in the past. However, the level of enhanced redundancy payable since the start of the recession is not an even one, according to Redundancy Settlements in the Crisis, 2008–2012 (press release, 107Kb PDF), a guide that has just been published by the specialist weekly, Industrial Relations News (IRN).

The survey provides the first really clear picture of how enhanced redundancy payouts have performed in what has been called the Great Recession. The authors, Brian Sheehan and Colman Higgins, conclude that it would be a surprise if the previous gradual upward trend in redundancy settlements during the so-called Celtic Tiger boom years between the mid-1990s and 2007 had not been affected by the crisis. They ask just what impact the crisis has had on the level of payouts.

Key findings

The survey finds that downward pressure on payments has been evident in those areas with a direct or indirect link to the state, in particular:

  • the direct public service;
  • commercial semi-state bodies;
  • banks that were formerly privately owned and which are now almost wholly state-owned or dependent on the state.

In the private sector, the survey focuses mostly on unionised firms, although it does include a number of significant non-union companies such as the giant multinationals Intel and Dell. Where the crisis has bitten deepest, the survey says, severance payouts have fallen off to the greatest extent.

It should be noted that the state-funded statutory minimum redundancy payment is available to any employee over 16 years of age who has 104 weeks of continuous service, and is based on two weeks of ‘normal weekly remuneration’ per year of service, subject to a ceiling of €600 per week.

State-guaranteed banks

At the end of the boom years, banks were paying the equivalent of between six and eight weeks’ pay for each year of service, inclusive of the normal statutory entitlement payable by the state. Since the collapse, redundancy payments at the state guaranteed banks have dropped dramatically because higher payouts have been blocked by the Department of Finance on behalf of the government.

The Department of Finance also wanted to avoid severance payments that were higher than those in the broader public service. The result is that the benchmark for settlements in these banks is based on the same terms that were paid by the Health Service Executive (HSE) to public service employees made redundant in late 2010 and early 2011 (IE1112019I).

This HSE deal stands at three weeks’ pay for each year of service, plus two weeks’ statutory entitlement. The government has announced that these terms will be used again over the next few years to further slim down public sector numbers, where necessary. They will be offered only for voluntary redundancies, because compulsory redundancies in the public sector are ruled out by the terms of the Public Service Agreement, 2010–2014, widely known as the Croke Park Agreement.

Semi-state bodies

There was also pressure on payouts in the commercial semi-state sector, where political factors made it more difficult to pay the sort of high-end packages that historically featured in this important sub-sector of the Irish economy. Nonetheless, several well known semi-state bodies were able to agree significant severance deals based on precedent. At An Post, for example, volunteers received payoffs of eight or nine weeks per year of service, inclusive of the statutory element.

At the successful state-owned electric utility the Electricity Supply Board (ESB), trade unions agreed to changes in a previous long-standing voluntary arrangement aimed at reducing staff numbers by 700 over the next three years. The new deal provides for a lump-sum based on a maximum of two years’ earnings and a preserved pension at age 65, compared to the more attractive preserved pension at 60 years of age that had been previously available (IE1205019I).

Private sector

The areas with the highest settlements in the private sector – and with the least downward pressure on terms – remain pharmaceuticals and medical device manufacturers. Such firms have traditionally paid enhanced terms worth five to six weeks’ pay per year of service, plus the statutory element. Companies surveyed include Schering Plough, part of the Merck group, Abbott, Pfizer and GlaxoSmithKline, all of which paid relatively attractive terms broadly based on the industry average.

Other private sector areas covered by the survey include food and drink, electronics and engineering, print and packaging, transport, communications, tourism, security, catering and leisure.

Commentary

The survey authors comment that it would have been surprising if the gradual upward trend in settlements prior to the collapse of the Celtic Tiger boom had not been halted or reversed, given the depth of the recession, particularly in parts of the public sector. Nonetheless, they point out that in many parts of the exporting private sector – and in the commercial semi-state bodies – the level of enhanced redundancy remains relatively high.

Roisin Farrelly, IRN Publishing

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