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Outplacement consultants Dr. Laurence J. Stybel and Maryanne Peabody are co- founders of STYBEL PEABODY & ASSOCIATES. It is Boston's oldest corporate sponsored consulting firm focusing on the unique career needs of senior executives. They can be reached at 617/371-2990. They are also sponsors of THE BOARD OF DIRECTORS' RESOURCE CENTER at www.stybelpeabody.com.
Your company provides you with outplacement consultation. Should you take outplacement or ask for the cash?
OUTPLACEMENT IS NOT NECESSARY IF.......
By outplacement, we mean corporate sponsored assistance to help employees quickly find new opportunities. The word "outplacement" thus should not be confused with corporate sponsored assistance to find competent new employees (recruiting). Outplacement also is not to be confused with individuals paying a firm to help them find new jobs.
The word "outplacement" is often associated with two day group programs, group support programs, and the substitution of high technology for personal contact.
For the vast majority of employees, these programs do provide a useful introduction to the job market and a valuable perspective on career management.
For senior executives, however, pre-packaged outplacement programs may or may not provide value. And if an executive has previously gone through another outplacement firm, there may indeed be little value by going through the same program again.
A full service outplacement program can be of value under one or more of the following circumstances:
Like any professional service, the most important attribute for outplacement success is the competence of the person you will be working with and the chemistry between you and your consultant. Everything else is secondary..
Outplacement fees can range upwards between 15-20% of terminated employees' total cash compensation (salary plus bonus). Thus the cash value of the service can be a significant value to you.
Keep in mind that you will likely pay federal and state taxes if you take out the benefit in the form of cash.
For example, an employee was offered outplacement consultation or the cash value of that service. She took the outplacement service. In Private Ruling No. 8913008, the IRS held that since the cash payment would have been taxable, then the cash value of the outplacement should also be taxable. In this particular case, the IRS took the position that the outplacement service was of primary benefit to the employee and not of primary benefit to the employer.
The private letter ruling was carefully limited in its application by the IRS and stated that the ruling is "directed only to the taxpayer to whom it is addressed...and may not be used or cited as precedent."
The Association of Outplacement Consulting Firms International is the trade association of the outplacement industry. It was so concerned about the IRS Private Letter, it secured an opinion from Arthur Anderson & Company. A large outplacement firm also secured an opinion on the matter from a Washington,D.C.-based attorney. Both opinions stress that there are ways that companies can structure the offering of outplacement services so as to minimize the chances that the IRS will construe it as a taxable benefit to employees:
It is common for companies to require terminated employees to sign a waiver of rights to sue in return for added severance arrangements. These severance arrangements must be greater than those severance benefits spelled out in the company personnel manual. Having such a document clearly is in the interests of the terminated employee at IRS audit time.
Make it Clear That the Company is in Control of How the Outplacement Money is to Be Spent.
A company may be thinking of job seekers' best interests in allowing the individual to comparison shop among various outplacement firms. Such shopping, however, makes it difficult to make the case that the individual is not in control of how the money is to be spent. This issue of control was a major concern in a case brought before the Canadian Revenue Service.
Clients who meet us have experienced a loss of control over their professional lives. We find it a positive step when clients have the deciding voice in determining which firm and which outplacement consultant they elect to work with.
It is the first step towards regaining control.
Our suggestion is to let the executive client elect from among outplacement firms with excellent local reputations.
Once the executive has selected the outplacement consultant he/she wishes to work with, the company should then write the executive a letter directing that executive to use the services of that outplacement firm.
One of the biggest values of outplacement is helping to structure the front end of the job search.
We earlier spoke about career consulting, where the individual pays out of his/her own pocket.
Keep in mind that the cost issues are different. With corporate sponsored outplacement, the decision is tax neutral. With retail oriented career consulting, the individual is paying with after tax dollars in most cases.
Job search expenses go into the category of miscellaneous unreimbursed business expenses. These expenses are deductible only to the extent that they exceed 3% of adjusted gross income.
Given this unfavorable tax treatment, individuals who pay out of their own pockets usually refrain from going to a career counselor until their job search efforts reach a crisis stage.
Getting advise in the middle of a failed job campaign often means working to undo damage. And sometimes that damage can never be undone.
This issue of permanent damage because of false or inappropriate starts is of importance if the executive works in an incestuous industry or lives in a small community.
Executives who get the most value out of outplacement services tend to believe in the value of getting it right the first time.
KEYWORDS: outplacement, executive careers, Board of Director Resource Center. career coaching.