After the pink slip: switch to smaller firm may mean fewer benefits

At some companies, they call it ``restructuring''; at others it's called ``tightening our belts.'' But usually the result is the same: layoffs, firings, or as the British call them, redundancies. In the last few weeks, several thousand people on Wall Street have been among the latest to learn firsthand what these terms mean, as companies like E.F. Hutton and Salomon Brothers have sent out pink slips.

For most of those on the receiving end of these actions, the shock and distress is eventually followed by a new job. But more and more often these days, the new job is at a much smaller company. While the pay at the new job may end up being similar or even better, the benefits package is apt to be less generous.

In many cases, says William Pilder, chairman of Mainstream Access Inc., a New York career development company, people taking these new jobs will have to accept fewer perquisites, smaller bonuses, and health insurance that may cost more and cover less.

``When you move from the environment of a large firm to a smaller company, you obviously have to be prepared for a substantial cutback in the total benefit package,'' Dr. Pilder says. ``You might maintain your salary level roughly the same, but smaller companies cannot maintain the same kinds of benefit expenses.''

Recently, he notes, his company worked with laid-off people in middle and upper management positions at the three major automobile companies in Detroit. About 41 percent of them ended up at companies with fewer than 100 employees.

``These people are basically staying at the same salary levels as they move from the large companies to the small manufacturing companies,'' he says. ``But they do sacrifice other aspects of the benefit package.''

In general, the new benefits still include basic medical insurance and retirement plans, although the employees at a smaller company may be asked to contribute more to both of them than they had before. Other benefits, like dental care, year-end bonuses, or the use of a company car, may disappear completely, Pilder says.

And while less-generous benefit packages at smaller companies are making people re-think their financial planning strategies, workers at larger corporations aren't immune to similar changes, Pilder points out. Even if they are working for a major corporation and their jobs are secure, they ought to start thinking now about how they are going to replace some of those benefits, he says.

At larger companies, salary alone frequently represents less than 50 percent of the total compensation package, he says. This means that perhaps 55 percent of the total cost of an employee includes things like insurance, bonuses, automobile allowances, time off, pensions, and contributions to other retirement accounts, such as a 401(k) plan. Even for some large corporations, these costs are often too much.

``Large companies are increasingly reaching a point, because of marketplace pressures, where they recognize that they can't maintain this sort of expense themselves,'' Pilder says. ``I think we're going to see dramatic changes even in the large companies on benefit packages.''

But the immediate concern is for workers who are facing layoffs. They may not lose all their benefits immediately, he notes. Many companies carry over, or ``bridge,'' some benefits for a few months after a person leaves.

This carried-over coverage usually includes medical insurance premiums, so a worker between jobs should not have to worry about that for up to six months. But it's a good idea to find out what will and won't be carried over before the next round of layoffs is announced.

When the new job does come along, it may be possible to negotiate some of the benefits, Pilder says. In fact, some companies welcome the chance to save on some non-salary costs. If you're married and your spouse has family medical insurance through his or her company, for example, you may be able to get something else, like a car allowance or dental care.

Because many of the job changes and layoffs are often the result of long-term restructuring by businesses in the United States - including heavy industry, computers, and financial services - people should not assume any job is permanent, Pilder argues.

That means, for instance, being prepared to take on your own retirement planning. If you don't already have an individual retirement account, this may be another reason to get one. It also means knowing how much other benefits cost and figuring out how you would replace the ones a smaller company might not provide.

``I guess the bottom line for everybody is to take more and more control over these kinds of things and not rely on the continued stability and security of external environments, like the job,'' Pilder says.

If you have a question that would make a good subject for this column, send it to Moneywise, The Christian Science Monitor, One Norway St., Boston, MA 02115. No personal replies can be given by mail or phone. References to investments are not an endorsement or recommendation by this newspaper.

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