Manu Fernandez/AP
Microsoft Corp. CEO Steve Ballmer

Microsoft’s Severance Overpayment Fiasco Illustrates Need for Corporate Compassion

February 25, 2009 04:16 PM
by Anne Szustek
Microsoft recanted on a letter asking some recently laid-off employees to pay back the accidental extra severance pay they received. The situation recalls similar corporate blunders.

Microsoft Says “Never Mind” to Severance Repayment Request

According to their records, Microsoft had overpaid severance to some 25 of the 1,400 employees it had laid off last month. To correct the error, Microsoft mailed letters to those affected asking them to pay back the difference within 14 days.

Popular tech blog TechCrunch published the letter. Negative publicity ensued. And late Monday evening, Microsoft released a statement saying that the affected employees would not have to remit their severance overpayment, which was some $4,000 to $5,000 per furloughed worker.

“We should have handled this situation in a more thoughtful manner,” read the statement, as quoted by The Washington Post. “We are reaching out to those impacted to relay that we will not seek any payment from those individuals.”

Reports show that 20 other people among the 1,400 laid-off Microsoft employees were underpaid in their severance. Whatever the case may be, the former workers affected by the payment glitch were instructed to call Microsoft headquarters for more details. “Given that it was Microsoft HR that screwed this up in the first place, you’d think they’d at least include the calculations they made and point out where the error took place,” TechCrunch quipped.

But John A. Challenger, CEO of outplacement consulting firm Challenger, Gray & Christmas believes Microsoft’s human resources department is probably not at fault, as they likely outlined severance packages as part of the layoff process.

“Very few people leave without a letter that shows what the company is providing,” mentioning that this was a clerical error, and that generally refusal to recoup the overpayment could result in legal action. In this case however, the potential PR disaster led Microsoft to drop the case.

Background: Recent paycheck mishaps

The findings of a recent audit of the Canadian Revenue Agency showed that the country’s tax authority had accidentally paid at least 3 million Canadian dollars in salary to people who were no longer employed there.

“Overpayments often result from situations that are variable in nature and unpredictable, such as death in service or unexpected leave without pay due to illness and family-related issues,” Canadian Revenue Agency spokesperson Noel Carisse said in an e-mail response to New Brunswick paper The Daily Gleaner.

The investigation found that the payment glitch had dated back to 1999 and had been getting worse in recent years. “There were 1,922 people who received pay they didn’t deserve in the 2005–06 fiscal year,” wrote The Daily Gleaner. “The number rose to 2,258 the following year. By February 2008, the outstanding amount not yet returned to the agency had reached $3 million, up from $2.2 million two years earlier.”
Stateside, in 2005 Bank of America asked 70 employees laid off following the financial institution’s merger with FleetBoston to pay back part of their severance packages after it was discovered they had been overpaid.

“When an error of this nature occurs, either overpayment or underpayment, we take steps to correct it,” Bank of America spokesperson Alex Liftman was quoted as saying by human resources publication

In 2006, the city of New York ran across a quandary in compensation plans for city employees who had been called to active military service in the wake of the terrorist attacks of Sept. 11, 2001. Under the Extended Military Benefits Package (EMBP), they could keep receiving salary checks from the city, as long as they paid back either their military or civilian salary, whichever was lesser, upon their return.

“The city has insisted that the veterans repay their gross salaries, even though their take-home pay, after taxes and deductions for Social Security and Medicare, was substantially less,” reported The New York Times.

Part of the discrepancy involved danger-pay bonuses, as well as what fell into the category of room and board. Police officer Michael Zak, whose Marine Corps reserves unit was called up in 2001, argued that usual food and housing allowances should not be counted as military pay. Mayor Michael Bloomberg agreed. “If you’re in a tent in Iraq, I don’t know, giving, arguing that you received room and board is just pressing it a little bit,” he was quoted as saying by The New York Times.

Many of the squabbles were ironed out in a 2008 amendment to the EMBP

This is not the first time that questions over military compensation have come up recently, however.

Lianne Seymour, the widow of Ian Seymour, a Royal Navy commando killed in Iraq, was issued a formal apology from the British Ministry of Defense after receiving a letter asking her to pay back £400 (about $600) of his salary. The note stated that, due to what The Daily Telegraph called “a delay in formal identification,” his salary continued to be paid for a short time after his death.

The Ministry of Defense apologized for its “error” after the case had been brought up by U.K. Conservative leader Iain Duncan Smith to the Prime Minister in the House of Commons.

Related Topic: Public firing mishaps come under fire

Last June The New York Mets were criticized for their handling of the long-awaited firing of manager Willie Randolph. On the evening of Monday, June 16, the Mets were in Anaheim to play the Angels. When Mets manager Willie Randolph returned to the team hotel after a 9-6 win, General Manager Omar Minaya told him that he had been fired.
A Mets press release issued at 3:18 a.m. EDT announced the firing of Randolph, as well as pitching coach Rick Peterson and first base coach Tom Nieto, ending weeks of speculation about Randolph’s job.

Mets executives may have hoped that the West Coast firing, which occurred after the New York newspapers had been printed, would fly under the radar. The maneuver clearly backfired: the Mets received far more media attention and faced far more criticism than they likely would have if they had fired Randolph the previous day in New York.

The middle-of-the night layoff of Randolph was reminiscent of the story of Coca-Cola executive Carl Ware. Then-Coca Cola CEO Doug Ivester decided he needed to realign his direct reports in the fall of 2000; Ivester informed Ware of what was effectively a demotion by telephoning Ware’s hotel room in Poland in the middle of the night. Ware, angered by the way things were handled, resigned four days later. When board directors Warren Buffett and Herbert Allen learned of Ivester’s lapse in judgment, they told him that they had lost confidence in him, and Ivester resigned under pressure. Ware was convinced to return to the Company by new CEO Doug Daft.

Reference: Management guide; how to fire someone


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