Laughing all the way to the bank?

On 31 July 1992, John Freer's dream came true. After 15 years as a telephone engineer, he was free. In one of the largest "downsizing" operations in British corporate history, he and 19,479 fellow staff at BT accepted voluntary redundancy. They left on the same day. He had a pounds 17,000 cheque in his back pocket and a huge sense of relief. "When I woke up the next day, I thought 'Magic'. I was full of enthusiasm. I was signed up on a government enterprise scheme at pounds 30 a week. I was going to set up my own business, double glazing. Everything seemed great."

Mr Freer had joined the pay-off culture. Fifteen years ago, redundancy payments were relatively rare. But no more. In the early 1980s, blue-collar workers in manufacturing bore the brunt. Many of the casualties never worked again. In the Nineties, clearing your desk in a hurry has become a parable of our times. Middle-class jobs have become increasingly insecure. People in all walks of life are having to learn how to be "flexible", to bob in and out of work, to live without the certainty of a "job for life".

For executives at the very top of the corporate tree, it's not all bad news by any means. Indeed, one of the best ways to get rich as an executive is to be sacked several times from senior positions. With the right pay- offs, that has set up several people for life with farms in the country, houses abroad and no real need to carry on working. The rewards for failure have become so lucrative that many over-stressed occupants of rungs further down the corporate ladder long for a chance to pick up a lump sum and sail off into the sunset.

The pay-offs to senior executives sacked presumably because the owners of their companies did not much like what they were doing is impressive. Lord Young, former chairman of the telecommunications group Cable & Wireless, is reported to be seeking a pounds 2.5m pay-off, despite having had no service contract with the company.

The Maxwell fraud trial has been told that the former Tory minister Lord Walker was given a golden handshake by Robert Maxwell of more than pounds 150,000, plus director's fees, a Mercedes and a fax machine for spending five months as a non-executive chairman of the Maxwell empire.

Perhaps the most striking case was that of Peter Davis, head of the Anglo-Dutch publishing group Reed Elsevier, who was reported to have received a farewell package of pounds 2m - pounds 652,000 cash with a pounds 1.3m pension. He has since become the chief executive of the Prudential on a package reputedly worth pounds 400,000 a year.

In most cases, these pay-offs are not simply designed to settle contractual disputes: more importantly, they are to protect the company from a disenchanted former employee who might spill the beans to the press, give away trade secrets or poach key staff.

Last year, according to Labour Research, the pay research unit, 47 directors of top companies were paid pounds 100,000 or more never to darken the company's door again. On average, they received nearly pounds 400,000 each. Top managers are 65 per cent more likely than the average employee to receive a redundancy pay-off, according to research collated by the House of Commons Library for Ian McCartney, Labour's employment spokesman. British executives receive an average of 3.1 weeks' severance pay for every year of service, according to Drake Beam Monn, the career management consultancy. This compares with 1.2 weeks in the United States, two weeks in Germany and 5.2 weeks per year in Sweden.

DBM reckons that 69 per cent of its executive clients are re-employed within six months; two-thirds maintain or improve their salary.

These figures are so alluring that for many the elusive "golden handshake" is akin to winning the Lottery: the chance to change your life, pay off the mortgage, see more of the kids, start a little business from home, get out of the rat race. But how often does the dream come true for the smaller fry who take the money and run?

Not for John Freer: once reality hit him after he left BT, disillusionment soon set in. Living in Middlesbrough, with a son aged five and an eight- year-old daughter, the prospects for Mr Freer, 42, quickly turned grim. "The double glazing didn't work out. There were so many blokes doing it. It wasn't possible to undercut them." After six months he was on the dole, where he stayed until earlier this year.

Now he is back doing his old job. "I'm working for Telecom Eireann, which is contracted to work for BT. I can make decent money. But I've got no rights. There's no annual leave, no pension, no sick pay. We get paid off in the summer and at Christmas. I'm getting older. The job is not secure. I could be out of work tomorrow. You have to put that out of your mind and work for today."

But for some of those who leave with relatively modest sums on redundancy, the dream of finding a better life can come true. Many who left BT on the same day as Mr Freer have no regrets.

Alan Gill spent 23 years at BT and walked away with pounds 42,000. He had been brewing his own beer, using his own recipes, for 20 years. Friends had told him it was "better than you get in the pub". So he invested pounds 17,000 in a tiny brewery in a converted washhouse in his home in Newark, near Lincoln, and took a brewing course funded by BT.

It was a risky venture. He had children aged 10, 12 and 14 at the time. When he was made redundant, his bank, which he has since left, promptly stopped his overdraft facility. "It was a frightening period," he recalls. "After 23 years of BT employment, you get used to a cheque appearing each month. Now I was watching my redundancy money disappearing as I invested more in plant, casks and conversion of the building to bring it up to environmental health standards.

"I was soon hawking myself and my beer around every free house for a radius of 50 miles. It's hard work, this business. We think nothing of starting work at 2am so that we can make a delivery in the afternoon."

For the initial period, he was brewing 30 firkins a week (a firkin is nine gallons), but he could not meet demand. Recently, he sank pounds 40,000 into a small industrial site with the capacity to brew 120 firkins a week. Two of his beers, Leveller and Roaring Meg, were runners up this summer in the Champion Beer of Britain Competition.

"We're turning the corner," Mr Gill says. But only just. Even with that success, the stress and hard work, he is only just earning the pounds 17,000 he did when he left BT. "I'm still suffering culture shock," he says. "The biggest change is waking up in the middle of the night and thinking that if I don't get up and brew beer, I won't get any money."

Chris Cordell's success story is more typical. When he left BT's Motor Transport Division at the age of 49, after 30 years with the company, he invested pounds 14,000 to set up a chauffeur business in Huddersfield. "I made appointments with selected companies in the area to float the idea. The responses were quite encouraging, so, a month after leaving BT, I bought a nearly new Granada Ghia, had a phone fitted, circulated my business cards and was ready to roll." He is already subcontracting out work because business is so good. This year, he hopes to make slightly less than his pounds 22,000 final salary.

These are the good news stories. Ian Peters, head of the small businesses section of National Westminster Bank, is cautious about redundancy-funded businesses. "Of 100 that start up today, only 20 will still be going strong in six years' time."

Mr Peters's advice to anyone thinking of using a pay-off to start a business is to think long and hard before going ahead. "It can be a great strain. At first you will be working in excess of 70 hours a week. There may be a lot of domestic strain."

John Freer is even more full of foreboding. "It's very difficult out there. If you've got a job, then hang on to it. Redundancy deals are not really much good. The only winner is the employer."

Additional research by Scott Hughes.

If it's downsizing you're after, step this way

It might seem that being declared redundant is a simple enough matter, involving a swift exit and a rush to the nearest bank to deposit the all-important cheque. But this stage often comes only at the end of a long period of psychological warfare.

Take the case of people seeking redundancy. They may have a difficult task getting themselves on to a pay-off list: those who want to leave an organisation are rarely the ones that the management wishes to remove.

In these circumstances, the person seeking to be "downsized" may find themselves resorting to tactics designed, broadly, to annoy the boss as much as possible without actually committing a disciplinary offence - appearing to be slow on the uptake, for example, or dressing badly but not inappropriately, which also suggests underperformance.

Then there is the question of the size of a pay-off. This rises with age and length of service. An employee's kill fee also inflates if they know something that could be embarrassing to the company or the boss. Buying silence with a gagging clause in the goodbye deal is pricey but necessary for employers who are worried that ex-staff might blow the whistle on them.

Pay-offs are also more generous where an employer worries that an individual might go over to the competition, taking along colleagues: preventing this requires expensive clauses to be written into the pay-off deal. Finally, it might look bad for an employer to sack certain individuals, so a price can extracted for an announcement that there was an amicable separation rather than an angry divorce.

But the psychological warfare is waged not only by employees. There are all sorts of means by which a company can force someone to leave penniless.

One favoured device is to humiliate employees by moving them around jobs endlessly. The boss can demoralise them, insult them in public, push them around and generally make them uncomfortable. "You're in the fingertip club," is an undermining comment that tells someone they are barely hanging on to their jobs. A nervous breakdown and a humiliating departure may be costly to an individual, but it can often save a great deal of money in severance pay.

THE TOP TEN EXECUTIVE PAYOFFS OF 1994

William Buckley, Royal Insurance pounds 1,867,654

Peter Davis, Reed International pounds 1,247,000

Tom Buffett, Automated Security pounds 992,636

Nigel Whittaker, Kingfisher pounds 946,000

Alan Smith, Kingfisher pounds 875,000

Henry Wendt, SmithKline Beecham pounds 840,000

Bob Bauman, SmithKline Beecham pounds 773,000

Dr Bennie Wooley, Huntingdon Int'l pounds 578,000

Giles Shephard, Savoy Hotel pounds 569,000

Jon Scott, Hammerson pounds 554,036

Source: Labour Research Department