Which of the following describes the purpose of severance pay?

Severance pay is commonly understood as a financial benefit that an employer provides to an employee when their employment ends, particularly in cases of layoffs or termination without cause. It serves multiple purposes, one of which is to compensate employees during their transition out of the organization.

The correct choice reflects the idea that severance pay can also function as a means to settle potential claims against the employer, especially in situations where an employee might feel wrongfully terminated or if the termination could lead to legal disputes. This financial compensation can help mitigate the risk of litigation by providing a clear end-of-employment settlement, which can be mutually beneficial for both parties.

Severance can also address the concerns of employees who might be transitioning to new jobs or facing unemployment, but the focus here is on its role in resolving potential disputes. Other options may discuss ongoing employment or job search compensation, but they do not capture the essence of why severance pay might be provided from a legal and financial standpoint.