Generally, Retrenchment compensation is payable to those covered under applicable acts like ID act, a statutory payment. Apart from this there are certain terms & conditions of appointment providing such a compensation in case of 'retrenchment' under 'contractual obligations. Many a time resorted to when closure of operations of units.
'Severance cost' are those payable mostly to those persons in top management positions, e.g. Board members (Chairman, President/VP, Directors etc.) who may have share holding or otherwise, be paid some sort of % sharing from the profits of Cos, very Sr.level Executives below board level like Executive Directors, Chief GMs etc. Such payments are again part of a well defined terms & conditions executed in this regard. This measure may also deal with matters of settlement of share holdings at the time of separation. This helps the entities to amicably sever ties with those top management personnel who hitherto conducted the Co's policies and performances and are obviously will have thorough knowledge of the exiting cos.
In the past decades post 1991 liberalisation many of PSUs were closed down combining both 'Termination compensation' as well as 'Severance cost' through said to be 'golden hand shake-VRS & VSS (Voluntary Separation Scheme), STBP(Spl.Termination Benefit Package) etc. These scheme involved other benefits over & above Termination Compensation in order to encourage affected employees to avail these benefits.