Negotiating Your Severance Package
Most executives don’t want to think about it when they accept a new position, but with tenure averaging three to five years, it’s a near certainty that one day they will leave their new employer.
While companies are not required to offer any kind of severance package, most companies use severance packages or separation agreements as a release of claims against the company, its officers and directors in exchange for a certain sum of money. Some use it as a way to pacify departing management and keep them contented. In most instances involving senior-level management, a severance package is always offered and, always open to negotiation, providing there is no clause to the contrary in the employment contract.
Before you begin negotiating, you need to know the critical components of a severance package versus those that are optional.
- Severance pay: This is usually determined by the length of time you have been employed by the company and your level in management. Generally companies offer one week’s pay for every year of service.
- Bonuses and Commissions: The agreement should state how bonuses or commissions will be pro-rated and paid.
- Health Insurance: The agreement should state how long you will be covered and who will pay the premiums on any and all insurances. Employer-provided coverage may end on the day of separation. However, COBRA allows you to continue your current coverage at group rates.
- Life and Disability Insurance: Employer-provided coverage typically ends on the day of separation or soon after. You can negotiate a continuance option.
- Retirement Benefits and Stock Options: The agreement should state exactly what your future benefits will be and should take into account the effect your separation will have on your stock portfolio. According to IRS rules, your plan administrator must provide a written explanation of your retirement options 30-90 days before the final date on which you must take action.
- Stock Options: The agreement should state how the separation will impact vesting expectations as well as the remaining time to exercise vested shares.
- Outplacement Services: These are services to help you prepare for and secure your next position. The services generally include writing your collateral materials (resume, cover letter, addendum, bios, etc.) and coaching you in all aspects of your job search. Many companies offer services with a particular outplacement firm and others ask you if you have a career coach you prefer to work with. Even if the company offers the services of an outplacement firm, you can negotiate for the selection of the your career coach. Recently, several clients have been able to negotiate such an arrangement and companies have been paying me directly for services. It’s a win-win situation.
- Vacation time: Request payment for your unused vacation time.
- Sick days/personal days: Request payment for unused sick/personal days.
- Bonus/commission: Make sure all of your commissions/bonuses are accounted for (you should be prepared to accept a prorated bonus).
- Agreements: Renegotiate terms of any preexisting non-compete or non-solicitation agreements.
- Positive recommendation: Ask for a written understanding of what the company will say about your termination. Also, if not terminated for cause or poor performance, request a positive letter of recommendation from your former managers.
- Company equipment: Clarify possession of cell phones, pagers, company cars, laptops, or other home office business equipment.
- Perquisites: Clarify how perks such as cars, association and club memberships will be addressed.
The most optimal time to negotiate your severance agreement is BEFORE you accept the position because once you have accepted the position, your “powers of negotiation” are severely diminished. Whether you negotiate before or after the fact, make sure you prepare by:
- Making a list of the perks you would like. Jot down the reasons why your employer should provide these perks to you. This is the time to showcase your value proposition and achievements to date.
- Thoroughly reviewing the company’s policy on severance agreements as well as the terms of your employment contract.
- Familiarizing yourself with applicable state and local laws.
- Consulting with an attorney. While showing up at the negotiating table with a lawyer will set a hostile tone, have an attorney guide you through the legalese of the agreement and provide you with advice.
- Planning your strategy to renegotiate or eliminate any preexisting non-compete or non-solicitation agreements.
- If you are being downsized, investigating if you are the only executive or if there are others and if so, how many. Find out what they were offered by the company.
After you have completed your research, schedule an appointment to discuss your severance package. Take your research with you to the meeting because a researched response is more compelling than an anonymous statement. You must convince the company that their severance package is unreasonable in order to create an opening for negotiations. Remember: this severance package has to sustain you and your family until you secure your next position – so it is imperative that you negotiate a great deal!