Negotiating Severance Pay
A severance package is a bundle of payments, such as salary continuation, payment for unused vacation and sick time, and extended health coverage. The total amount depends on the company, and its employees may receive different amounts based on their rank in the organization or the number of years they’ve worked there.
Companies aren’t required to provide severance pay, but many do in order to mitigate the impact of layoffs. A severance package can also help an employee bridge the gap to new employment, minimize stress and anxiety and engender good will with the company.
In exchange for the severance package, employees typically agree to waive any claims against the company related to termination or other issues, such as wrongful termination, discrimination or harassment. Because of the risk and cost of litigation, many employers include a waiver clause in their severance agreements that also requires severance package recipients to not bad-mouth the employer or share proprietary information with competitors.
Negotiating Severance Pay During Employment Contracts
If the severance package you’re offered is below what you believe it should be, don’t be afraid to negotiate with your soon-to-be former employer. While most companies use a formula to determine how much severance pay an employee will receive, the process is usually flexible enough that it’s worth trying to negotiate a higher lump sum or shorter payout period.
Consider the non-monetary parts of a severance package as well. If your company’s severance offer includes an outplacement program or extended health benefits, it may be worth asking to increase these components, as they can make the transition to a new job less stressful. The higher you rank in an organization, the more wiggle room you’ll have to prenegotiate your severance package, Meintrup says. A vice president or director who’s leaving a $300,000 position will have more leverage than a manager who is leaving a lower-level role.
While a lump-sum severance retiring allowance can be significant, it could also push you into a high tax bracket, Zabkowicz says. If that’s the case, consider asking to spread out the payment over a few years to reduce the tax impact. Remember that everything is negotiable, so if you wanted additional perks like car allowance or stock options but were never able to get them into your contract, it’s worth trying to negotiate those as well.
It’s important to approach any negotiations with professionalism and diplomacy, especially if the conversation is difficult. Be willing to compromise while standing firm on key elements that are important to you, such as the duration and scope of any non-compete or non-disclosure provisions. It’s also a good idea to have your own legal counsel to review the terms of the severance agreement before signing it. This can ensure that the language is clear and legally binding. If you have any questions, you can always ask your lawyer to explain them in more detail. This will give you the confidence to know you’re making a solid decision and putting yourself in a strong position for your future career.
