Dan left a high–paying job with an insurance company in Virginia to sign on with a rapidly–growing company outside his industry in Chicago. He found the opportunity particularly attractive, as it offered a chance to earn equity instead of just working for salary.

Dan uprooted his family, got settled, and soon became very busy keeping pace with the business flowing into this lucrative company.

All went well until the company’s nutritional product got some very negative publicity. Actually, it was a competitor that got the negative publicity, but it didn't matter because it spilled over onto his company. The company's rapid growth stalled, and then it went into free fall. Soon, they were awash in red ink, and they had to let Dan go after less than a year on the job.

The company president was dutifully sorry and said all the right things, but all he gave Dan was three weeks of severance, and a skimpy outplacement package. The president actually thought he was being generous to give Dan three weeks for less than one year's service.

Dan was in shock and didn't protest as vigorously as he should have. Finding another job took over eight months, and the net loss to Dan was tens of thousands of dollars. The nest egg he had worked so hard to build up was nearly depleted.

 

The lesson here is to negotiate severance before you accept a position.

Negotiate Severance Up Front

At the highest level, this is called a “Golden Parachute,” the opposite, in a way, of “Golden Handcuffs.” We usually reserve the name for very hefty buyouts of an executive’s contract. However, what we’re talking about is really just a package big enough to cushion the blow if things fall part.

Many people will cringe when they hear this, and say negotiating severance at this juncture sounds uncomfortable. But the alternative is to risk winding up like Dan, tens of thousands of dollars in the red. It's really not so painful to negotiate this when you do it right. When Dan got his next job offer here’s how we coached him to negotiate severance.

Dan: “Things seem to be going extremely well around here. I'm very impressed with what I've seen of the company.”

The Boss: “Yes, this is really a great company to work for. I'm sure you'll love it here.”

Dan: “I'm very comfortable with my ability to perform, but let me ask you something. I don't suppose you anticipate anything like a buyout, merger, or change in the industry that might put my job in danger, do you?”

The Boss: “No, of course not. I wouldn't worry about that for even a second. This company is solid as a rock.”

Dan: “That's what I figured. Then, I don't suppose you would have any difficulty agreeing to severance in the unlikely event that the something unexpected happens to the company?”

Dan then negotiated a package that included a minimum number of weeks of severance, a good outplacement package that included support staff, office space and phone, and an extension of his medical benefits.

Note that it’s unimportant whether their answer is “Yes” or “No.” If they say, “No, don’t worry,” you can say, “Good, then what I’m asking for won’t cost you a dime.” On the other hand, if they say, “Well, it’s a possibility,” you can say, “I thought so. So, I’d like a bit of insurance to protect myself.”

Don't worry about feeling like you will appear pessimistic. This is not doom and gloom, it’s just being smart. Like insurance. You don’t expect your car to crash, but you buy insurance anyway. And, unlike property and casualty insurance, severance “insurance” has no monthly premiums to pay.

Keep reminding yourself of the consequences to you and your family if the company runs into problems like Dan's did. Lots of things can jeopardize your job. Scandal, acquisition, competitor success, patent lawsuits, embezzlement, raw material scarcity, new technology, change in management, death of major stockholder, weather, government legislation or rulings, fraud, relocation, etc. So, you want your severance to apply to the widest array of possibilities.

What Do You Negotiate For?

A typical severance package includes one or two weeks' salary for every year of service, outplacement counseling, accrued vacation pay and extended medical coverage, among other benefits. Special circumstances also warrant additional consideration. For example, since Dan moved halfway across the country to take this job, it could include a prorated relocation reimbursement sum. The minimum you agree to should cover the time you’d need to find new work. To be on the safe side, that’s 6–9 months.

Generally you’ll agree to a limitation of “non–voluntary termination except for cause.” That means if you quit – no severance. If they fire you (except for cause, like stealing, lying, harassment, etc.) then you collect. It’s wise to specifically include a “management change” clause. That means that in the event that a new company or boss comes in, you get a certain period of time to quit and still qualify for the severance.

Get it in Writing

As with most things in salary negotiations, I recommend getting a severance arrangement in writing. If the boss balks at putting this or other compensation matters in writing, you might say, "I know well–meaning people can hear different things from the same conversation, and I certainly wouldn't want to start this employment relationship on the wrong foot by having a misunderstanding about what we agreed to today."

If the manager still stalls, send a letter summarizing your oral agreement. End the letter with, “If anything here is different from your understanding, please let me know right away. Otherwise I’ll assume this is an accurate summary.” This letter can be enforced as a contract.