Negotiating a severance package is one of the most sensitive elements in a salary negotiation. Follow these steps to buy yourself some security.
Employment is never certain, and a seemingly perfect position could vanish a year or two down the road. It’s understandable to want some assurance that, if things don’t turn out well, you’re covered. A firm might have a standing severance policy for all employees, but if you’re bringing specific and unique skills to the table to fill a specific and unique role, you might want to push for something more — a negotiated severance.
“You have to define what type of employer-employee relationship you’re looking at,” said Adam B. Kaufman, a New York attorney whose practice, Adam B. Kaufman & Associates, maintains specialties in contract negotiations and employment law. “The higher the employee, the more leverage the employee has vis-à-vis severance and vice versa. If you’re looking at someone who’s a CEO with a 20-year track record running a Fortune 500 company, you’re absolutely going to have a severance package up there.”
Money is rarely primary consideration when judging whether or not a position can garner a severance package or employment agreement, Kaufman said. The skills, experience and other valuable aspects you bring to a firm mean much more when negotiating severance than the compensation for the position.
“You can have a paralegal with a couple years of experience at a New York City law firm making $100,000 a year, and they’ll be working without an employment agreement,” he said. “So it’s not necessarily driven by the amount of money someone is making, but it is driven by the relationship and the importance of the employee in the hierarchy in the organization.
“The more highly compensated, the more skilled an employee is, then the better he or she could negotiate a better severance package,” Kaufman said. “It sometimes varies anywhere between one month for every year of service to the full gamut of rights and benefits under the contract for the duration. If an employee is playing hardball and the company really, really wants him, the employee may be able to negotiate an extremely generous severance package, which might include full salary and benefits for upwards to a year or two years.”
Ask for a contract, not a severance
Even if you’re in a position to get a severance package, you must be careful to broach the subject without hurting the rest of your negotiation. Kaufman said the severance issue should be openly addressed early in the process, even if the subject is awkward.
“The severance issue is obviously one of the most sensitive topics because, by definition, the discussion centers around events leading to termination,” Kaufman said. “What could cause a termination — for cause, without cause — and what are the rights or obligations for both employer and employee, and whether the termination should occur and under what circumstances should occur? The topic of severance should be addressed early on. It’s not necessarily the first topic, but it should be addressed openly.”
Employment coach Judy Feld recommends avoiding negative terms outright — including the word “severance” itself — until an offer is made. She suggests negotiating an agreement as part of the employment package, and not to emphasize the severance itself.
“In my experience the pre-offer conversation should avoid all negative terms, and ‘severance’ is one of them,” Feld said. “It could very well be a deal-killer. On the other hand, it is certainly reasonable to expect some measure of job security when taking on a new position. My clients often ask for a contract or similar agreement to give both parties an expectation of continuity and mutual comfort and commitment to the job. This is a more positive approach, and yet any such contract would contain a severance clause to kick in if the relationship were terminated early. It just takes the emphasis away from the severance (an ancillary clause) and places it on the commitment.”
Dr. Alice Waagen, founder of Workforce Learning, recommends exploring what the employer expects from you. If the company expects results that aren’t entirely in your control, she said, you should push for an explicit severance package.
“If the expectation is for there to be results that are not fully under the control of the applicant, then a red flag should go up to at least talk about consequences of not achieving those results,” she said. “If I were an applicant for a marketing position and would be required to raise market share by an ambitious number in my first year, but market growth was contingent on the timely release of new products, I would want to discuss how the delay of product release would be factored in to my performance review. You would not want to be the fall guy for a more senior leader who did not perform just because you were the new guy.”
Waagen notes that a severance package isn’t always a possibility and agrees that the level of the position and amount of leverage you can exert will determine whether or not you get an agreement.
“Yes, people do negotiate for golden parachutes, but only at high-level executive positions,” she said. “Understand that golden parachute packages will only come if you have the upper hand in the negotiations. But with today’s volatile job market, it makes sense to seek some protection in the event that things don’t work out.”
Severance packages are an uncertain aspect to any new job. Ideally, they would be included in any offer, but that simply is not the case. If you have the leverage and are valuable enough to the firm, carefully explore the possibility. If you are uncertain, you might have to accept the company’s standing severance policy (if there is any), even for a high-level, $100K+ job.