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Negotiating an executive severance package

Not all parachutes are golden. If you are an executive facing separation from your company, you can often negotiate a better severance package than the one you’re initially offered. If you have risen to the executive level with one single company, you may not be aware that incoming executive colleagues negotiate a severance agreement as part of their employment

A severance package, or agreement, is a legally binding contract that specifies the terms of your departure from the company. The basics of the package are severance pay and benefits, but at the executive level, other factors come into play–deferred compensation, non-compete agreements, and stock options. 

Ask your attorney or CPA to review your severance agreement before you sign it. They have your best interests as a priority and can negotiate on your behalf to ensure you are getting the best possible package.

Components of a severance agreement

These are the main components of a standard executive package

Severance pay

How much cash will you get for your years of service? The standard is six months to one year’s salary, depending on experience. You will typically receive this in a lump sum after your official departure.

Benefits

You will lose your employer-paid health care benefits with your job, but you can ask the company to pick up COBRA payments  You are eligible for COBRA for 18 months post-employment. 

Deferred compensation

Stock options, retirement plans, and SERP plans may be part of your deferred compensation–money you have earned but not yet received. You will not want all that money distributed in one tax year, so you should negotiate a schedule that is mindful of tax implications. 

Pensions are another form of deferred compensation but you must be with the company a certain number of years to be vested and receive those benefits. If you are close to vesting, you may be able to negotiate your termination date so that you don’t lose the pension benefits. 

Vacation and paid time off

In California, all accrued vacation time and unused sick days are considered wages and must be included in your severance. It’s not unusual for companies to limit what they pay to a certain number of days, but you may be entitled to all your accrued days.

Transition services

Ask about outplacement or transition resources for displaced executives. Some companies provide access to these services that help you update your CV and polish up your interview skills.