Negotiating an employee’s severance package: Tips for employers

On Behalf of | May 27, 2021 | Business Law |

Many executive-level employees expect their employees to offer them certain perks before they take a role. One of those is that they’ll be entitled to a severance package if you let them go from their role. 

If you’re preparing to terminate an executive, then you’ll want to prepare yourself for impending severance package discussions. There are certain concessions that you can expect your employee to demand when negotiating such an agreement.

What to expect during severance pay negotiations

Your employee will expect you to provide them with several months of pay to serve as a financial cushion while they look for another job. Most employers offer between six and 12 months worth of pay when initially making a severance pay offer. They’ll likely request that any payment agreement also includes a clause allowing them (or their loved ones) the ability to continue receiving this amount if they become disabled or pass away. 

Know that you have various options for complying with your employee’s payment requests. You may be able to minimize the financial burden the payout causes by providing your executive with a lump-sum settlement. You lose your chances of performing a clawback, offset or mitigation if you agree to this type of payment arrangement, though. 

Another detail that your employee is likely to request in addition to pay is a continuation of their benefits such as health insurance, vacation leave or stock options. 

How to proceed in severance package negotiations

Many employers enter into severance agreements with company executives that they’re looking to terminate to preserve their reputation and minimize their potential legal and financial liabilities. 

Negotiating a severance agreement that is in your company’s best interests can take creativity and time. You may find it helpful to bring an attorney into the mix who has experience negotiating such agreements if you’re looking to protect your best interests.