In this Issue:
Employment Contracts/Severance Agreements
In the manufacturing world that we live in, an employment contract actually means a severance agreement because there is no such thing as guaranteed employment. This is a very delicate topic. With some companies, this topic is an insult implying that you are already thinking of leaving before you even start. Others feel its business as usual because it is a standard business practice. It’s important to know where your company stands on the severance issue before you begin to negotiate your package. Do your homework and use your network to find out what the company has done in the past, then workout your roadmap for negotiation.
A severance package is essentially a pre-nuptial agreement. In today’s environment, the best time to negotiate your severance is when you are hired. Make it part of your overall initial compensation package. That is the moment of greatest leverage when each party is at their best trying to accommodate each other. Employers want to be seen as fair and compassionate. They want to avoid any possibility of a lawsuit. Severance is insurance against legal action and acceptance releases the company from legal claims.
A severance package can contain more than just the money an executive will receive – either as salary continuation or a lump sum. Remember to negotiate with the decision maker, not HR. Consider the following:
- Benefit coverage to last until severance ends and/or payment of Cobra coverage.
- Professional outplacement services for 6 months or longer.
- Office space and clerical support to last during the severance period.
- A letter of reference and an agreement that states exactly what the company will give as the reason the executive has left the company.
- If in an overseas assignment, fully funded repatriation.
- Get employer commitments in writing with specific arrangements detailed. Do not accept vague assurances of future potential benefits.
- The old rule of thumb that it takes 1 month of search for every $10K in salary is obsolete. Today, it’s more like $15K to $20K. For “C” level, severance is often 1.5 times base plus target bonus. Below VP level, individual severance agreements are unusual.
- If severance can be denied “for cause”, have a clear written understanding of what constitutes “cause.”
If the company appreciates your skills, they should be willing to describe how they would take care of you if their focus or direction changes, which may leave you in the lurch, and not part of them moving forward. The prospective employer should be willing to have a mutually respectful discussion. If it is a deal breaker for you and the company flat out won’t consider it, say so early and move on.