Financially Sound: The Art of Negotiating Severance

What to do when your company lets you go

by Maggie Bellville

February 12, 2008

P icture this. It’s three o’clock on an otherwise routine Friday afternoon and you’ve just been summoned to your boss’ office. You walk in and there, sitting with your boss, is the company’s human relations director. Suddenly your heart begins to race, sweat starts to bead on your forehead, and a knot forms in the pit of your stomach. It’s the situation you never thought would happen – you’re being laid off. So what should you do if you ever find yourself on a one-way road to unemployment? Whether it’s corporate downsizing, department restructuring, or plain ole poor performance, there are several things to keep in mind when negotiating the terms of your severance with an employer. First things first, if you’re being dismissed for your performance – or lack thereof – your termination probably isn’t altogether unexpected, and your ability to recoup severance from your employer is significantly impaired. But as long as you’re not a modern-day Leona “Queen of Mean” Helmsley and you haven’t robbed, cheated or stolen anything, there should be several severance options available to you.

Get Professional Counseling
Newton’s third law of motion posits that every action has an equal and opposite reaction, and while that’s fine and good for 17th century physicists, the same isn’t necessarily true when it comes to the workplace. While it’s natural to feel surprised and upset when being let go from your job, that doesn’t grant you carte blanche to take your frustration out on your former employer. Unless you still drink out of a sippy cup, throwing a tantrum is not acceptable behavior, especially in a professional setting. When you get the news, take a few moments to collect yourself before reacting, and then do your best to express your disappointment calmly and professionally. If you feel like you may become emotional, excuse yourself and go to the restroom to collect yourself. Your employer may ask you to sign something – do not sign it! Negotiating your severance is a lot like going through a divorce; always stick up for yourself and always consult a lawyer before you sign anything. Use your surprise to ask for time to review the severance, and then go to a lawyer. Odds are you’ll be dealing with colleagues, which may make it difficult to effectively negotiate, so hiring a lawyer to be your mouthpiece is your best protection. Also, if they ask you to sign something and offer to give you time to change your decision, don’t do it – the law and labor rules are on your side this time.

The 'Why' Factor
When negotiating your severance, the most important thing to understand is why you’re being let go. By doing so you’ll dramatically increase the likelihood of receiving the severance you deserve. Depending on the circumstances surrounding your dismissal, you may be eligible for several options, including compensation for time served, unused vacation, and outplacement services. For lower- and mid-level positions, two weeks pay is customary severance, but “C” level (vice president and above) employees typically have more room for negotiation. If you’re being let go because of a force reduction, then all employees are subject to equal treatment under the law and labor standards, and if you are being laid off for no real reason at all, then it’s time for serious negotiation. Depending on your rung on the corporate ladder, one year’s base salary is a good starting place.

Time Is Money
If you have stock and bonus options, you should be negotiating for time; the more time you have, the more likely the stock will be yours. That way your assets will continue to vest and you can cash out when you want to, not when they say you have to. Try to get any bonuses paid out through the end of the year or at least prorated for the amount of time that you worked.

Best Of The Rest
Severance isn’t just about being compensated for the time you’ve put in. See to it that you’r e paid for all of your remaining vacation time, and be sure it’s correct. Take advantage of outplacement services if offered. These services are invaluable, especially if it’s been a while since you’ve had your résumé reviewed or talked to anyone about your future goals. And just because you’re unemployed doesn’t mean you have to forgo medical coverage. U.S. labor law requires your former employer to offer full benefi ts under COBRA guidelines either under a supplemental coverage plan or by grossing up the cost of COBRA benefits and paying them to you, whereby you then apply for coverage on your own and pay the premiums out-of-pocket.  As the song goes, “breaking up is hard to do,” but if you keep these pointers in mind you should be ahead of the game when it comes to positioning yourself for your next job.

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Maggie Bellville is a partner in CarterBaldwin, an executive search firm.