Executives who help run organizations have some of the most complex employment contracts of any professionals. Their contracts may include agreements to create a succession plan, profit-sharing arrangements, restrictive covenants and a host of other complicated details.
A severance package is often part of an executive’s compensation arrangements with their employer. Finding a new executive position after the sudden loss of a job can take months. Executives may have financial obligations that reflect their income. They could struggle to pay their mortgages, credit card bills and other financial obligations in between positions.
As such, it is standard practice to negotiate a severance pay agreement allowing for financial compensation and possibly also the continuation of benefits after the termination of a position. Executives often need help handling the negotiation process.
There is more leverage during onboarding
Generally speaking, the best time to negotiate a severance package is during the hiring process. Companies are eager to fill vacant executive roles and to acquire the skills, experience and connections of the executive they intend to hire.
Professionals and their lawyers can use that situation to their advantage. They can negotiate aggressively to ensure that the severance package is competitive and accounts for the predictable gap between the termination of one position and the acquisition of another.
In some cases, professionals taking on new positions can bring their lawyers with them to negotiations. Other times, they have their attorney review the proposed terms and help them explore ways to counter certain details. The company is more likely to make concessions when seeking to acquire the services of the executive.
Negotiations during termination can be tense
In some cases, an executive did not set specific terms for severance during onboarding. Then, when the company starts to downsize or terminates their position, they are left in a difficult situation. They may struggle to remain calm and objective during severance negotiations, as their immediate financial stability depends on acquiring reasonable terms. They may also have limited leverage to make demands of the company on their way out of the organization.
Having an attorney communicate with the employer to negotiate severance terms can often be a better option than trying to manage everything alone. Particularly in cases where the termination is not the result of performance or disciplinary issues but rather decisions by other leaders or a planned merger, there may be an opportunity to secure severance even though the executive does not currently have an arrangement in place.
Reviewing an executive employment contract during the hiring process or after a termination can be valuable for those in need of severance pay. Executives who usually experience substantial downtime between positions often require severance pay to ensure continued financial stability. In some cases, employment litigation may be necessary if employers refuse to honor a severance agreement.