How to Negotiate a Severance Package: 5 Crucial Tips for Getting Severance Pay
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Negotiating a severance package can be a monumental task for employees, especially after a surprising layoff or termination.
However, with the right tips and strategies, employees can successfully negotiate a favorable severance agreement that provides them with financial support and other benefits that help them navigate a job loss and start searching for a new job.
Follow these tips and strategies to ensure you receive the best severance package possible so you can move forward with confidence and security.
What is a Severance Package?
Simply stated, a severance package is a financial package that an employer may offer to employees who are being terminated from their job. It can be part of a termination or part of a layoff.
This package typically includes some combination of compensation, benefits, and other resources that are designed to help employees transition to a new job or career. The terms of a severance package can vary widely depending on factors such as an employee’s length of service, job level, and reason for termination or layoff. Some common components of a severance package include a lump-sum payment, extended health benefits, job placement assistance, and outplacement services.
Why Do Employers Offer Severance Packages?
Layoffs are never easy, especially for employers who invest in their employee relationships.
Offering a severance package is a way of ensuring that the employee has some footing when they’re sent back into the job market, says Chelsea Cohen, co-founder of SoStocked, an inventory management and forecasting software for Amazon sellers. Cohen manages all things HR for 15 full-time remote employees specializing in Amazon inventory management.
“It also considers the fact that some employees have dependents who would also be affected by their dismissal,” says Cohen. “The monetary benefits help provide some padding to support their loved ones while they search for new opportunities.”
But in reality, there is often more behind a severance package.
“The lesser-mentioned reason behind severance packages is to ensure that the relationships don’t end on a bitter note,” says Cohen. “It’s not uncommon for former employees to lament on major social networks—like LinkedIn—about their recent layoff. Those posts very rarely come with a pleasant or enthusiastic tone. And the voice of these employees could affect the company’s reputation. A severance package is intended to soften the blow, particularly if the company invests in helping the individual find new work opportunities.”
Severance Packages: You Have Rights
Employees who are facing termination should be aware of their rights and options when it comes to negotiating their severance package. While severance packages are typically offered as a way to provide financial security and support to employees who are being let go, it’s important to remember that severance packages can often be negotiated.
But it can get messy, and because of that, many job seekers fail to negotiate properly or at all.
“It can be a terrible experience if you aren’t prepared, and even though emotions are high, it is worth persevering to get what you deserve,” says Gates Little, CEO of AltLINE Sobanco, an accounts receivable-based financing platform for commercial customers that is a division of The Southern Bank.
Most employees are shocked by a layoff or termination and emotionally drained from the news they are being let go.
They are also not well-versed in negotiating in general, let alone negotiating severance packages, so they listen to the HR representative presenting the offer (or read the email with the details) and quickly agree to the terms of a severance package because they are making emotional decisions. Many also feel pressured to agree to sign out of fear the offer could be rescinded.
“It can lead to quick decisions that are not thought out,” says Peggy Hogan, Vice President of Talent Services for Purple Ink LLC. Hogan manages recruiting, outsourcing, and career transition for the Carmel, Indiana-based HR Solutions provider.
Before agreeing to the terms of a severance package, consider taking a step back, stepping away, and allowing time to comprehend the severance package being offered. Don’t feel rushed or pressured. Consider consulting an employment attorney if needed to help you clearly understand options, rights, and how to move forward.
“Before you enter negotiations, you need to get clarity on what matters,” says Little. “Do you want stock options, continued health care, outplacement services, or just a lump sum payment? Know what you want so you can know when to compromise or not.”
The end goal is to come away with a severance package that provides security and is something that will help one move forward with less stress heading back into the job market.
Be Aggressive but Willing to Compromise
Ask for what you feel is important, but also be prepared to compromise.
“This is why your priority list matters,” says Little. “You will need to compromise on a few things eventually. Coming in with a willingness to compromise on certain points will give you some bargaining room. Using a collaborative approach will always be more productive than playing hardball. While you can be firm in your non-negotiables, you can be sincere, friendly, and willing to collaborate.”
Severance Packages: Get it in Writing
Before you leave the room, get present parties to sign off on the agreed terms in writing, says Little. Even a memo or email confirming the agreement as a placeholder for the final formal severance agreement should work. Without getting it in writing “a memo”, there is no documentation of what was negotiated, and a company could renege on what was discussed. Yes, it would be in poor taste by the company, but these things can happen.
Best Time to Negotiate a Severance Package
It’s hard to think about a potential layoff, and employees are often afraid to bring the topic up with their supervisor or HR simply because it’s a difficult conversation to have. But, by being proactive, employees can often negotiate better terms for their severance package and ensure that they are being treated fairly during a difficult time of transition.
That’s why the best time to negotiate a severance package isn’t always after a layoff.
It could be during an annual review—especially if you are receiving a promotion, or raise, says Colleen Madden Blumenfeld, Vice President, Public Relations, Research for Challenger, Gray & Christmas, a Chicago-based global outplacement & career transitioning firm. It can also be done as part of an employment agreement when hired.
When two parties are in the early stages, negotiating a severance package can often be a more amicable and less stressful situation.
What to Ask for When Negotiating a Severance Package
Your bargaining power can also depend on the circumstances of the job loss. If it’s in a contract, there are legal obligations an employer must follow. But most workers do not sign an employment contract and don’t have documentation of any severance package as part of an employment agreement.
“If you are parting ways because it’s a poor job fit or it’s a performance issue, you won’t have as much bargaining power,” says Hogan. “If they are concerned about you speaking negatively, they may be more willing to meet your requests.”
Hogan offers these severance package negotiation tips:
- Ask for an increase in time: If they offer you 9 months of severance, ask for 12 months. Standard severance pay is one to two weeks of every year worked, says Hogan. If you get less than that, you can ask for a more standard calculation.
- Ask for a payout on any deferred compensation.
- Ask for a positive reference.
- Request career coaching or outplacement services. Ask for reimbursement if you find your coach.
- If terminated for cause, you can ask them not to challenge unemployment.
- Negotiate a shorter period for a non-compete or void an existing non-compete.
- Request that your employer pays for your benefits premiums beyond your last day. Benefits are a crucial part of a severance package; ask for the longest extension of benefits as possible or allowed.
- Request that your PTO is paid out.
Understand the options being offered, and don’t be afraid to ask for things that are important to you—even if not part of a severance package offer. Don’t be afraid to ask for things beyond the standard compensation, benefits, and outsourcing components of a severance package.
“We know of some professionals who have negotiated to have their gym membership and pet insurance paid for some time after a layoff,” says Madden Blumenfeld.
If the severance package is part of a mass layoff, talk to others who have been let go and ask how their negotiations went and what they were offered. Get as much information as possible before entering negotiations. Many companies will ask you not to discuss the layoff, but you have every right to talk about it. This is your life and your future.
You don’t have to accept exactly what others in the organization accept. Speak up. Fight for what is important to you. This is not the time to worry about rocking the boat—the ship has already sunk.
“If you know they have not been equitable in their separation agreements among different employees, you may have more negotiating power if it seems unfair based on tenure or performance,” says Hogan.
Common Mistakes Made When Negotiating a Severance Package
What mistakes are often made when offered a severance package? Signing it too quickly is often the biggest mistake.
“Make sure to have an attorney review it before signing,” says Hogan, “They have to give you 21 days to sign it, but they may withhold some items until you sign. Delaying a bit might make them more anxious to make a deal.”
Negotiating a severance package can be a difficult and emotional process, but it’s important to remember that employees have rights and options. Taking the time to understand what matters most to you and being willing to compromise can help you get a severance package that provides security and support during a time of transition. Use these tips to prepare in advance when negotiating a severance package.