Markets & Finance

Severance: How to Part on the Best Terms


The downturn is hitting executives, too. Here's how to get the best severance package, including money, health insurance, and employment training

Recently dismissed chief executives of faltering big-name firms such as Wachovia's (WB) Ken Thompson and AIG's (AIG) Martin Sullivan aren't the only casualties of the economic downturn. Mid- to upper-level executives have also been taken down by the latest downsizing wave. And many of them are looking at their severance packages and wondering how to make the best of a bad situation.

"A lot of the severance packages that we were used to seeing, particularly in financial services, have gone out the window," says Wendi Lazar, a partner at employment law firm Outten & Golden, who leads the firm's Executives & Professionals Practice Group.

The amount of money in a severance package, which is usually calculated as one to two weeks of pay per year worked, is the most important part of any severance negotiation. But managers are also bartering for other, nonmonetary benefits such as health insurance and employment training.

"Companies are not obligated to give out severance packages or provide any benefits, [but] they want to do the best that they can to help people through this difficult transition period," says Janette Marx, senior vice-president at Ajilon Professional Staffing. "We've seen an increase in the number of people who are asking for health insurance, life insurance, and outplacement services to help them with résumés and interviewing should they stay in their industry."

Though severance negotiations are meant to be civil, clauses in separation agreements can sometimes sour the deal.

Varying Enforceability

There are three things companies try to get in any severance package, according to Robert Christenson, a partner at employment law firm Fisher & Phillips: noncompete agreements, which prevent the employee from signing on with the company's direct competitors; nondisparagement clauses, where both the executive and the company are barred from publicly criticizing each other; and nonsolicitation agreements, which forbid terminated executives from poaching the company's staff in any new employment situation. But the enforceability of these clauses varies from state to state.

"It really depends on how tightly they interpret the law," says Steve Gross, an analyst at Mercer Consulting. "If I were to tell you that you have to sign a nonsolicitation for two years, that would be enforceable in court. But if I were to have you sign a noncompete saying that you would never work in your field again and prevent you from making a living, that would probably be thrown out."

Few severance disputes end up in court. And, according to Deborah Russell, director of workforce issues at AARP, even fewer severance negotiations are initiated by employees. But, if you decide to take the issue to your manager, there are some guidelines to help you get the most out of your severance package:

1. Don't take it personally.

John Challenger, CEO of Chicago-based outplacement firm Challenger, Gray & Christmas, says the best way to begin negotiating a severance package is to think of it as a business transaction.

"You don't want to make it too emotional," Challenger says. "The more betrayed you feel and confrontational you make it, the less chance you have of getting what you want."

2. Speak to someone who's on your side.

Part of maximizing your severance package includes finding someone who is likely to empathize with you. "Rather than go out with guns blazing, go to a mentor, tell him or her your circumstances and your difficulties," says Challenger. "Someone who knows you might give you more."

3. Determine exactly what you want.

Noncompete and nonsolicitation agreements do not apply to everyone even though your company may insist on it. If you foresee yourself becoming a competitor or taking members of your team with you, tell your employer. You may not be able to dispense with these clauses, but you may be able to reduce the term limits by a year or more.

A job termination can be a traumatic experience. According to Outten & Golden's Lazar, neither the company nor the employee wants to be part of a long, drawn-out divorce. "They want this to go away as much as you do," she says.

But if you take steps to get the best severance deal possible without burning your bridges, chances are your career will live to fight another day.

Winfield is a reporter for BusinessWeek.

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