How To Negotiate a Severance Package to Get the Best Benefits
Updated December 5, 2022
Although being let go from a job is a stressful experience, you might be able to negotiate the terms of your severance package to suit your needs while finding another employer. The benefits of negotiating for more severance pay or a better overall severance package can outweigh the risks, especially because you already know that you will be leaving the company. When negotiating, perform detailed research and prepare to leverage your history with your employer to get the compensation you deserve.
In this article, we break down the different aspects of a severance package and provide step-by-step instructions for negotiating a better severance package with your employer.
What is a severance package?
A severance package, also known as a "separation agreement," is a binding legal agreement between an employer and a former employee that usually includes financial compensation for the employee's departure. Companies usually offer severance packages during involuntary layoffs when the employee did not do anything wrong to warrant being fired.
Severance packages are gestures of goodwill that employers use to manage an employee's response to their layoff. By providing a once-valued employee with additional pay to support them while finding a new position, a company can avoid retaliation and maintain positive professional relationships. Severance packages can also include an employment contract that specifically outlines situations where an employer must pay severance.
How to negotiate your severance package
Here are the key steps for negotiating an exit package:
1. Understand the components of a severance package
Many people immediately associate severance packages with severance pay, but there are many different components to a severance package. This is good for the former employee because it provides multiple places for negotiation. If your former employer is firm on the amount of money they can pay you, you may be able to increase the value of your severance package in different ways. To get the most value out of your severance package, identify each component of your severance package and notice if any key benefits are missing. Some common elements for a severance package are:
Severance pay refers to the cash benefits the company offers after discharging an employee. A standard amount of severance pay is 6 months to a year's worth of pay at your previous salary.
Paid time off
If you have paid time off, such as sick and vacation days, you may be able to get paid for the time you've accrued so far. Many companies list their policy on paying for paid time off in their employee handbook.
Full-time employees can receive medical insurance and some other employer-sponsored health benefits for several months after being laid off. If you pay a premium each month, you may negotiate for your employer to cover this cost while looking for a new job.
If you have any stock options with your company that aren't fully vested, your severance package might outline when you can exercise your stock options.
Transition and outplacement services
Some companies offer access to outplacement resources that will help you develop professional skills and find a new job.
In addition to pay and benefits, your severance agreement might include a clause releasing your former employer from liability for any complaints.
Some severance agreements offer employees compensation in exchange for a signed nondisclosure agreement. Nondisclosure agreements can range from the employee agreeing not to share information with competing companies to the employee agreeing not to speak negatively about their former employer.
Your severance agreement can also include details about whether or not you can use this employer as a reference. Including a reference clause in your severance package can help improve your chances of finding a new position.
Related: Guide to Severance Pay
2. Wait before signing paperwork
Employers want the layoff process to go as smoothly as possible, so they may try to convince you to sign your severance agreement right away. Although you may want to simply get through an uncomfortable layoff meeting quickly, it's in your best interest to wait before signing any paperwork.
Strong emotions can make it difficult to make the best financial decisions, so take some time to process the feelings that come along with being laid off. Some employees have legal protections that allow them a certain amount of time to consider their severance package, so be sure to research your rights before agreeing to a severance package.
3. Read everything carefully
A severance package is a legal document, so read through everything thoroughly. Take time to read the entire document several times to ensure that you understand each detail. Organize the main parts of your severance package and look up any confusing terms. Pay special attention to any information that is missing or vague to avoid agreeing to any misleading loopholes.
4. Get an expert opinion
Seek out advice from experts such as lawyers or business mentors when reviewing your proposed severance package, especially if you have never been laid off before. Experienced professionals can help you identify any misleading information and recognize when you could get a better package. Having expert advice helps you negotiate with your employers by providing them with evidence that you should have a better package. Involving an expert is especially useful if your severance package includes a nondisclosure agreement because it can limit your future employment opportunities.
5. Understand your priorities
When negotiating for a better severance package, make sure you have a clear understanding of your personal and professional priorities before sitting down with your employer. Like any negotiation, you have a better chance of getting your desired outcome if you have a clear goal. List your priorities ahead of time and consider what your ideal severance package would look like. Keep these ideas in mind to help guide the negotiation and avoid being distracted by offers that won't actually benefit your long-term goals.
6. Negotiate for more than money
Once you are prepared to negotiate your severance package, be sure to include multiple options for negotiating. Your employer may have more flexibility in some areas than others, so it is important to have a back-up plan if they reject a proposal for more severance pay. Consider health benefits, outplacement services, references and other resources you had during your employment. Having the assurance that your employer will use their connections to help you find a new job can sometimes be more valuable than the severance pay itself.
Related: Essential Job Search Guide
7. Decide on a reasonable request
To increase your chances of a successful negotiation, choose a reasonable counter-offer. Think about the resources your former employers can offer and what you can offer in return. Employers usually do not want to engage in a lengthy negotiation, so presenting a reasonable offer may encourage them to accept to move on. Research what severance packages usually look like for people who have your level of experience and use that information to decide on what you think is both fair and attainable.
8. Leverage your success
One of the most critical parts of negotiating with an employer is leveraging your success and accomplishments. Remind your employer of how their company benefited from your hard work and loyalty. Leveraging your success is key to convincing your former employer that you deserve more severance pay or other benefits. By providing your company with a list of reasons why you're asking for a better severance package, you can demonstrate your value and remind employers that your request is small in comparison to the positive impact you had on business.
9. Know your limits
If the negotiation does not go as planned, don't be afraid to leave the negotiation without signing a severance agreement. If there are nondisclosure stipulations or other clauses that limit your ability to find new jobs, you may prefer to leave your job without severance pay. Understand what your hard limits are before going into the negotiation and follow through with those limits if your employer is not receptive to negotiation.
Tips for asking for a better severance package
Use these tips when negotiating your severance package:
Collect information from coworkers
Especially during a merger or a change in management, companies often lay off multiple employees at the same time. Compare your severance package with offers that other former employees received to determine if your offer is fair and if you can negotiate for more.
Discuss different scenarios
After you leave a job, anything can happen. Determine whether your benefits will be paid out in the event of disability or death. Make sure that your severance will still be paid even if you get a new job before receiving the full amount.
Aim for a lump sum
If you aren't able to convince your former employer to increase your severance pay, consider asking for your severance in a different format. Many employers structure severance packages to distribute pay in installments over a period of time. Asking for a lump sum upfront can ensure that you get the full value of your severance package, regardless of how the company performs in the future.
Prepare for tax deductions
Severance pay is taxable, so make sure you set aside a portion of your severance pay for taxes. Most employers withhold taxes from employee paychecks, so you will have to adjust your budget once you no longer work for them. Consider negotiating for a higher amount to cover taxable income.
Rewrite the key points in your own words
Severance packages can be full of confusing jargon, and even with the help of a lawyer, it can be confusing. Rewrite the key points of your severance package in your own words to ensure you have a clear understanding of how you will negotiate. This strategy can help you become more confident when asking for a better severance package.
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