Severance Packages: What You Need to Know

Severance packages aren’t just for CEOs and executives anymore.

Last year, Lee Hecht Harrison, an outplacement firm, released a survey showing that the number of employees who successfully negotiated their severance packages skyrocketed during the past decade. In 2008, nearly a third of professional workers and 22% of administrative employees had negotiated their severance packages. By comparison, only 5% of professionals and 4% of administrators managed to do so back in 2001.

And this trend is only likely to continue in the future.

“Severance packages are the norm,” says Bob Morlot, Managing Director for Lee Hecht Harrison. “I think we will see the policy increase in the coming years.”

Morlot notes that many businesses have been motivated in recent years to introduce formal guidelines for severance packages in order to avoid potential litigation and to help protect their brand.

“Companies don’t like lawsuits and recognize that we now have a fairly litigious society,” Morlot says. “They are also worried about branding. Most companies view ex-employees as consumers as well, and want to be seen as treating them fairly.”

Yet, even as severance packages become more common, they are still far from universal, and in fact, a company is not legally required to offer severance.

“There is no law that you’re going to find that says when an employee is terminated, they have to get one week of severance or two. That just doesn’t exist,” says Joshua Zuckerberg, a labor lawyer at Pryor Cashman.

According to a 2009 survey from the American Society of Employers, one out of every four business organizations does not offer severance packages to their employees. Of those that do, ASE found the most common policy is to provide employees below the executive level with one week’s worth of severance pay for every year they have worked at the company.

Of course, the average severance policy does vary by company and by position, but according to Lee Hecht Harrison, the outsourcing firm, the average mid-level professional who has worked at a company for three to five years typically receives between 14 and 26 weeks of severance. By comparison, nearly half of all senior executives surveyed by LHH received a year or more of severance.

Negotiating a Better Deal

If you happen to work at a company that does not provide severance, your options are obviously limited. Still, there are a few instances when you may be able to negotiate some semblance of a severance package.

Bill Belknap, a career coach with The Five O’Clock Club, a career counseling network, offers the example of an employee who has been encouraged to leave an existing job and relocate for a new company, only to be laid off after a few weeks. In that case, the employee would have more leverage to argue for some compensation after the fact, perhaps in the form of relocation costs.

Similarly, Zuckerberg notes that laid-off employees who feel they’ve been the subject of harassment or discrimination, either because of their age, race or gender, may have a case against their company and could get compensation either by going to trial, or just threatening to go to trial.

For those who work at companies that do offer some level of severance, there are several simpler steps that employees can and should take in order to negotiate a better deal.

For starters, if you are worried about your severance package, you may want to bring up the topic at the moment when you arguably have the most leverage over the company: during the hiring process.

“When the employer brings up the topic of benefits, ask about the company's official severance policy then,” says Alexandra Levitt, a career expert and author of New Job, New You. “Severance is part of the total compensation package and should be negotiated just as salary, benefits and vacation are.”

At the same time, Zuckerberg encourages employees to take the initiative when first signing on to a company and ask for the employment manual. Then you can find out what the official severance policy is so you know what you’re getting into.

Once you have been notified you are being let go, the trick is to get a bit aggressive with your boss and human resources.

“My clients have had the most success when they have been able to articulate their bottom line contributions to the business, saying they can document saving the company this much money, and therefore the current severance package is unfair,” Belknap says.

On the other hand, Belknap notes that you can play the emotional card, and emphasize the hardships you’re facing in hopes of getting a better deal. Or you could just go the gossip route.

“Talk to your buddies and find out if someone has gotten a special severance package,” Belknap says. “Then, if you’re willing to play hardball, you can sit down with the boss and HR and say there are a few instances where you know they’ve gone above and beyond the policy.”

Whichever tactic you use, it’s important to keep in mind that you should be arguing for more than just an extra paycheck.

Belknap suggests that employees ask for the company to help cover the cost of Cobra health insurance for a period of time, or just to keep you on the company health plan for a few weeks longer, which costs the company less cash out of pocket.

Equally important, employees who have company stocks or a 401(k) should be mindful of their vesting schedule. Belknap notes that in some cases, if employees had simply negotiated to stay on staff for an extra two weeks, they would have earned substantially more from their portfolio.

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