How to Negotiate a Severance Package

Male employee carrying box of his belongings home after being laid off

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As companies downsize, you may feel you are walking a tightrope at work. For every employee you see being laid off, you wonder if you might be next. Just getting called into the boss's office leads to thoughts of employment termination and getting a severance package.

A severance package is defined as pay and benefits an employee can receive when their employment is terminated at a company or when they are forced to retire. Some items included in severance packages may include, but are not limited to:

  • Additional weeks of salary, sometimes based on your tenure at the employer
  • Payment for unused vacation and sick days
  • A lump-sum payment to account for lack of notice of employment termination
  • Medical or dental benefits or life insurance
  • Retirement or 401k benefits
  • Stock options
  • Help to find a new job within or outside the company

If you think your job may be in jeopardy, it's wise to have a plan to properly negotiate a severance package.

Coming up With a Plan

Ask yourself the following questions to come up with a severance package proposal that would be fair to both yourself and your employer.

  • Have I been employed with the company for more than five, 10, or 20 years?
  • What is my value to the company? If you're in a revenue-generating role, you should be able to put a number to your quarterly and annual contributions.
  • If I'm laid off, will they terminate my position or hire someone for a lower pay rate?
  • How long will it take me to get a new job in this economic climate within my industry?

Next, take the answers you came up with and create a severance package proposal.

For example, if you've been at the company for 18 years and have been an integral member of the management team, your value to the company is high. In this case, you've "put your time in" at the company and you may want to propose at least a year-long severance package that allows you to collect your salary during this time while you find a new job.

Formulating a Proposal

Once you have an idea of how long it will take you to find a new job in the current economy, you can determine the length of time you need to collect severance pay. Some companies will pay you your full pay for a set period of time. Other severance packages will only allow for you to receive a percentage of your pay for a period of time. Some severance packages offer a lump sum of money when you leave a job.

Obviously, it's wise to ask for more weeks of severance pay rather than less. In some offices, you will be offered a particular type of severance package dictated by company policy. However, if you can document the reasons you deserve more financial cushion, you may be able to negotiate for a package with a longer length of time, or for full pay and benefits.

Negotiating to Get the Best Severance Package

If your employer proposes a severance package that is inferior to your proposal, take steps to negotiate a better deal.

If your employer is offering fewer weeks than you desire, ask if it can be changed. If the number of weeks is based on your years of employment with the company and can't be changed, then try to negotiate a substitute like additional weeks for paid benefits before you are forced to go on COBRA.

Another negotiating tactic is to make it appealing for your employer to give you the best severance package available at the company. For example, if you offer to come back to do per diem, freelance or outside consulting work, where it will save the company money in the transitional period, this could help your case for a better severance package.