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Executive Severance Arrangements – Three Things Every Top Executive Should Know

You have the educational background and the work experience that allowed you to land your current position as President, Vice President, COO, CFO or other senior executive. You gave up personal days, sick days and even family vacations to put in long hours at the office including weeknights and weekends.  But company bottom lines, mergers, the sale of a business and other events can still lead to your termination regardless of your official title, the number of years that you sacrificed for the company or even your own performance.

So you’ve been fired.  What do you do?  Slow down, breathe and pick up the phone to an experienced executive compensation attorney.

Executive Severance Basics

There is generally no law that requires an employer to offer a severance arrangement in the absence of a contractual obligation or a firm company policy.  In most instances, they are offered to shield the company from future claims and lawsuits filed by the very executives they seek to terminate, to secure an agreement not to compete against the company by way of employment with a competitor or even to secure an agreement not to speak negatively about the company.  While every hard-working executive hopes that their employment will continue until retirement, it’s important to understand a few basics concerning executive severance arrangements in the event that an unexpected termination occurs, including:

  1. Act Promptly: Your soon-to-be former employer will likely encourage you to sign their proposed separation agreement as soon as possible.  You should immediately find an executive compensation attorney.  Whether your employer gave you a few days or a few weeks to make a decision, do take the dates in the separation papers seriously.  If you are over the age of 40 there is even more time as the Older Workers Benefit Protection Act[1] allows at least 21 days to review a proposed severance agreement.
  2. There Are Many Considerations:    Regardless of your circumstances, review the severance proposal with an experienced attorney keeping in mind that it’s possible to negotiate the terms of the arrangement even after you receive a termination notice. If you received such a notice, you almost certainly will have a wide range of emotions, ranging from anger, betrayal, confusion and even uncertainty.  While your initial thoughts may be focused mostly on future employment options, an artfully negotiated executive severance arrangement should address a variety of issues, including — just to name a few– indemnities you might need in the future, any pending insurance claims, the ability to convert a group life insurance policy into an individual policy, whether your termination triggers any stock options, and the need to extend your current insurance coverage for you and your family through the Consolidated Omnibus Budget Reconciliation Act (COBRA) [2] which allows for an 18 month continuation.  Missing any one or all of these critical elements can spell disaster for your family.
  3. Negotiating a Better Deal:  No matter what terms the proposed severance arrangement contains, you may be able to negotiate a better deal.  More money.  A longer term for insurance coverage.  Even a mutually agreed upon press release regarding your departure that you draft or approve can be included in the terms of an executive severance arrangement.  You gave years of your life to your employer.  Don’t just sign the first proposal that you are given as they escort you out the door.

Most top executives are at the head of their respective fields for a reason.  You are hard-working, driven and passionate about your work.  When you are terminated by your long-time employer you need an executive compensation attorney who will bring these same qualities and work ethic, as well as years of experience, to the negotiation of your separation and severance arrangement.




About the Author

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George Birnbaum

Since 1980, sophisticated business people have relied on George to apply the meticulous preparation, attention to detail, and devotion to his clients he learned from fabled trial lawyer Louis Nizer. A graduate of Harvard College and Harvard Law School, George has over 35 years of distinguished deal-making, litigation, mediation and arbitration experience which he has used to negotiate high-stakes agreements for senior executives and select business clients throughout the United States.