8 Reasons Why Companies Offer Severance Deals
THE 8 REASONS WHY COMPANY’S OFFER SEVERANCE PAY
Many companies consider the following factors when creating a severance package for a departing executive. Each case is unique and there may be other factors at play in your situation.
1. SMOOTH TRANSITION - Company’s want to focus on their business and not get distracted by employment disputes. Severance packages are provided to facilitate a smooth transition and avoid disputes. There is no legal requirement to provide a severance package.
2. REASON FOR THE DISMISSAL – If the termination is the result of an economic slow down, reorganization or other circumstance beyond the executive’s control, the severance package may be more generous. If the dismissal is the result of poor or marginal performance, the package will be minimal or non-existent.
3. AGE - Older and more senior executives often require more time to find a comparable position. Therefore some companies provide a slightly larger severance payment for older executives. Also, larger severance offers are sometimes designed to deter age discrimination suits.
4. FAMILY - There was a time when an executive’s family situation would be considered. If an executive had a large dependent family, some companies would factor that into the severance calculation.
5. POSITION - Companies feel a greater obligation to offer generous severance packages to executives holding high level positions.
6. SENIORITY - Most severance packages are based on a formula that credits the executive for their years of service. The amount of the severance package is often directly linked to the number of years that the executive worked for the company.
7. FINANCIAL HEALTH OF THE COMPANY – There is no hard and fast rule here. Sometimes the largest and healthiest companies are the most stingy – [that is why they are rich]. Some smaller and less profitable companies, on the other hand, will provide very generous severance packages. However, large and established companies tend to provide better severance packages.
8. LEVERAGE - The key to obtaining an excellent severance package is leverage. If the executive has strong contacts or relationships that are valuable to the company, the company may offer a large severance package to preserve a strong relationship with the executive. Also, if the executive has information that is valuable to the company or which could be harmful if released to the public, the company will pay a premium for confidentiality. Finally, if the company discriminated against the executive or otherwise violated their rights, the company may enhance the severance package to avoid litigation.
