SEVERANCE: THE SEVEN FACTORS*
The following factors should be taken into consideration when designing severance packages for terminated executives:
1. NATURE OF THE DISMISSAL - An executive that is terminated as a result of general economic conditions over which he has no control generally tends to receive a more generous settlement than an executive terminated for marginal or unsatisfactory performance.
2. AGE - The older the executive, the more lengthy his relocation is likely to be, thus the larger the severance tends to be. The courts consider this factor most importantly in arriving at the ultimate size of the reward.
3. FAMILY CIRCUMSTANCES - Generally, companies are perceived as having a human obligation to try to design a settlement with some regard for the executive's family circumstances. For an executive in his fifties with several young children still at home, the company can anticipate litigation and higher court judgement unless it awards a relatively generous sum.
4. LEVEL IN THE ORGANIZATION - Generally the higher up in the hierarchy an individual is, the more responsible he is considered to have been for the profitability of the company, and therefore the higher his severance is likely to be.
5. SENIORITY - The longer an individual has been with the company, the more he is deemed to have contributed, the more difficult it will be for him to relocate, and therefore the more severance he is deemed likely to deserve.
6. FINANCIAL POSITION OF THE COMPANY - The more profitable the company is, the greater is its capability to award larger severance settlements. Furthermore, it has a perceived obligation by the courts, by its employees, by its customers and by the community at large to be more generous.
7. PENSION OR OTHER COMPENSATION - Terminated executives who also receive pension or a return of contributions or other monies from the company have a less compelling case to press for more extravagant severance awards in court.
* Influencing severance settlements and court decisions involving severance suits
Companies should try to obtain a signed agreement from a terminated executive making no further claims on the company before he leaves the premises. The company will tend not to get this agreement unless it offers what seems at the time to be a reasonable severance arrangement, taking into account the seven factors.
An effective way to get such an agreement is to provide a relocation assistance program as part of the severance package. If the terminated executive prefers to consult with his lawyer prior to signing, the inclusion of relocation assistance in the package will tend to diminish his chance of winning a severance suit in court if he decides to sue, and therefore will increase the probability that his legal counsel will advise him to sign the agreement and forget about suing.