What is a Reasonable Severance Package?

A question we hear often is "what is reasonable severance pay?"  Because there is no legal requirement to pay severance, and because it is often connected to whether you may have legal claims against the employer, that is not an easy question to answer.

There is information, however, about employer practices on average that may be helpful to you in making a decision about a severance package or trying to negotiate changes in one.

Does Your Employer Have a Severance Policy?

According to a 2020 study by LHH, the number of companies with formal severance policies has increased since 2017.  Over 70% reported having severance policies for senior positions (C-suite positions, managing directors, VPS and senior VPs, and managers). 51% reported having a formal severance plan document, while the rest used either general written guidelines or oral communications to explain their severance policies.

This means there is a decent chance that your employer has a written explanation of its severance policies, particularly if you work for a larger company.  If you do not have ready access to it, this is something your Human Resources department should be able to help you with.  What is set forth in the policies will give you at least a starting point for understanding whether what you are being offered is consistent with the company's standard expectations about severance.

What Severance Do Most Companies Offer?

Again, this can vary widely.  However, the LHH study from 2020, severance based on a flat number of weeks ranged from 12.4 to 15.2 weeks for non-managerial employees, and between 15.4 weeks and 21.9 weeks for management up through the CEO.  Where severance is based on a number of weeks per year of service, the majority offered 1-4 weeks per year for non-managerial employees, with wider variation for management through the CEO.

Many employers also cap the "years of service" severance at a set amount or a set number of years.

There are also many employers who do not have a severance policy at all, ranging from 61% for non-exempt (usually hourly) employees to 25% for CEOs.

The vast majority of respondents who offered severance pay (75%) required the employee to sign a release of legal claims in order to receive the package.

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Does the Employer Have to Follow its Severance Policies?

If there is a specific severance policy in an employment agreement, the employer will be bound by that.  Note, however, that in most such agreements there are express conditions on receipt of severance, usually dealing with whether a termination was with or without cause.

For everyone else, in most cases an employer does not have to strictly follow its stated severance policies.  Employers may offer more or less depending on the circumstances.

The policies can still help you think about your severance package, and how to negotiate it.  If you believe you have real legal claims against the company, the stated policy can give you a baseline to work with. If you are offered less than what the employer typically provides, that too can form the basis for a request to negotiate a higher amount.

How We Can Help

The averages across industries are usually less helpful in understanding the value of your severance package than experienced legal advice about what claims you might be giving up.  We can help with that analysis, as well as with severance negotiations if you choose to go that route.  You can use the button below to schedule a call back from a member of our team, or give us a call at  781-784-2322.

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