How to Negotiate Your Severance Package

The negotiation of a severance package is generally related to executive or professional contract entitlements. Negotiating a severance package is often quite difficult. Depending on circumstances and your skills as a negotiator, you may be able to achieve a valuable settlement. 

The Basis of Negotiation

It's important to recognize that some things are negotiable in a severance package, and some aren't. Employers negotiate on the basis of necessity. They don't need to negotiate aspects of contracts where entitlements are agreed by the signatories.

The most likely areas of negotiation are:

  • Contract financial entitlements payable to the employee: Anticipated earnings, commissions, etc.
  • Value of benefits in the agreed employment package over the term of the contract: Insurance, services, 401k, etc.

It's in the interests of both parties to achieve a negotiated settlement if possible. Legal disputes can be extremely costly to both, and very time consuming.

Initial offers: setting up the basis of negotiations

The common method of initiating negotiation of severance packages is offer/counter-offer. This is actually a very safe and efficient form of negotiation for employees, because all offers are made in writing. 

This is the basic process of commencing negotiation:

  1. The employer makes the initial offer: This is usually a dollar based offer, conditional on acceptance by the employee of that the proposed settlement discharges all the employer's obligations under the contract, and no further claims are to be made.
  2. The employee assesses the value of this offer: The assessment of the offer versus the value of the contract can be a complex process. Some professional employment contracts are worth very large amounts of money, and so are their related packages. 
  3. Acceptance or counter offer: The employee may accept, or make a proposal of their own. The counter proposal is commonly also a dollar based offer. It's useful to define offers in these terms to maintain a clear picture of the actual values of offers. 

Negotiations

At this point, where both parties have expressed their positions, the offers can now be negotiated effectively.

Negotiations are based on the areas of disagreement. Values of offers are the primary yardstick for negotiation, and some trade-offs may be possible derived from the preferred positions of the parties. 

One of the fundamental principles of negotiation is that the clearer the benefits of your proposals are, the more likely you are to achieve a productive outcome. You'll also achieve much faster decisions from your negotiations. 

For example: 

  1. A benefit to the employee is valued at $20,000 by the employer.
  2. The employee values it as $50,000.  
  3. The employer has made an additional offer of insurance to the employee valued at $30,000.
  4. The employee doesn't want the insurance, but does want the cash.
  5. The employee offers to leave out the insurance and settle both issues for $50,000. 

Mathematics which works well for both sides is a very effective negotiation tool. In this case the employer is also spared the cost of maintaining the insurance policy, and saves time on negotiation of the other benefit.

This is a typical "win-win" scenario. It's invariably better as a negotiation technique than "haggling" over amounts of money, which may simply result in a negative response.