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Negotiating Severance: What’s Standard???

January 8, 2021 by in "Two Minute Takeaway"

Is there a standard severance amount?

One of the most common questions I hear is “How much severance can I get?”  It is a difficult question to answer because there is no standard amount.  Employers are not obligated to pay severance and practices vary widely.  And most severance agreements contain confidentiality provisions, so there is little publicly available information about severance practices. 

SEC Filings Contain Valuable Information

SEC filings can be a valuable source of information about severance practices.  At some companies, the severance plan constitutes a material obligation that must be publicly filed, typically as an exhibit to a 10-K filings.  While the number of companies filing plans is relatively small, the plans that are available provide a valuable data point for employees negotiating severance.   

Severance plans at several prominent public companies

The following is a brief summary of severance plans maintained by a number of publicly traded U.S. companies.  The plans represent the basic severance payable to all employees, but additional benefits may be negotiated on a case-by-case basis.    

Boston Scientific.  Boston Scientific’s severance plan pays (1) employees below the director level the greater of 8 weeks of salary or 2 weeks of salary for every year of employment and (2) employees at or above the director level the greater of 26 weeks of salary or 2 weeks of salary for every year of employment.   

CIT Group Inc.  CIT’s severance plan pays (1) low and mid-level employees a base of between 4 and 8 weeks of salary, together with 2 weeks of salary for every year of employment and (2) senior executives a base of 39 weeks of salary plus two weeks of salary for each year of employment, up to a maximum of 52 weeks.

Coca-Cola  Coca-Cola’s severance plan pays (1) lower-level employees the greater of 12 weeks of salary or 2 weeks of salary for each year of employment; (2) managers from 52 to 78 weeks of salary, depending on seniority; and (3) Coke’s most senior executives 104 weeks of salary.  

ING North America Insurance Corp.  ING has an interesting severance plan that calculates severance based in part on base salary.  ING’s plan pays employees severance equal to the greatest of: (1) 6 weeks of salary; (2) 2 weeks of salary for each year of service; or (3) 2 weeks of weekly salary for every $10,000 of the employee’s annual salary.  For example, if an employee has a base salary of $100,000, he or she will receive 20 weeks of salary and if an employee has a base salary of $200,000, he or she will receive 40 weeks of severance.     

Johnson & Johnson.  Johnson & Johnson’s severance plan pays (1) lower-level employees the greater of 8 weeks of salary or 2 weeks of salary for each year of employment; (2) mid-level employees the greater of 12 or 26 weeks of severance (depending on seniority) or 2 weeks of salary for each year of employment; and (3) senior managers the greater of 52 weeks of salary or two weeks of salary for each year of employment.  

Kimberly-Clark Corp.  Kimberly-Clark’s severance plan pays (1) lower-level employees the greater of 6 weeks salary or 1 week of salary for every year of employment; (2) mid-level employees the greater of 12 weeks of salary or 2 weeks of salary for every year or employment; and (3) senior-level employees 52 weeks of salary together with their average annual bonus.

The Prudential Ins. Co.  Prudential’s severance plan is one size fits all and pays all employees the greater of 6 weeks of salary or 3 weeks of salary for every year of employment, up to a maximum of 78 weeks.

This information provides only a snapshot of the severance practices at several public companies, but it does show some trends.  Severance calculated at 1-4 weeks per year of employment is a common formula.  Also, senior employees tend to qualify for more generous benefits. 

Obviously, the best time to negotiate severance is at the beginning of the employment relationship.  Executives negotiating employment agreements may benefit from reviewing SEC filings of public companies in similar industries.  Such filings may provide a powerful basis to negotiate for similar severance benefits in an employment agreement.