5 Severance Pay Negotiation Tips for When You’re Fired

Portrait of young beautiful woman employee getting fired from work.
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One of Elon Musk’s first moves as the new owner of Twitter was to fire a number of its top executives, including CEO Parag Agrawal. And the top brass weren’t the only Twitter employees on the chopping block. The New York Times reported on Oct. 29, two days after the sale closed, that Musk allegedly told investors he planned to slash Twitter’s payroll by about 50% — before Nov. 1, the day employees were scheduled to receive the stock grants that make up a significant portion of their compensation. 

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The firings are part of a pattern for Musk. In separate reporting, The Times noted he fired top managers and eliminated large numbers of employees at two of his other companies, Tesla and SpaceX, citing impending financial doom. But the “for cause” terminations of the Twitter executives has broader implications because it seems to fly in the face of the “golden parachute” compensation described in a proxy statement filed with the Securities and Exchange Commission that assumed the “named executive officers,” including Agrawal, would “incur a severance-qualifying termination of employment immediately following consummation of the merger,” which, at the time of the filing, was assumed to be July 29. Months later, Musk claimed to have terminated the executives “for cause,” which could void that golden parachute agreement, The Times reported, citing two people with knowledge of the matter. What that “cause” was has not yet been reported.

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What happened to Twitter’s executive officers can happen to you, even if you’ve acted in good faith. Here are lessons to keep in mind on how to appropriately negotiate an exit from a job. Depending on your industry, you might also need to know exit package options when you’re negotiating your salary to start a job.

Severance Pay and Package Lessons Employees Need to Know

The Twitter executives’ firings without severance highlights the importance of knowing what your rights and responsibilities are at work. You can learn relevant lessons on how to negotiate your severance or exit package and how to understand what your personal options are when you’re terminated or laid off.

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Here are five key takeaways about severance packages:

1. You Don’t Have to Sign Your Severance Package on the Spot If You’re Over Age 40

Exercise your right to at least 21 days to consider the terms — or 45 days if you were a part of a group termination. If you sign, you also have seven days to revoke. In the interim, it’s best to seek out a lawyer who will comb though the details to best position you to collect money and search for a new job.

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2. Leverage Your References and Network

Lean into your employer and press for how the company will respond to future reference checks or recommendations. As long as it is warranted based on performance, cement your good standing in your severance agreement. If the company is in a major upheaval, it’s also a good idea to secure letters of recommendation from supervisors and connect with colleagues on professional networking sites like LinkedIn.

3. Consider Lump Sum vs. Installments for Severance Pay

Depending on your cash situation, consider whether a severance lump sum or a series of installments is more beneficial for you and negotiate. Your severance money is income in the eyes of the IRS, so there also are tax implications for receiving the severance package, and it is subject to Social Security, Medicare and payroll taxes just like your paychecks.

4. Know That Severance Isn’t Guaranteed

It’s a harsh reality, but there’s no guarantee you’ll see extra money after being laid off. Depending on the size of your company, you have some rights pertaining to advance warning of a layoff.

There’s no rule written in stone when it comes to severance, but the rule of thumb is that executives often receive severance equal to a month’s salary for every year worked, subject to an 18- or 24-month cap or a fixed multiple of the annual salary. Non-execs can generally expect a week’s salary for every year with the company.

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5. Tap Into Other Benefits

The dollar figure is paramount, but don’t lose sight of negotiating other items that have monetary value like health benefits, outplacement services, stock options or equity, tuition forgiveness, and keeping company assets such as phones, cars, or computers.

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Stephanie Asymkos contributed to the reporting for this article.

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About the Author

Daria Uhlig is a personal finance, real estate and travel writer and editor with over 25 years of editorial experience. Her work has been featured on The Motley Fool, MSN, AOL, Yahoo! Finance, CNBC and USA Today. Daria studied journalism at the County College of Morris and earned a degree in communications at Centenary University, both in New Jersey.
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