Newsletter
July 20, 2022

Laid off? Negotiate Your Severance First

Negotiate Your Offer

This comes as a surprise to many people, but the severance package you receive when you are laid off is negotiable. Even more surprising is that you can negotiate a severance package even if you are the one quitting your job.

Just like you can negotiate an employment agreement before you sign a job offer, you have power when it comes to the agreement you sign when you exit. Negotiating severance agreements isn’t as common as negotiating employment agreements, but the psychology is the same. At the offer stage, companies pressure you to take their guaranteed offer rather than risk negotiating further to get a better one. At exit, companies offer some amount in their severance agreement, and most employees choose the guaranteed amount rather than risk not getting anything at all. Companies use this to their advantage to offer ex-employees the lowest package they can.

The good news is: It doesn’t have to be this way. We’re currently seeing companies like Klarna having to update their severance packages after backlash from employees and PR. I’ve also seen and helped employees successfully negotiate severance offers. Here’s what you need to know about what severance typically includes, what’s negotiable, and what you can do to ensure a better package.

Why Do Companies Pay Severance?

To state the obvious here: Companies do not give severance out of the goodness of their hearts. They are also not required by law to offer payment to the employees they lay off. So why do they do it? Two main reasons: They aim to protect their legal liabilities from breaking an employment agreement, and they aim to protect their business interests by maintaining relationships and reputation.

What Do Severance Agreements Look Like?

There are typically three documents in a severance agreement:

  • A Separation Agreement outlining your final date, any owed paychecks, severance payments, and a benefits package. It will also ask you to release liabilities and claims you could make to sue the company, prevent you from disparaging the company, and include language around non-disclosure, non-competition (depending on the state), and other legal protections for the company. This is typically around five pages long and will have a deadline, usually around 10 days.
  • A Proprietary Information and Invention Assignment Agreement. A longer letter defining all of the proprietary information and trade secrets you may have as a former employee. This document tries to prevent you from sharing this information or speaking to competitors or customers, and it requires you to return all company property.
  • The Termination Certification: A shorter, one-page document outlining similar terms as the earlier two agreements.

The deal the company is striking here for you to sign is simple: We’ll give you money—if you never sue us or damage our reputation.

Understanding Your Leverage With Severance

Sadly, what a company decides to offer you in a severance package is far more political than it is objective. So, your leverage with negotiating severance depends on many factors that are unique to your employment relationship with the company, including.

  • Your tenure and seniority: Longer-standing and more senior employees are often given more generous severance packages.
  • Your role and likely course of action: The company is likely assessing: How much valuable information do you have about the company? How much of a case do you have to pursue legal action, and how likely are you to pursue it? Are you in a protected class? How much could you damage the company’s reputation?
  • Your relationships with leadership and HR: If the company is incentivized to retain a professional relationship with you, you likely have more leverage.

How Do You Negotiate Severance

How you should negotiate severance truly depends on your unique relationship and context within your company but the general advice would be to do the following:

  • Understand your value to the company - If you can’t bring up impactful examples or testimonials from others on how you’ve been valuable to the company or you can’t clearly articulate how you’ve been valuable to the company, don’t negotiate.
  • Make sure you negotiate with a specific person - Don’t email hr@company.com to make your case. Companies will try to standardize but it’s in your best interest to make the case personally.
  • Get support from your manager, skip-manager, or as high as you can go - Remember this decision is ultimately subjective and made by people
  • Don’t be afraid to walk away from deadlines - This point is delicate because you do risk losing the offer, but from our experience the risk, similar to offer negotiations, is lower than most people think.
  • Write a script and get feedback - Talk this out with a mentor, friend, or partner before you negotiate.

Terms to Consider Negotiating in Severance

Here is a list of terms you should consider potentially negotiating.

  • Salary: There is very little market data on what companies pay for severance. I typically see a range of one to four weeks per year of employment, but you can and should ask for more.
  • COBRA payments: Companies can continue to pay for your health insurance after you’ve been terminated.
  • Termination date: Ask for a termination date to the beginning of the month, which ensures you receive a full month of benefits.
  • Signing bonus retention: Typical signing bonuses have a clawback if you aren’t employed for at least six months to a year. You can negotiate to keep this.
  • Equity termination period: The standard window you have to decide whether to exercise your stock options is 90 days, which is extremely unfair to employees. Some companies with layoffs have extended this window to one year.
  • Accelerated vesting of your equity: In your separation agreement the company can define the terminated vesting date as later than your last day of employment.
  • Early exercise: Your company can allow you to early exercise your options so that you can minimize your tax impact.
  • Company equipment: You can ask to keep equipment like your laptop or cell phone.
  • Outplacement services: Businesses will pay other businesses to help their laid off employees get hired faster so that they pay less in unemployment taxes
  • Letters of recommendation: Your reputation matters as much as the company’s, and the more you can do to protect this, the better.

Examples of Successful Severance Negotiation

Since successful examples of negotiating severance are rare, here are a couple examples of us helping clients or hearing how other professionals have been successful.

An engineer worked for a startup that had recently gone public for more than four years and had been promoted to an engineering manager role. In a mass layoff event, the startup let go about 20% of the staff. The HR department emailed him an agreement offering four weeks severance, three months of COBRA payments, and the option to extend the termination period of the option agreement for one year. The offer had a deadline of seven days.

When he tried to negotiate, he asked for 12 weeks of severance pay, and the HR department said no. I advised him to wait out the severance agreement deadline, communicate that treating him unfairly would hurt the company’s reputation, share more generous packages from companies like Airbnb and Klarna, and share his dissatisfaction with his manager. A couple days after the deadline, the HR department increased his severance to eight weeks.

Another example is Netflix engineer Michael Li, who quit his job and negotiated a severance package as part of his transition. Why did Netflix provide severance? Because it enabled Michael’s transition to be smooth and quick rather than drawn out and a battle. Michael very smartly opted to negotiate a severance package because he wanted to protect his reputation internally at Netflix. Rather than being pushed out of the company and damaging his own reputation, he opted to negotiate his exit and leave professionally. He describes his process in a blog post here.

Why You Shouldn’t Be Afraid of Negotiating Severance

Even employees who know their severance package isn’t enough don’t usually negotiate out of fear of damaging relationships, looking greedy, or not getting anything at all. But before you tell me, “Look Brian, my company is doing layoffs—they’re struggling and they don’t have the money to pay me anything more,” keep this in mind:

A 1993 New York Times article entitled “Strong Companies Are Joining Trend to Eliminate Jobs” shares this:

“profitable companies with booming sales are also shedding jobs, insisting that to survive the 1990s, they must prepare for the worst.”

Companies such as Proctor & Gamble, General Electric, AT&T, Johnson & Johnson insisted that they needed to lay off employees to survive the 1990s. We know now that all of these companies have more than survived, they have collectively given billions in profits to shareholders.

So today, when I see headlines like “Policygenius cuts 25% of staff less than 3 months after raising $125M” or “Bolt lays off staff just months after raising $355M,” I’m skeptical. The truth is that the way businesses have operated for the past 50 years is to prioritize shareholder profits over their employees and it’s time for employees to change this conversation.

Negotiate Your Offer

1:1 Salary Negotiation Support

Negotiation strategy

Step 1 is defining the strategy, which often starts by helping you create leverage for your negotiation (e.g. setting up conversations with FAANG recruiters).

Negotiation anchor number

Step 2 we decide on anchor numbers and target numbers with the goal of securing a top of band offer, based on our internal verified data sets.

Negotiation execution plan

Step 3 we create custom scripts for each of your calls, practice multiple 1:1 mock negotiations, and join your recruiter calls to guide you via chat.