Understanding executive severance packages

No job lasts forever. In today’s employment landscape, it is rare for someone to start at a company and remain until retirement. Some research suggests that Canadians may hold about 15 different jobs in their lifetime, with the average employee staying at one company for about four years before moving on.

There are multiple reasons for job turnover. People may want more of a challenge, a higher salary, the need to feel valued or they are searching for growth and career advancement.

It is not always the employee’s choice, of course. Companies have their reasons for moving on from employees. They include a shortage of work, cost-cutting, restructuring or poor job performance. Employers are not obligated to share the reason for a termination. However, unless you have been terminated for cause, they must provide notice and, in many cases, severance.

Severance pay, not to be confused with termination pay, is compensation paid to a qualified worker and is designed to assist employees in bridging the gap in employment from one job to the next.

While severance pay generally works the same for executives and regular employees, there are distinct differences. That is why it is essential to seek advice from an experienced employment lawyer to ensure you are receiving the maximum severance package. Walter Law Group has been successfully negotiating on behalf of our clients for more than 30 years, winning better severance packages than they were first offered by their employers. Severance Package Reviews help ensure you get the very best.

Calculating executive compensation

Before discussing severance, it can be helpful to examine how executives are paid. These employees are entitled to more financial remuneration and benefits than regular workers because they are responsible for overseeing major organizational decisions, operations and the overall direction of the company. Due to their experience and expertise, compensation packages are designed to attract and retain valued executives.

In addition to a base salary, executives may also receive short-term incentives such as annual bonuses and profit-sharing plans. They could qualify for long-term incentives such as stock options, which allow executives the right to purchase company shares at a pre-determined price. As well, they may be entitled to performance shares, which are awarded for meeting specific performance targets over a pre-set period.

There could be other perks, such as a company car, country club membership and enhanced retirement benefits. All forms of compensation must be considered when negotiating a severance package.

No easy answers when it comes to severance

Among the first questions a typical employee will ask after they have been dismissed from their job is, “Am I entitled to severance and how much will I receive?” While these are fair questions, employment law is complex and there are no simple answers or one-size-fits-all solutions. Under Ontario’s Employment Standards Act, minimum severance pay is one week of pay for every year employed up to 26 weeks. If you are working in a federally regulated industry, such as banking, you are only entitled to two days’ pay for every year of service under the Canada Labour Code.

Many factors can come into the equation when determining severance. In Bardal v. Globe & Mail Ltd. the Ontario Supreme Court sets out what is commonly known as the Bardal factors in determining the applicable notice period:

• The character of the employment.
• Length of service.
• Age.
• Availability of similar employment.

These factors can be especially significant in determining the appropriate executive severance package. Executive positions pay more, require a particular set of skills and these jobs can be difficult to find so it only makes sense that severance should be higher.

It is important to remember that you are not entitled to severance pay or even notice of termination if you have been fired for cause. This would be behaviour such as assault, theft or insubordination.

What is a typical executive severance package?

The industry you work in, the size of your company and your job title will have a bearing on your compensation package. Also,th keep in mind that what is included in a severance package will rely heavily on your compensation at the time of dismissal. Generally, you could be compensated for lost salary, bonuses and/or incentive payments, allowances, stock options, profit sharing, restricted share units and long-term incentive plans.  As well, there could be a continuation of RRSP and pension contributions. An executive severance package may also include continuation of health and dental benefits, along with short-term disability and long-term disability insurance coverage.You may also receive payment for unused sick days and vacation days.

In return, you could be expected to return any company property and sign a non-solicitation clause, a confidentiality agreement and release of claims and covenant not to sue the company.

While monetary considerations are always at the forefront of any severance package, you may also want to negotiate for other elements that could assist as you transition to a new job. This can include fees for retraining and outplacement counselling, professional development expenses as well as legal and accounting fees.

Key elements to consider

Your severance package may have been already established in your employment contract when you started with the company. However, many of these contracts fail to meet the rigours of a legal challenge and are unenforceable, which is why it is in your best interest to seek advice from an employment lawyer. Even if you believe that the package you are receiving is fair, you may be entitled to additional compensation under common law.

A lawyer with expertise in executive severance packages can help you find the answers to such questions as:

• Is your compensation package in line with what other employees received in similar circumstances?
• Should you accept a lump-sum amount or spread out the payments?
• If severance is paid in instalments will there be offsets, mitigation or clawbacks?
• Does severance pay include partially or fully accrued but unpaid bonus?
• If the settlement is paid over time, will payments continue upon death or disability?
• If you get a new job does pay continuation end?

Remember, any compensation you receive, even small payments such as cellphone plans or mileage allowance, must be assigned a dollar value to determine the appropriate severance pay. Leave nothing unaccounted for.

We are in your corner

Employment law in Ontario has many intricacies and negotiating a severance agreement can be challenging and onerous. Your employer may attempt to bully you into accepting a subpar offer. Unfortunately, it is not uncommon for people to accept less than what they deserve just to put an unpleasant period of their lives behind them. Don’t fall into that trap.

Being dismissed is stressful but it is important to remain calm so you can help yourself. Take notes during the termination meeting and never sign a severance agreement until you understand the terms. Your employer might try to pressure you to sign a severance offer immediately but you are not legally required to do so.

Take the time to study the exit agreement, research and understand your complete compensation package and get an opinion from a lawyer who understands executive severance and can protect your rights. Accepting an agreement without legal advice can be costly and once you sign, it is too late.

At Walter Law Group, we examine every nuance of your offer. We will evaluate what you have been paid and what you are owed, making sure you get the package you deserve. We negotiate, advocate and litigate expertly in all levels of court. Contact us today to see how we can help you.