Negotiating a Great Severance Package

For those of you who are staring a layoff in the face, or if you want to be prepared for a possible separation of employment in your next position, I’d like to add my advice on negotiating a severance package. And yes, this is something you can negotiate. As career strategist and job search coach, and I’ve helped dozens of clients successfully negotiate severance packages.  

 I advise my clients to use many of the same tactics as you would in a salary negotiation.

First of all, you need to have clear in your mind what you want, and what’s important to you. For example, if paid health insurance is a must, make that your priority.

Secondly, throughout the process, you want to be genuine and sincere in discussing severance agreements, not cold and calculating. You will get a lot further that way. I understand you most likely angry – ok, furious – and hurt, but don’t let that get in the way of making the best out of a decidedly awful situation.

Next, use vulnerability to your advantage; it can be very powerful. Describe your financial situation to the employer, and the personal difficulties this separation will cause. You will find that when you use this strategy, it plays to your employer’s desire to make you happy - and dare I say - their guilt over letting you go. For instance, “I do have some impending financial needs… Perhaps the company could approve a slightly higher package. Is there any way we can pursue this together?” Or, “Can you see your way clear to adding 3 more months to the severance agreement? That would easy my family situation immensely.”

Also, in negotiating, it’s a great rule of thumb to use questioning, rather than demanding, in your discussions. You will find the most persuasive negotiators use questions. It will allow you to gain control of the situation by getting valuable information from the employer. For example, you wouldn’t say, “That severance wouldn’t be any good for me.” Instead, you might say, “Robert, could you tell me how you think this can work for me?” Or, “Is there a chance you could extend the length of the severance (or the health benefits) a little longer?”

In both of these examples, see how there are only questions – no demands. By inviting your soon-to-be-former employer to explore the situation, you are giving them the freedom to reach their own conclusions on whether or not their separation offer is unreasonable. With this approach, you come across as sincere, realistic, and slightly vulnerable; never as cold or calculating, or as an employee who is “forcing their hand.”

And there’s one last piece of advice I’d like to offer: When you do find a new job, by all means negotiate your “exit strategy” before signing an employment contract. I advise negotiating for at least 6 month’s severance (and 12 months for six figure professionals), including benefits. It’s much easier to get a fair separation agreement when the employer is excited about hiring you than it is when things go south and they’re put in a position where they have to let you go. And make that separation clause be effective due to any change in your job, and not just a lessening of responsibilities or a lay off. In other words, there might be a company reorganization, and yes, you can still have your same position, but you’ll have to do it in Detroit. If you don’t want to move, you should be able to receive the severance you negotiated at the start of your employment.

 In my experience, I have found my clients have been able to easily negotiate 1 to 3 months more in compensation, or a 10-15% higher increase during the severance term using these techniques. I’ve also found that my higher paid clients and those in higher positions in the company have an easier time negotiating the terms of their severance packages.However, I’ve seen these techniques work successfully at all career levels.

With whatever position you’re leaving, it is always best to gain as much control of your situation as possible. It will not only serve you financially, but emotionally as well. Most people don’t know they have any influence in a severance package once they’re laid off, especially when feeling devastated about the loss of their job. However, you may find a few brief conversations with your employer will pay off great dividends.  

Understand Present Value Versus Future Value

In this article, we will continue the financial investing series with the discussion of financial market structures known Present value and future value in macroeconomics.

The concept of present value versus future value is like the concept that a dollar today is worth more than a dollar. In fact, a dollar invested today earning interest will grow in value when the interest is paid and if the dollar plus interest is automatically reinvested for a further period of time, new interest will be earned on both the dollar of original investment and on the interest already earned. As this is repeated over a period of time, we call the result of compounding interest. It is possible to determine the future value of money by using

1. Financial tables.

a) Present value represents the original investment that we have in hand today.
b) Future value represents what that investment will grow to when interest is earned on a sequential renewal of investment, where the original investment plus all interest earned, keeps being reinvested for subsequent periods until maturity.

Here is the formula

FV = PV (1+I) where
FV is future value
PV is present value
I is annual interest rate
n is number of compounding periods

2. Present value of a single sum
In order to determine the present value, we must take the final sum and discount it by the interest factor working backwards from our known single sum. Here is a formula:
PV= FV/ (1+I)
The definitions for PV, FV, I, n are the same as 1. above.

3. Present value and the amount of the annuity payment of an annuity
There are two types of annuities
*Deferred Annuity:
Receipts on payments are made at the end of the period.
*Annuity Due:
Receipts or payments occur at the beginning of the period.
Future value of an annuity helps to calculate how much money needs to be invested today, in order to receive a certain payment in the future.

a) The present value of an annuity is calculated by the formula below
PV = (PMT/i) ยท [1 - (1 / (1 + i)n)]
PV= Present value
PMT= The amount of the annuity payment
i =The annual rate of interest
n =The number of discounting periods

b) The amount of the annuity payment is calculated by this formula below
PV= Present value
PMT= The amount of the annuity payment
i =The annual rate of interest
n =The number of discounting periods

I hope this information will help. If you want more information of the above subject, you can find this series of articles at my home page:

Learn to Negotiate

People negotiate everyday. The art of negotiating is part of life. People start negotiating since they are small. Every decision taken as long as some else is involved is a negotiation. People negotiate because they need something, so it is important to learn how to negotiate properly and how not to get the other person upset. In the business world the difference between winning and losing has to do with the way business people negotiate.

Negotiating is placing a request not a demand. When business people demand something they might get it at that moment, but it will certainly come back with an unreasonable demand from the other party. Learn to request and you will notice how your negotiating skills improve.

Negotiating is learning to listen. Businessmen have to attempt to understand the other party and find out what they need and what their expectations are. When negotiating listen and do not interrupt, and most important understand what is being said. Telling people what to do will eventually have a payback: people will do what ever they want and not listen to you as well.

Before negotiating it is very important that you understand what you need. If you do not understand your needs you cannot request others to do something. When you understand what you need and not what you want, you will certainly have an advantage for you in the negotiating process.

Do start negotiating if you are angry. When you are angry you loose. When you are angry you might not even know what you need, so it is very unlikely that your needs will be met. Anger reduces your ability to think clearly and your reasoning skills.

As mentioned before it is important to listen. When you listen properly you will understand the needs of the other party. When you understand your needs and the needs of the other party then you have a huge advantage in the negotiating process.

During the negotiation it is important to be calm, show interest and show empathy. Be prepare to ask question, when you do you will in turn receive answers and will better understand the issues involved.

Place yourself in the chair of the other person. When you do so you will better understand what is going on, you will ask the right questions and most important you will get their cooperation.

Be interested in the person and in their concerns. When you are really interested it is easier to listen, you will understand them better and in turn will come out with an effective negotiation.

It is very easy and simple to negotiate, as long as you make a conscious effort and follow the points mentioned above you will be able to fulfill your needs and come ahead in the process.