Since negotiating my own severance in 2012, I’ve consulted with several dozen individuals about how to best negotiate a severance. Although I’ve taken a hiatus on 1X1 consulting since the birth of our son, I can’t help but think of my favorite consultation this Memorial Day weekend: my wife’s.
One of the most common questions I get from people who haven’t bought my severance negotiation book is: why would a company ever give a high performing employee a severance?
Hopefully with my wife’s severance negotiation example, I can convince some of you it’s possible. I’ve already published a guest post from a client who shared his successful severance negotiation strategy. He had been with his firm for over a decade and was also a high performer.
Negotiating A Severance As A High Performer
For the last two years of my wife’s 9.5 year career with one firm, I felt she was underpaid and overworked. I told her she should be more aggressive in asking for a raise and a promotion, but every time I brought up the subject she said she didn’t want to be too pushy.
Her style is very different from mine when I was working. I always kept track of how much my competitors at other firms were getting paid for what they were doing. Whenever I felt my compensation had fallen behind by more than 10%, I would sit my managers down for a heart-to-heart and make sure they were aware of my concerns.
When it was time for her to get promoted in early 2014 she was passed over for two guys. One guy was a slacker and the other guy always talked about how unsatisfied he was at the firm. Both of the guys were a couple years older than my wife, but my wife had the same amount of experience.
My wife was finally pissed off enough to realize the importance of self-advocacy. She had naively believed if she did good work, her bosses would always reward her efforts.
Important lesson: The longer you stay at one firm, the more you will be taken for granted. A boss’s favorite employee is one who never complains and never speaks up about getting paid or promoted. The less your boss can pay you, the better s/he looks.
No longer was my wife willing to stay late and deal with PITA clients. She finally asked me to help her come up with a severance plan. Ah, music to my ears!
Formulating The Severance Plan
During the year she was passed over for promotion, Financial Samurai was earning enough money to support the both of us. She was turning 34 and we agreed that it would be nice if she joined me in early retirement. After all, I was also 34 when I left work, so it seemed only fair she did the same. Hooray for equality!
We reviewed various severance negotiation case studies, and chose the archetype that best fit her: female high performer, long-term employee, large private firm, got a long with her managers, the company would sorely miss her services.
Step #1: The most important thing I did to help my wife was to make her KNOW HER WORTH. She didn’t want to entertain other job offers because after 9.5 years, she felt loyal to her firm. If she was absolutely truthful, she would also admit that she enjoyed the routine. Once she understood what her market value was, she began to get aggressive. Calculate how much money your employer believes you are worth each year. That figure is your bargaining chip.
Step #2: She demanded a meeting with her bosses at which she implied to them that if they did not promote her mid-year, she was gone. Her bosses were surprised, which is a bad thing because she hadn’t properly managed their expectations. But now, her feelings were out in the open.
She played chicken with her firm, knowing they would swerve in the final seconds because she was the point person for several major clients. Nobody else had the relationships and nobody else could do what she could do. If she left, they were screwed by more than 10X her salary in lost revenue.
Six months later they agreed to promote her and give her a 20% raise. Excellent. Better late than never. Management realized their mistake and were quite apologetic.
During this time, Financial Samurai grew by another 50%, giving both of us even more confidence that she could walk away and never return. But of course, I never recommend anybody quit their jobs, especially after almost 10 years of service. A severance had to be negotiated!
Step #3: We went over in detail how she felt after she got promoted. Her response, “Satisfaction. I feel great knowing that I got what I deserved.” When I asked her what about getting to that next level of promotion she said, “I have zero desire to go through the stress my boss goes through every day. I can leave this unhappy place without any regrets.” Alrighty then! She was now in a very powerful position of having nothing for her to lose.
Step #4: It was now time to make the move. Five months after her promotion (11 months after she was first passed over), she walked into her boss’s office and asked for a severance equal to what some recent employees had gotten when their department shut down. Her managers balked, as expected, given she had recently gotten promoted and was an excellent performer.
About a couple weeks went by before they realized my wife was serious about leaving. Her heart was no longer into the job and they realized something had to be done. They knew they had messed up by not promoting her earlier in the year. At the same time, the needed to keep her. Millions of dollars in revenue and months of lost productivity was at stake if they lost her. It would take months for them just to find and train her replacement.
They had another meeting about what they could do to make her happy. They implied she would get another 20% raise in the new year. My wife told them there was nothing they could do. Even a 50% raise wasn’t going to keep her motivated because she no longer enjoyed the work and didn’t fully trust management to promote people based on a meritocracy. She reiterated she wanted a severance, and they told her they’d get back to her in a week.
Initial Severance Offer
A week passed, and they had another meeting. All this while, my wife continued to come in on time, but leave right when the clock struck 5pm. She was always courteous to her colleagues, but she never put in more effort than expected. After years of doing more than expected, just doing the normal felt off. Good behavior during the severance negotiation process is important.
Management decided it was best to pay her a severance and arrange some type of long-term transition so that everybody wins. Having someone in a seat who doesn’t want to be there would bring morale down.
Here’s what they initially came back with:
* Three months base salary (the actual severance lump sum payment)
* All her vacation days paid (required by law).
* Six months of free health insurance.
* Stay for six more months full-time
After 9.5 years of working at her firm, I knew their proposal was WEAK SAUCE. She should have gotten at least two weeks of pay per year worked.
We tried our best to negotiate a higher severance lump sum, but she was working at a private company that was on the decline. They refused. They said they were handcuffed by headquarters based in Europe.
Step #5: The only logical next step was to get creative. This step is where many severance negotiators fail.
Given her firm wouldn’t budge on the lump sum severance payment, we proposed a compromise for the remaining six months of full-time work requested.
Instead of coming in five days a week, we went back and said she’d be willing to come in two days a week and work from home one day a week. Further, she would no longer have to interact with clients, which was the main stressor of her job. During this time, she would train other people to fully take over her job and get paid her FULL salary.
After another week of deliberation, they said yes! They were afraid she’d quit and leave them in the ditch. They needed her to manage her large clients until they found capable replacements.
By working 40% fewer hours and getting paid the same, she got a 67% raise for six months. In other words, the value of her severance package increased by over $85,000. Not only was she getting another six months of full company 401k matching (worth $9,000), she got to accumulate 15 more days of paid vacation (worth $7,800), and continued to receive health care insurance.
What’s even better is that she LOVED her last six months at the firm! With the stress of dealing with clients gone, every day she went to work felt like a casual get together. The responsibility was on her managers and her trainees. She came home with a big smile every day for six months.
An interesting incident from her final months occurred when management transferred two employees from its New Jersey office. From this one might conclude my wife had been doing the work of two people. Therefore, she felt even less guilt leaving work behind.
When she finally left, she felt like she had won. Not only had she gotten her raise and promotion, she had been able to get a severance and also feel vindicated. They threw her a wonderful party and even invited her to the company holiday party where she won a $500 iPad.
Total value of her severance package: ~$140,000, up from the initial $40,000.
The Next Stage Of The Severance Package
For the next eight months following her retirement, we traveled around Europe and spent time up at our place in Lake Tahoe. We were having a lot of fun when she got an e-mail from her old boss asking if she could return in a part-time capacity. The two guys who replaced her were making lots of mistakes and one of her employees left. She politely said no, but told him to check back in six months.
Six months later, he checked back with her and this time, my wife was amenable to going back to work as a consultant. She had just enjoyed 14 months of absolute freedom and felt sufficiently rejuvenated to hang out with old colleagues and start making some money again.
But of course she wasn’t going to go back to her same role with the same package. It was they who wanted her back, so she asked for a 40% hourly rate raise because they wouldn’t have to pay her benefits. Further, she requested no client interaction. In other words, her job would be to manage employees to do the work she used to do and leave with no responsibilities.
Once again they agreed! For the next 10 months, they paid her 40% more and she felt like she was winning every time she went to the office. Further, no longer was she taking a crowded bus to and from work because ridesharing prices had become so cheap.
She saved and invested 100% of her consulting income during this time period because she didn’t need the money. Our online business had grown by another 100%+ since she first left.
I hope my wife’s severance example highlights what is possible if you maintain a good relationship with your employer and talk things out. So long as you create value, good things will happen.
If you want to leave your job anyway, there is no downside in trying to negotiate a severance package. My severance package in 2012 covered all my living expenses through 2017 when my last deferred cash payment was paid. This 5-year runway allowed me to not worry about money and build Financial Samurai into what it is today.
Check out my book: How To Engineer Your Layoff: Make A Small Fortune By Saying Goodbye. I first published the book in 2012 and have since expanded it to 180 pages from 100 pages in the 3rd edition thanks to tremendous reader feedback and successful case studies.