An exit package, also known as a severance package or separation agreement, is a negotiated arrangement between an employer and an employee who is leaving the company. It typically includes financial compensation and additional benefits provided to the employee in exchange for their agreement to certain terms and conditions, such as waiving their right to sue the company.
Exit packages are commonly offered in situations such as layoffs, downsizing, restructuring, or when an employee voluntarily leaves the company under specific circumstances. In difficult economic situations and bear markets, the number of exit packages increases.
The specific terms and components of an exit package can vary depending on factors such as the employee's position, length of employment, company policy, and the negotiation between the parties involved.
Example Of An Exit Package
In 2012, at the age of 34, I received an exit package equal to five years of normal living expenses. It was a multiple six-figure exit package that included my deferred company stock, deferred cash, and a deferred investment that had a 7-year payout.
If I had quit my investment banking job, I would not have received any of this money. Therefore, I engineered my layoff and negotiated an exit package instead. This way, I could break the golden handcuffs by walking away with money to do something else.
Since I received my severance in 2012, I've traveled to over twenty countries, written a bestselling personal book, and grown this website into the top personal finance today. Most proudly, my wife and I had two children in 2017 and 2019.
Before negotiating an exit package, my wife and I tried having children but they never came. Work was too long and stressful. Now we both get to be stay-at-home parents while also working on creative endeavors online.
In general, exit packages are worth between one-to-three weeks of salary for every year you've worked. Then you can negotiate healthcare coverage, retirement benefits, and deferred compensation. Unused vacation days are always paid as part of your exit package.
How To Get An Exit Package From Work
To increase your chances of receiving an exit package, consider the following steps:
- Review your employment contract or company policies: Understand the provisions related to severance packages, notice periods, or any other relevant details.
- Evaluate the situation: Determine whether there are any circumstances that might warrant an exit package, such as layoffs, company restructuring, or other significant changes within the organization.
- Open communication: Initiate a conversation with your employer or the appropriate human resources representative to express your concerns, discuss your situation, and inquire about the possibility of an exit package.
- Negotiation: If your employer is open to providing an exit package, be prepared to negotiate the terms. Consider factors such as financial compensation, continuation of benefits, outplacement assistance, and any other provisions that would be beneficial to you.
- Seek legal advice: If the situation is complex or you feel that your rights may have been violated, it may be prudent to consult with an employment attorney who can guide you through the negotiation process and protect your interests.
The largest severance package ever was received by Adam Neumann, founder of WeWork. He received a $1.7 billion severance despite blowing up his company! Believe you deserve to receive a severance package too.
An Exit Package Is Discretionary, Not Guaranteed
Receiving an exit package is not guaranteed, as it depends on various factors and the specific circumstances surrounding your departure from the company. An exit package is discretionary. Therefore, the more helpful and cordial you are, the better.
If you're interested in learning how to negotiate an exit package, I wrote a 250-page bestselling ebook called How To Engineer Your Layoff.
It is the only book of its kind to teach you how to negotiate a separation agreement and walk away with money in your bank account. Click the image and use the code “saveten” at checkout to save $10.
Why Your Employer Is Willing To Give You An Exit Package
Some of you might be wondering why on earth an employer would pay you to leave the firm. While others might think you're such a good employee, why would they ever let you go with an exit package.
Don't be naive. Employers may be willing to offer an exit package for several reasons:
Mitigating legal risks
By offering an exit package, employers can encourage departing employees to sign a separation agreement that includes a waiver of their right to sue the company. This helps minimize the risk of potential legal disputes, such as wrongful termination claims or discrimination lawsuits.
An employee must sign a document saying he or she will not sue if they receive severance compensation. Lawsuits can be both expensive and embarrassing to the firm.
Providing a fair and generous exit package can help maintain a positive relationship with departing employees and protect the company's reputation. It demonstrates respect for employees and may contribute to a more amicable separation, reducing the likelihood of negative reviews or public criticism.
Some companies experience absolute reputational destruction from employees who go to social media or big media and rip the company up. An example was Greg Smith's op-ed in The NY Times entitled, “Why I Left Goldman Sachs.”
The article brought negative attention to the firm and helped sink the company's share price by three percent the day the article came out. To prevent disgruntled employees from talking, companies will offer separation agreements, almost like hush money.
Transition and morale
In situations like downsizing, restructuring, or mergers/acquisitions, employers may offer exit packages to facilitate a smoother transition and maintain employee morale. By providing financial compensation, extended benefits, or career support services, employers can help departing employees navigate the job market and transition into new opportunities more effectively.
The last thing an employer wants is for you to quit and leave your colleagues and bosses in a lurch. By negotiating an exit package, an employer may get you to stay for several months to find your replacement. Once your replacement is found, it would be best to train them so that there is no productivity lost after you leave.
Here's an inside look at how HR employees lay people off over video. As more employees see, more employees lose morale and productivity decreases.
Enticing employees to leave their jobs on their own
In certain cases, an employer may offer an exit package to encourage voluntary resignations. This is more common when the company wants to downsize or restructure without resorting to layoffs. By providing attractive severance terms, the employer may motivate employees to leave voluntarily. If employees do, the employer avoids the negative impact associated with involuntary terminations.
Being known to offer exit packages also serves to attract new employees who may view the employer as more generous. It's easier to join an employer that doesn't have a pension plan, when you know it has a history of offering exit packages when you'd like to move on.
Compliance with contractual obligations
In some situations, employers may be obligated by employment contracts, collective bargaining agreements, or local labor laws to provide an exit package to departing employees. Failure to fulfill these obligations could result in legal consequences or damage the company's reputation.
Don't Confuse An Exit Package With WARN Act Pay
WARN Act is short for Worker Adjustment and Retraining Notification Act. WARN Act pay is mandatory by law while offering an exit package is not. Some employees will confuse receiving WARN Act pay for receiving an exit package.
The WARN Act requires most employers with 100 or more employees to provide notification 60 calendar days in advance of plant closings and mass layoffs. The WARN Act may require not just two months of pay, but also compensation for two months’ worth of benefits (such as the cost of health insurance).
The ideal situation is you receive WARN Act pay plus a discretionary exit package. But even if you only receive WARN Act pay as an exit package, it's better than nothing. Just know your employer didn't go above and beyond to pay you.
Ultimately, the decision to offer an exit package depends on various factors, including the specific circumstances, the employer's policies, legal considerations, and the desire to maintain positive employee relations.
Learn How To Negotiate The Best Exit Package Possible
Based on my firsthand strategies of negotiating an exit package in 2012, I wrote a book on how to do so called, How To Engineer Your Layoff: Make A Small Fortune By Saying Goodbye. The book has since been revised six times for 2024 and beyond.
How To Engineer Your Layoff is the only book of its kind that:
- Teaches you how to negotiate an exit package
- Shares proven strategies for how to maximize the value of your exit package
- Teaches you how to first start the exit package negotiations
- Gives you the courage to get out of a job you dislike or hate and change your life
Please never quit your job. Negotiate a separation agreement. The financial buffer will give you time and comfort to do what you want.
Use the code “saveten” at checkout to save $10. Negotiating an exit package was my #1 catalyst for changing my life for the better!
About the Author:
Sam worked in finance for 13 years. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments. He spends time playing tennis, taking care of his family, and writing online to help others achieve financial freedom too.
You can join 60,000+ others and sign up for his free private newsletter here. Financial Samurai is the #1 personal finance site on the web. It began in 2009 and helps readers negotiate an exit package from a job they hate to retire early. Financial Samurai also established the rules of FIRE in 2009.