Lump Sum and/or Salary Continuance
Fixed or variable pay? Questions to consider are whether the executive would be most comfortable with a limited salary continuation period, or would rather have a variable duration, depending on when the executive found a new job. Often a combination of fixed and variable pay is negotiated, providing both a floor and ceiling for the continuance.
Bonuses, Incentive Payment, Commissions
While most employers will base a severance agreement on a base salary, an executive can negotiate for some or all of the incentive compensation he or she might have been owed absent the termination. Often, a strong equitable claim for at least a pro rata share of the incentive compensation, especially toward the end of the year when such claims can be substantial, can be negotiated.
Unused Leave Pay
Be sure to include compensation for any accrued but unused vacation, sick or other leave pay. Often, this will be done pro-rata based on the time of year.
Benefits
An employer will often continue to pay for health benefits during a salary continuation period. Also, a discharged employee has the right under COBRA to continue heath insurance at existing rates and benefit levels for up to 18 months after the off-payroll date. Employers sometimes will continue other benefits, such as life insurance, pension or 401K contributions and vesting under stock plans. *If an employer terminates you in order to prevent you from obtaining a benefit (such as a vesting pension) you may have a claim under Section 501 of the Employee Retirement Income Security Act. If an employer terminates you in order to prevent you from obtaining compensation (for example, a large commission or bonuses) you may also have a claim for breach of the implied covenant of good faith and fair dealing.
Positive Recommendations
In drafting or negotiating a severance agreement, it is important to consider a provision regarding whether you will receive a positive evaluation or recommendation in the future from the company you are leaving.
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