The biggest mistake an executive can make when they resign from their position is to leave money on the table. Many employees, including executives, think that if they are choosing to leave their role, they will have to walk away with nothing. It doesn’t have to be this way! Executives are often able to negotiate a mutual separation agreement (also commonly referred to as an “exit package”).
A mutual separation agreement (MSA) refers to the deal you negotiate with your employer regarding the terms of your departure. Typically, this involves the exchange of some form of compensation for a longer transitional period. For instance, you may agree to stay on for an additional two months to train your replacement or see a project through to completion, in exchange for an additional six months of salary.
Below are some considerations for how to negotiate the optimal exit package.
What leverage do you have?
In negotiations, your leverage is crucial – it refers to the power you have to influence your counterpart’s negotiating position. A departing executive has some significant leverage, including the following:
- The length of the transitional period: I’m referring here to the amount of time that you will agree to stay in your role after notifying your employer that you plan to resign. It can be difficult for an employer to manage the exit of an executive, particularly when there is an insufficient transitional period. A longer transitional period gives your employer more time to find your replacement and may include your participation in the training of your replacement.
- Upcoming deliverables or projects: If your team has an upcoming deliverable, it may be valuable to your employer that you stay on until the completion of the project.
- Your willingness to assist with finding your replacement: A lot of executives are well-connected within their industries and may be able to identify potential candidates.
- Your reasons for departure: If you have been constructively dismissed (as a result of restructuring or unilateral changes to your role without your consent) or have experienced discrimination or harassment in the workplace, you may have potential legal claims against your employer. In such cases, you should be seeking compensation for wrongful dismissal, which is generally more generous than a friendly exit package.
What does your contract say?
Does your employment contract specify a minimum notice period if you resign? Does it specify a notice period to which you are entitled if you are terminated? Executive contracts often include specified notice periods (e.g. your employer will provide you with one month of notice per year of service, with a minimum of 6 months up to a maximum of 12 months). These terms may not be binding (particularly when you are negotiating a friendly exit package) but they can provide insight into potential benchmarks or anchors and help you to formulate an offer.
Negotiating the best possible MSA
Your exit package should ideally contemplate all of your various forms of compensation, including your base salary, any bonuses that you may be entitled to, any “incentive programs” that you participate in (e.g. stock options or restricted stock units, for instance), and any pension or RRSP contributions you would normally be entitled to. If you have stock options or restricted stock units (RSUs), their vesting period may be relevant to the timing of your departure. You will want to structure your deal to capitalize on unvested stocks or bonus milestones, if possible. You should also make sure that you are paid out for any unused vacation and try to negotiate for any vacation that would normally accrue during the notice period. You may also want to ensure that, where possible, your benefits are extended throughout the notice period.
Beware of post-employment restrictions
It is very common for executive employment contracts to contain restrictive non-compete and non-solicitation clauses. Simply put, a non-compete clause restricts your ability to work for “competitors” and a non-solicitation clause restricts your ability to poach employees, customers, suppliers, vendors etc. To be valid and enforceable, these clauses cannot be overly broad and restrictive. Among other things, they must be limited in geographic scope and duration. These clauses may be particularly relevant if you plan on consulting or working in the same industry in a similar role. It may be possible to renegotiate these terms in your exit package.
What role can a lawyer play in the negotiation of an exit package?
If you’re an executive and are considering resigning from your position, you should consult with a strong negotiator who can advise you on how to negotiate the best possible deal for yourself. In my experience, the most effective role for counsel in the negotiation of exit packages is “behind the scenes”. In circumstances where my client is resigning on good terms, I typically work closely with them to advise and coach them throughout the negotiations rather than negotiating directly with their employer on their behalf. There are certain exceptions to this general rule, however. For instance, I may deal directly with an employer or their counsel to finalize the terms of an exit package (once my client and the employer have agreed in principle) or where my client is resigning because of a constructive dismissal or workplace harassment or discrimination.