Negotiating Severance Pay for C-Level Executives
Why Every Senior Executive Should Have an Employment Lawyer Review Their Severance Package
For C-level executives, severance pay usually consists of a wide range of components, including but not limited to salary, bonuses, equity, employee stock options, restricted shares, group benefits, pension contributions, and reimbursement of certain expenses.
Generally speaking, Canadian companies tend to be more generous than their American counterparts regarding severance pay for C-level executives. It is common to see Canadian firms offer departing executives a month of severance pay for each year of their services.
What Factors Are Considered in Executive Severance Packages?
However, the length of service and position level are not the only factors in play. Other factors that would impact an individual’s ability to find alternative employment, such as age, the nature of the job, industry, the contractual language and other extenuating circumstances, may also play a role in the severance pay. A C-level executive’s severance pay under common law could be up to 24 months’ total compensation or beyond in rare cases, subject to the termination clause in the employment contract.
Some employment contracts may restrict the employees’ severance to the statutory minimum (at most eight weeks of notice or pay in lieu of notice, plus 26 weeks of severance pay if certain conditions are met). However, considering C-level executives’ seniority, it is common to see illegal termination clauses in their employment contracts. Often, even though a termination clause limits an employee’s severance entitlement to the statutory minimum, if it is unlawful, the employee would still be able to claim severance pay under common law based on past Court decisions.
Another important note is that severance pay must include not only the total compensation and benefits the departing employee has earned before the termination, but also what they would have earned during the notice period had they not been terminated. There is a chance that a departing employee can still get their discretionary bonuses or unpaid commission that they would have earned before the end of the notice period.
What is the severance for C level?
For C-level executives, severance is rarely limited to weeks of base pay. Packages are typically built around the executive’s full compensation structure, which can include salary, equity-based compensation, incentive pay, and long-term benefits. Because C-suite executives face distinct challenges in securing comparable roles, and often have significant accumulated experience, they often receive lengthy severance pay arrangements.
How to negotiate an executive severance package?
An executive severance package goes beyond base salary and may cover bonuses, equity-based compensation, group benefits, and even change in control agreements. An experienced employment lawyer can assess whether the package reflects market compensation trends and push for improvements, such as lump sum payments or extended benefits. Legal guidance ensures executives secure fair financial compensation.
What is the average severance for CEOs?
While every case is different, many Canadian CEOs negotiate severance pay based on one month of their executive’s annual salary for each year of service. Because of their seniority, CEOs may often secure severance agreements that reach 18 to 24 months of executive compensation. These packages are typically more comprehensive than what non-executive employees receive.
Are generous severance packages negotiated by executives?
Yes. Executive employees, particularly at the C-suite level, are well-positioned to negotiate generous severance packages. Employers often agree to competitive compensation and broad severance agreements to attract and retain top leadership. With the support of experienced legal counsel, executives can strengthen severance negotiations by ensuring that financial compensation includes salary, equity-based compensation, bonuses, and other benefits tied to the executive’s employment agreement.
What is a good severance package in Canada?
A good severance package for executives in Canada reflects both statutory entitlements and common law. It should include not just base salary, but incentive-based compensation, equity grants, bonuses, and other executive compensation earned during the notice period. Comprehensive severance packages can provide up to 24 months of pay, depending on the executive’s role and tenure. Strong legal guidance is essential to secure competitive compensation.
What are C-level negotiations?
C-level negotiations focus on the employment agreements and severance arrangements of senior executives such as CEOs, CFOs, and COOs. These negotiations cover not only executive compensation during employment, but also severance agreements, equity-based compensation, and change in control agreements. Because an executive performs extraordinarily high-value work for the business, severance negotiations require experienced legal counsel to ensure financial compensation and benefits align with industry standards and legal protections.
Securing the Full Value of Your Executive Severance
Departing C-level executives should always consider having an employment lawyer review or negotiate their severance offer to ensure they are getting a fair package. We at Whitten & Lublin are happy to provide insight and advice into your specific circumstances. If you are looking for employment lawyers and would like more information on what Whitten & Lublin can do for you, please contact us online or by phone at (416) 640-2667 today.
Author: Luna Li