In this article Chris Hadrill, the partner in the employment team at Redmans, gives his top ten tips for senior executives on negotiating an exit package (via a settlement agreement) from their employer
- Obtain copies of your contractual documentation
- Prepare yourself properly
- Make a list of your requirements for the settlement agreement
- Decide what additional benefits you’re seeking in the negotiations
- Choose your negotiating strategy carefully
- Draft an employment reference and departure announcement that you’re happy with
- Try and deal with your somebody in a position of authority when negotiating
- Carefully review the settlement agreement you’re sent
- Take specialist legal advice from an employment solicitor
- Know how far to push your employer
1. Obtain copies of your contractual documentation
Scan your files for a copy of the following documents, as applicable:
- Contract of employment/service agreement
- Confidentiality and intellectual property agreement
- EMI share option scheme
- Restricted Share Unit scheme
- Shareholders’ agreement
- Any separate commission, bonus agreements etc.
If you don’t possess copies of any of these documents (and they’re relevant to your employment situation) then ask the Human Resources department at your employer to send the documents to you.
These documents will be essential in determining what your contractual rights and obligations are as an executive, and will form an important part of the negotiations with your employer. For example, if there is a ‘non-compete’ clause in your contract of employment (or any other documentation) then you may wish to negotiate with your employer that this clause be waived upon completion of the settlement agreement.
2. Prepare yourself properly
I would recommend that you do the following as soon as possible:
- Obtain copies of the relevant documents, as detailed above, as well as a copy of the settlement offer that your employer is making you (whether that is a settlement agreement or a settlement proposal).
- Talk to your partner, if appropriate, and discuss what you feel about the offer; see if they have any useful input into the offer and what you should do.
- Talk to former and current executive colleagues, if possible, in order to determine whether your employer has a standard package or negotiating strategy that they put forward
- Get some formal or informal legal advice on your particular situation and how best to approach your negotiations
3. Make a list of your requirements for the settlement agreement
Decide what range of financial figures you would accept for the settlement agreement, and how this would be broken down – normally, you’re looking to be paid the following sums under an agreement:
- Your notice pay (whether in lieu, on garden leave, or otherwise)
- Your accrued but untaken annual leave
- Statutory redundancy pay (if it is a redundancy situation)
- Other contractual sums that you are owed (such as commission, bonus etc.)
- Compensation for termination of your employment (this can be paid to you up tax-free up to a maximum of £30,000 – any compensation for termination of employment paid over £30,000 will be subject to tax but not employee’s national insurance (although your employer will pay national insurance contributions on any sums over £30,000))
The main ‘battleground’ for a settlement agreement is normally over what sum you will receive as compensation for termination of your employment. This is normally anywhere between one months’ gross salary and four months’ gross salary, but is sometimes lower or greater than these figures (depending on your circumstances). My normal advice (although this does not apply to all circumstances) is to put your ‘best foot forward’ with your initial offer (i.e. offer the most that you think you reasonably can get), with a view to this figure then inevitably chipped away at after negotiations with your employer.
4. Decide what additional benefits you’re seeking in the negotiations
In addition to financial remuneration some clients also want to try and negotiate additional benefits into their settlement agreement – these can include (but are of course not limited to):
- Contributions towards outplacement costs;
- Payment towards training costs;
- Allowing you to keep your work laptop, mobile telephone, and/or mobile telephone number;
- Extending your medical insurance coverage; and/or
- Allowing you to keep your company car for longer
If you’re keen on obtaining these benefits then, again, you should put this forward at the beginning of the negotiations.
If you are a registered director of the business that you are leaving then it may also be a good idea to check that you’ll continue to be cover be covered by their directors’ insurance policy.
5. Choose your negotiating strategy carefully
In my experience it is, in almost all circumstances, better to approach a negotiation in the first instance with a ‘softly softly’ strategy – politeness, conciseness, and clarity are your friends in dealing with third parties; going in with an aggressive mentality will – unless the circumstances are quite exceptional – not only potentially alienate the person that you are negotiating with but may also harm your credibility in the negotiations. My experience is that it is normally a good idea to pursue the ‘softly softly’ strategy first, as you can always get ‘punchier’ at a later stage in the negotiations if you feel that you need to.
6. Draft an employment reference and departure announcement that you’re happy with
For many executives having agreed ‘messaging’ upon termination is a key issue in their departure, and it’s normally equally important for the employer. It is therefore a good idea to try and draft and agree the wording for a joint announcement at an early stage in negotiations, and to agree the wording for the reference that your employer will give to prospective employers upon request.
I would normally recommend that you draft a reference and announcement that you would be happy with at an early stage in your negotiations, and send that to your employer as early as is possible (and appropriate).
7. Try and deal with your somebody in a position of authority when negotiating
Negotiating a settlement agreement with your employer can often be as much political as it is legal – if you know the people that are making the decisions about your settlement agreement (which, as an executive, is quite often the case) then it is almost always a good idea to see if you can speak to them directly about it.
8. Carefully review the settlement agreement you’re sent
This may seem like a bit of a basic thing to write, but it is key – check that the settlement agreement that you’ve been sent incorporates the heads of terms that have been agreed with your employer, and that the terms of the settlement agreement as a whole reflects the tone and content of the negotiations to date.
9. Take specialist legal advice from an employment solicitor
You may not be surprised to read that a specialist employment solicitor is suggesting that you, as the executive, take advice from a specialist employment solicitor on your settlement agreement. However, it is almost always a good idea to at least get some preliminary advice from a specialist employment solicitor early in your negotiations for the following reasons:
- Specialists have the breadth and depth of experience and knowledge that you need in order to get the best possible settlement package from your employer – they know what to look for and where to look for it;
- Your employer will require you to speak to a qualified legal adviser to take legal advice on the terms and effect of the settlement agreement, and if you have to take advice from a legal adviser then it’s a good idea to speak to a specialist in the relevant field; and
- Your employer will almost always pay a contribution towards your legal fees, and they’ll therefore quite often cover off the cost of getting the specialist advice on your agreement
10. Know how far to push your employer
This is a key element in negotiations: know how hard to push and when, and when to stop. Continuing to push the (negotiation) envelope can often be adverse to the negotiations, as it may lead to a withdrawal of the settlement agreement offer (this is, in my experience, rare but possible), an increase in legal fees, and a potential deterioration of the relationship between you and your employer.