Wednesday, April 16, 2008

How Much Should an Employment Severance Package Be?

For all we know, severance packages are something like an incentive given by employers to their dismissed workers or employees. It is like a token or a send-off gift for a worker so that he can start anew.

But in all aspects, the awarding of an employment severance package is more a prerogative of an employer than it is a worker’s legal right. This means an employer may decide not to give a severance package if he deems it unnecessary. In the first place, a severance package is a privilege not a right.

Anyway, in the spirit of goodwill, an employer often gives a severance package to a fired worker to soften the blows of dismissal.

But in the article, “Whoever Designed Ray Mozilo’s Severance Package Must be Ashamed”, posted on January 12, 2008, the severance package received by a dismissed executive almost amounted to three times his base salary, which totaled about $ 110 million.

According to the article, which is based on a Los Angeles Times report, the amount of the severance package is “too much” considering that the executive has done nothing exemplary during his stint with the company.

This brings us to the question: how much should a dismissed employee actually receive for a severance package?

It depends. Because employment severance packages are mostly decided on by employers, probably the amount may vary depending on certain factors.

In considering how much to give to an employee who just got fired, one has to know first the circumstances behind the dismissal. An employer must first determine the causes of one’s dismissal.

More often, these causes are contained in the warning and termination letters sent to a worker prior to his dismissal. A typical severance package may also contain the following information:

  • A notice of termination stating the reasons
  • The terms of settlement in the severance package
  • The benefits offered by the company

Overall, if you are an employer it pays to have a good severance package ready in case you need one. Having a lawyer to assist you in drafting a severance package may ultimately help you in the end.