Top 10 tips for senior executives negotiating an exit

Updated 24 January 2022

18 May 2021

We are in uncertain times and, sadly, the reality is that some businesses are suffering more than others.  The impact of the pandemic, coupled with rising prices and continued uncertainty in the global economy means that some businesses may have to put cost-cutting measures in place in the near and mid-term future.  For some individuals this will result in their role being put at risk of redundancy.

When senior managers are made redundant, there is typically no redundancy process and very little consultation. However, they frequently result in the offer of a severance package in exchange for signing a settlement agreement.

Below is a list of top ten tips, setting out what key factors you should consider and what steps you should take, in order to protect your position and maximise your severance package, if you are a senior executive at risk of redundancy:

Alternatives to redundancy?

Are you being put at risk of redundancy when there are options or roles available which have not been explored with you?

If so, you can challenge your employer by questioning whether redundancy can ever be said to be fair when there are other ways of making the cost savings envisaged which have not been explored.  Or, if you feel you play a critical role in the business, question who will be carrying out your functions once you leave and consider whether that can be open to challenge (for example, are your responsibilities being transferred to another member of staff without proper consideration as to whether you would be better suited to carry out that function?)

 

Genuine redundancy or alternative underlying reason?

As part of the redundancy consultation process, you have the right to ask questions about the reasons for the proposed redundancy, the justification for it and alternative measures that have been considered in order to avoid it, as referred to above (please also see my blog ‘Alternatives to redundancies’ for further insights).  During this exercise it is important to gather information in order to determine whether this is a genuine redundancy situation in line with the statutory definition, or an attempt to disguise an ulterior motive for termination of employment such as poor performance or misconduct.   

If it is a ‘sham redundancy’ then, depending on the real reason for the dismissal, you might have grounds to bring a claim, such as unfair dismissal, discrimination or whistleblowing. 

 

Levers to increase/maximise settlement?

Consider whether you have any levers you can use to negotiate a higher severance package.  For example, have you previously raised a grievance or blown the whistle, and is your employment being terminated because of this? Have you been selected for redundancy for a discriminatory reason, such as because of your age, sex, sexual orientation, gender reassignment, pregnancy/maternity, disability, race, religion or belief or marriage or civil partnership?  If so, then you have potentially valuable claims which should not be compromised without significant financial recompense.

Additionally, if the redundancy is a cloak for another reason for dismissal, then this should be factored into your negotiations.  For example, a fair dismissal for poor performance involves a much longer termination process than a redundancy exit, during which time you would continue to accrue salary, annual leave, bonus, equity and benefits.  This loss should be factored into a settlement negotiation.

 

Administration risk

Is there a risk that your employer is going to go into administration? If so, you should negotiate an accelerated payment date for any payments due to you under the terms of the settlement agreement, and ensure this is clearly recorded in any settlement agreement, in order to increase the chance of securing your payments.

 

Negotiate your notice period

Check the length of your notice period in your employment contract/service agreement and consider whether your preference would be to work it, go on garden leave or receive a payment in lieu of notice.  Depending on the state of the job market, going on garden leave may be attractive, as it buys you time to find a new role from within employment and in most cases the period of your restrictive covenants will be run down from the start of your garden leave period rather than your termination date.

If you are likely to find a new role quickly, you might prefer to receive a payment in lieu of notice which would enable you to start your new role immediately.

Where flexibility is required, it might be favourable to agree to go on garden leave with the option of bringing forward the termination date and receiving a payment in lieu of notice in respect of the remainder of your notice period (including payments in respect of any accrued but untaken holiday and benefits).

 

Restrictive covenants

Does your employment contract/service agreement contain restrictive covenants? Are they onerous or reasonable? Consider whether there is scope to negotiate a shorter restrictive period, to narrow the wording of the restrictions or for your employer to waive them in part or full.

 

Equity

Review your Equity Plan Rules to ensure you understand what happens to your stake on termination as a result of redundancy. Are you a good leaver? Is there scope to negotiate your position, or to gain assurance that the Remuneration Committee will exercise their discretion in your favour? Ensure that you are clear on your position in relation to tax and notifications, and that anything agreed is clearly recorded in the settlement agreement.

 

Bonus

Are you losing any entitlement to receive a bonus as a result of the redundancy? Are the terms of the bonus rules being complied with? Can you negotiate a pro rata bonus payment in respect of the period you have worked? Can you negotiate a loss of bonus payment as part of the taxable element of the severance package?

 

Return of property

The practical arrangements for return of company property (such as laptops, phones and cars) may not be straightforward under the current circumstances. Ensure you make arrangements with your employer which are practicable.  The provisions of any standard terms of a settlement agreement will need to be updated to reflect those arrangements.

 

 Internal and external announcements

Negotiate the wording of internal and external announcements, in order to protect your reputation.  Ensure those announcements are annexed to any settlement agreement and that there is a provision in the agreement to ensure your employer will not derogate from the agreed messaging.

 

In summary, there are many important considerations for senior executives when facing a potential redundancy and negotiating a severance package.  We have a wealth of experience in negotiating exits, particularly in professional and financial services, and can advise and support you in order to safeguard your future.

Further information

If you would like any further information or advice about any issues explored in this blog, please contact Moira Campbell or another member of our employment team.

 

About the author

Moira is an experienced employment solicitor. She has successfully represented both employers and employees at the employment tribunal. She regularly advises clients pursuing and defending claims for unfair dismissal, discrimination and whistleblowing.

Moira’s clients include senior executives, partners and employers, working within a broad range of industries.

She regularly acts for clients within the financial and professional services, tech, media, design, publishing, manufacturing and fashion industries.

 

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We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.

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