A two-way street

Allow employees to exit on a positive note: Shailja Dutt

The only alternative to efficiency is certain death. In today’s competitive, boundary-less, dynamic economies, the message to corporates is ‘profit or perish’. In such times where companies are evaluating headcount, role efficiencies and reorganising structures on a regular basis, redundancy is slowly becoming part of life for executives across industries. This brings us to the question of severance.

It is interesting to observe how golden parachutes are finding their way in most executive compensations. Some experts are of the view that golden parachutes are an essential element of executive pay in these uncertain times. Not just to protect the executive’s interest but also keeping in mind that top executives typically forced to give up independence and control when their companies are acquired may be excessively reluctant to sell and often impede or derail an acquisition.

Here are a few tips for the employers when preparing a severance package:

  1. Customise the severance package: One size doesn’t fit all. The situation must be customised to accommodate the company’s culture, the given business situation and the person/people in question. It demonstrates proactivity and guarantees a more positive response to an otherwise difficult situation
  2. The best severance packages will allow for time (three-six months at the very least), fair financial support (the debate rages from a month to three month salary for every year served), benefits continuation and career transition support
  3. The severance should include a non-disclosure agreement, a non-compete and non-solicitation clause (time-bound)
  4. Bonuses should be paid on a pro-rata basis
  5. Include a positive recommendation as a part of the process for the outgoing employee. The attempt should be to mitigate any negative sentiment and allow employees to exit in a positive manner.

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