CFOs don’t have to leave benefits on the table if they’re let go because of performance issues or a merger, Peter Glennon of the Glennon Law Firm told CFO Dive.
Most companies today have a blanket separation agreement for their C-suite executives, but there’s room for negotiation at the time of separation. If a CFO has also signed stock option or non-disclosure agreements, those contracts have provisions that can also impact the kind and size of benefits owed in a termination.
“There may be [negotiation flexibility] that benefits you but you’re not aware of it and now you’re signing it away,” says Glennon, whose practice specializes in negotiating employment agreements and litigating severance disputes.
Decades ago it was common for CFOs and other C-level executives to negotiate individual severance agreements, sometimes called golden parachutes, but those types of agreements have mostly disappeared. Today, separation benefits tend to be included in blanket agreements that apply to groups of employees, including C-level employees.
Even though these are group agreements, there’s room for a CFO that’s being let go to negotiate some exit terms.
“There are two types of leverage,” said Glennon. “You have legal leverage and you have personal leverage.”
Legal leverage is unlikely to apply in many CFO termination cases unless the dismissal involves some kind of discrimination, like age or gender.
Personal leverage is the more likely area to pursue, because it ties into CFOs’ institutional knowledge. Even if their performance has declined enough to cause their ouster, CFOs typically know enough that their replacement will need to work with them for a while to do the job.
“You’re the one who has all of the knowledge of where the bones are buried,” he said. “What did you do on this matter a year ago? How did you move this balance around?”
CFOs in this position can negotiate either an increase in the severance that’s baked into the group policy or to get, say, an hourly compensation tied to the help you provide the incoming CFO.
“I’ve worked deals where you get a whole year’s salary as long as you agree to answer the phone when they call and the former employer promises never to trouble you more than 10 hours a week,” he said.
Or you can negotiate an hourly rate, whether that’s $150 or $350, and get that rate even if you take a relatively short phone call.
“You can negotiate 15-minute phone calls as at least one hour of work,” he said.
These types of arrangements are particularly important to negotiate in the event the company runs into legal trouble after you leave and you find yourself on the receiving end of a subpoena from the Securities and Exchange Commission or other authority.
It’s a standard provision in any separation agreement that you agree to cooperate with any investigations or lawsuits, and typically the company will include you in their legal coverage as if you were still an employee. But this situation also gives you negotiating leverage, because you can insist on getting your own legal counsel unless they give you something in return
“Nine out of 10 times, that employer wants to represent you, because they want to try to control the message, and the action, and they want to know what’s happening,” he said. “So, with or without a severance, if you’re a former employee, the employer can come and say, ‘Hey, you know what, we’re going to provide you with an attorney. We’re going to cover you. So, work with us.’”
You’re still free to get your own attorney, even if you agree to be covered by your former employer, but you can also get your own counsel to look after you.
“Many times, the former employee feels like the scapegoat,” he said. “Maybe they had nothing to do with the issue. They want to make sure the company isn’t just looking out for itself but also looking out for the individual. It tends to be standard that you agree to support the company in any investigation, but you can also say, especially if you know something is coming around, ‘I’m happy to do that but let’s up the severance.’ Because you don’t have to sign a severance agreement.”
The other agreements outside the main severance policy — the NDA or for stock options — also include avenues for negotiation.
The NDA, for example, might include a garden-variety leave policy that works alongside the group agreement.
“It effectively means that you could be paid for some time — three months, six months, 12 months — as long as you’re not competing, and if you have that agreement, you want to make sure you sign that,” he said.
It’s easy to overlook that agreement, he said, because at the time of separation everyone’s focus tends to be on the group policy.
“Typically what happens at companies, of any and all sizes, is, the boss says, ‘You’re out,’ and HR says, ‘Okay, I’ll pull up a form,’ and they pull up the form that was last used for some other separation, and they just go through and change names,” he said. “They’re not necessarily analyzing all of the ancillary or tertiary agreements.”
The stock option agreement tends to include a number of negotiable points having to do with the timing and manner in which the compensation is provided.
For departing CFOs, it’s a good idea to look at your financial situation and try to time the release of the compensation based on what works best from a tax perspective.
“Most of the time, companies will accelerate the vesting and they will accelerate the payment,” he said.
Depending on your tax situation, you could ask to have accelerated vesting for half the amount in the year you’re let go and the other half in the next year, or if you’re let go at the end of the year, have the vesting done the next year.
“When you talk about when the hatchet drops, it’s usually around the end of the year,” he said. “If you’re going to get a lump sum payment, you may not want that $60,000 or $100,000 or $1 million in November or December. You can try to negotiate that the payment be delayed until January just to benefit the tax.”
Separate from the stock options, whether to have your regular severance pay provided in payments as if you’re still on the payroll or in a lump sum is another issue to look at, with your eye on the tax implications.
Bottom line, although severance agreements tend to be standardized at most companies, at the time of separation there remain avenues open to negotiation. “You can still juice it up,” he said.