How Much Is The Average Severance Package?

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One of my good friends Christine is thinking about negotiating a separation agreement with her employer of 6 years.  She works in marketing at Gap and is ready for a change of pace and a new career path.  She got married to her college sweetheart last year and would really like to work at a public service company like the Friends of the Urban Forest, a non-profit organization which plants over 1,000 trees a year in San Francisco!

Christine grew up in the backroads of Billings, Montana, completely surrounded by nature as far as the eye can see.  Although San Francisco is a relatively green city, after two years of living downtown, she moved to the Presidio Park where she could feel at home again surrounded by grass and trees.  Her dream job would be to work at the Friends of the Urban Forest which happens to be conveniently based in the Presidio, an easy half mile commute by bike or shuttle.  Sounds like a great gig to me!

I’ve known Christine for a while and I think she’s pretty savvy.  She’s learned not to quit a job, but to try and get laid off instead.  Why?  Well if she simply quits her current job right now, she will receive no severance and might not be eligible for unemployment benefits given California’d deem that she doesn’t need UI benefits if she voluntarily quits.  That’d be a risky move since it could take her months or even a year or two to land her next ideal job.

Even though the economy is coming back a little, there’s still a lot of uncertainty in the job market and many companies continue to be stuck in hiring freezes.  So before talking to her manager and to HR, both of whom she fortunately gets along with very well, Christine came to me for some advice with the big question what is a typical, average severance package like?

The Average Severance Package Comes In All Sizes

What’s important to note is that employers are under no legal obligation to offer a severance package.  As an “at will” employee, you can literally be sent home packing one day without any recourse.  If a company is closing down, it is also highly unlikely you will receive any severance package because whatever money that is left on the balance sheet is returned to creditors.

Given smaller/newer companies have a higher risk of closing down than larger, older, publicly traded companies, you should take into consideration the potential lack of severance should your position be eliminated.  Remember that everything has value, not just the salary you collect from your job.  You should also look at your health care benefits, company profit sharing, retirement matching, and severance package potential.

Keep in mind that because severance benefits are not mandatory, there is no one-size-fits-all package for employees.  However, a commonly accepted formula for coming up with the average severance package is:

Number of Severance Weeks * Number of Years Worked + Minimum State Mandated Base = Severance Package.  The number of severance weeks offered ranges from 1-4 weeks, and averages closer to 1-2 weeks per year.

That said, here is some feedback from people I’ve spoken to and research I conducted on-line:

* 32 year old employee at a high tech/internet firm worked for 1 year and got 4 months.

* 30 year old employee in finance received 2 months base + 16 weeks after working for 8 years.

* 33 year old employee in the consumer appliance retail industry quit her job after a 3 month maternity leave.  Received no severance.

* 28 year old employee at internet start-up worked for 2 years and got 2 weeks pay.

* 48 year old employee in manufacturing worked for 20 years and got 2 months base + 26 weeks.

* 34 year old employee at consulting firm worked for 11 years and got 3 months base + 33 weeks.

* 38 year old employee at consumer goods company worked for 15 years and got 6 months.

Another formula that I’ve come across is: 0.5 x N.  N is the number of years worked, and the output would simply be the number of months in severance one would receive.  5 years at a job = 2.5 months of severance.

Don’t Forget To Negotiate Your Severance

As we can see in the examples above, there is no set amount of severance.  Based on the first formula, I’ve seen companies offer anywhere from 1 week to 4 weeks per year worked as severance.  Given the wide range, it’s worth negotiating with your boss /HR manager to try and get the most possible.  After all, the worst they can say is “no”!

And remember you can negotiate more than just money too.  For example, you can coordinate a later separation date due to upcoming stock or benefits you will be receiving by offering to help finish a project or train someone.  You can also also ask the company to pay for your COBRA healthcare insurance for a longer period of time after you are no longer working.  There are generally outplacement services to help you find a new job as well.  Be appreciative when negotiating, but do negotiate.

The reason why companies offer severance, even though they don’t have to is because they want to create “Goodwill” and protect their reputation.  Can you imagine if a company like Apple laid off a 30 year veteran and gave him zero severance?  That type of negativity would spread all around the Internet in a nanosecond!  Even if the 30 year veteran got 120 weeks of severance that was valued at $500,000, that’s chump change to a company like Apple with billions in cash.  Just look at what that Greg Smith guy from Goldman Sachs did when he wrote his scathing good-bye letter in the NY Times.  His letter alone probably cost Goldman hundreds of millions of dollars in market value!

If HR asks you to sign a voluntary separation agreement, you will inevitably be given a massive document that highlights many points to protect the firm, ex. you can’t sue, go to a competitor for X amount of days, say bad things, etc.  Burning bridges is never a good idea, so agreeing to those types of terms usually isn’t a big deal unless your employment rights after you separate from your company are severely restricted.

What’s Your Experience?

As more and more people look to leave the traditional 9-5 job for a more untemplate lifestyle, it’s good to know what your options are before you take the leap of faith.  If any of you have ever received a severance package due to a mutual separation agreement or layoff, please share with us how long you’d been at the firm, what the package was like, and if you were able to negotiate any of the terms.  You can comment anonymously if it makes you more comfortable.

Remember, half the battle in good negotiating is to come prepared with as much information as possible.  It’s important to know where the realistic upper and lower anchors are so that you can maximize what you deserve!  Aim high and try to get better than the average severance package.

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* Never Quit, Get Laid Off Instead. Learn how to negotiate a great severance for yourself in How to Engineer Your Layoff! By getting laid off from a job you wanted to leave anyway, you can collect a severance, health care insurance, deferred compensation, unused vacation days, and be eligible for unemployment. The book provides helpful case studies and a framework for you to have a strategic conversation with your manager on how to profitably quit your job.

Regards,

Sam

“Personal

Unconventional Guides

{ 43 comments… read them below or add one }

Daisy @ Add Vodka March 22, 2012 at 5:50 am

There are laws about severance packages in most parts of Canada. You get one week per year worked, up to a maximum, if the employee is let go for undue cause. I’ve heard of some people getting like 20 months!

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Sydney March 22, 2012 at 8:14 am

That’s good Canada has severance laws to protect employees! Wow twenty months is an impressive number, especially if there are no restrictions for getting a new job during that time. Thanks for sharing Daisy!

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Financial Samurai March 22, 2012 at 9:09 am

Wow… 20 months sounds sweet! How long does one have to work for to get that though? If 20 years… then….. I think that’s fair!

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Rachel March 22, 2012 at 7:57 am

I worked for a large auto finance company. When they closed their office in my state due to downsizing, they started offering severance for all employees with 3 or more years of service. I believe they offered 2 weeks for every year up to a certain maximum. I don’t know the specifics because I was about 3 weeks shy of my 3 year anniversary. They gave everyone who stayed through the final work day a bonus of 2 weeks pay.

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Sydney March 22, 2012 at 8:18 am

Sorry to hear they closed down. What a bummer you were just under that 3 year length of service. 2 weeks for each year up to xyz max sounds like it fits right in with what I’ve seen too. That’s nice they offered that bonus for staying until the last day.

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Financial Samurai March 22, 2012 at 9:10 am

Bummer Rachel. At least you got 2 weeks pay, and unemployment! I’m editing your post btw, and plan to publish it soon! Thanks for the insights.

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Money Beagle March 22, 2012 at 8:13 am

Our company is pretty pathetic and would only pay me out about a month with five years experience. They used to pay a lot more but cut it way back during the economic downturn and I really don’t foresee them doing any increases anytime soon.

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Financial Samurai March 22, 2012 at 9:11 am

One money/4 weeks for 5 years experience…… hmmm, maybe more like 5 weeks to equal one week per year worked? I would ask them, or check the employee handbook. Then again, maybe you don’t want to blow yourself up or jinx yourself by asking!

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Financial Samurai March 22, 2012 at 9:12 am

Informative article Sydney! I’m doing some research myself on what the standards are and in California, the WARN act mandates 2 months for companies with more than 100 employees I believe, and then any discretionary severance on top of that.

1-2 weeks per year sounds like the norm. I haven’t heard of anybody NOT getting severance. Only those companies that go BK or decide to just shut down.

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Sydney March 22, 2012 at 10:38 pm

Thanks Sam! Yeah, it can be hard to anticipate if the company you’re working for is at risk of going bankrupt, especially if it is private. It helps to make friends with people in senior roles who may be able to give you hints either directly or indirectly if the profitability numbers are way down and the ground is starting to get shaky.

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MoneyCone March 22, 2012 at 9:18 am

Negotiate your severance like how CEOs of Fortune 500 companies negotiate their golden parachutes!

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Sydney March 22, 2012 at 10:39 pm

That’s a good way to look at it! :)

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Steve R March 24, 2012 at 10:04 am

ha ha, I like the idea of this one. In reality, it is a good reminder to consider all aspects of employment when negotiating.

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Julie @ Freedom 48 March 22, 2012 at 5:50 pm

We get 1 week per year of service, up to 26 weeks I believe.
I didn’t realize that was law in Canada though – I just thought I worked for a good company! lol

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Sydney March 22, 2012 at 10:52 pm

Well the good news is now you know, and if you move to a new company in Canada at some point you’ll be protected there too! :)

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eemusings March 22, 2012 at 9:27 pm

Maybe it’s different in the US; all the jobs I’ve held have had standard severance clauses in my contracts.

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Sydney March 22, 2012 at 11:00 pm

Yep, the US doesn’t have any set rules. If a US company has a severance clause written in the contract then yes they become obligated to pay out based on those terms, but none of the offers I’ve signed for work in the US ever had a severance clause! I’m glad that I learned today that Canada is one country with severance laws that protect its workers!

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Sydney March 22, 2012 at 11:04 pm

And that’s great that all your job contracts in NZ have had severance clauses. It must make things so much easier to have those benefits spelled out in writing. I’ve never even seen severance discussed in any of my employee handbooks in the US either.

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Financial Samurai March 23, 2012 at 8:45 am

What is the standard clause in NZ may I ask? thx

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Melissa@PersonalFinanceJourney March 24, 2012 at 12:46 pm

My friend has been hoping to be laid off for the past six years so she can get a severance package. Instead, she is watching others around her being laid off, and she has to assume the duties of those who have left. I know severance packages can be appealing, but in her case, her workload has increased tremendously, and I don’t think they will ever lay her off.

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Sydney March 25, 2012 at 12:37 am

That’s a tough spot to be in. Being overworked can wear you down quickly. If she ever decided to step forward she should definitely negotiate. Since she’s doing so much work her employer would probably be willing to negotiate terms like her separation date if she offered to train someone to take over all her responsibilities.

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Invest It Wisely April 13, 2012 at 8:21 pm

Agree, Sydney, you should never, ever, burn bridges. That’s why I think getting laid off because you’re underperforming or “slow-playing” your job is a horrible way to go about it. Much better if you’re lucky enough that the department gets axed and you all get a sweet severance package. ;)

I didn’t think of the severance -> reputation link on the part of the employer, but it definitely makes a lot of sense. Small companies are likely to care a lot less about this.

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Invest It Wisely April 13, 2012 at 8:22 pm

P.S. I think the government-mandated norm here is 2 weeks per year of service.

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Sydney April 15, 2012 at 9:38 pm

Yep. The world is a small place and we recross paths with people more often than we’d like sometimes. I’ve seen interns and prior employees leave badly and then actually have the nerve to come back later on and try to get rehired. Not smart!

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Stressed June 28, 2012 at 1:25 pm

I have been working for this really rude and illegal company for 8 months and I am stressed so badly I am not sick. I am leaving a company making 52500 per year and looking at 427.00 per week in unemployment earnings. I have so many things hanging over this guys head that I feel that I need to be compensated for the huge loss of wages. I’m not at all a nark but at this point I’m looking out for myself. What should I offer this guys for me to keep my mouth shut. And no I’m not blackmailing him just getting what I deserve for having to leave an illegal company.

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Chris June 29, 2012 at 12:07 am

I work through a lighthouse for the blind as a switchboard operator on an air force base that is going automated in a few months. I have been here for 11 years and I will have 3 weeks vacation coming up before the deadline. The problem is, being visually impaired makes it very hard to find employment that pays well enough to make it these days. This company has been very generous to us over the years. Anyway, I will post the outcome here as soon as I know more details. Thanks for all the info!

C.

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cahw September 25, 2012 at 11:02 am

I was unfairly terminated after 28 years in a management capacity ans was given 4 days sevseverance. After 2 months I was able to write a email to all the officers and said I would go to Eric because of my situation, they told me all they could give me is 10 weeks total and 6 mths.cobra. They are a rich company worldwide.

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Financial Samurai September 27, 2012 at 11:42 am

4 days is crap after 28 years. You have rights and I’m glad you were able to get some money back by fighting back!

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unfair termination November 29, 2012 at 1:33 pm

Just terminated after 15 years in management with an 8 week base salary. Tried to negotiate something more close to norm of 1.5-1.8 weeks/year and got nowhere. No transition outplacement. Small business. small minds. Other employees don’t know what they are in for.

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Financial Samurai November 29, 2012 at 3:35 pm

15 years and only an 8 week base salary? Which state are you in? 8 weeks base salary is the MINIMUM for laid off employees in California under the WARN ACT. 3 months is the minimum in New York State. You essentially got ZERO severance I’m sorry to say.

Please read, “When A Severance Is Not A Severance Package

May I ask if you’ve had a chance to read my book to setup the framework for negotiations?

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Doug March 31, 2013 at 12:58 am

Hello.
After working for a consulting company in Florida for 15 years, I was given 4 weeks severance (per policy) after a reduction in force. I was division manager level. Based on the articles I read, this is well below average.

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Dave April 2, 2013 at 1:45 pm

So, your friend voluntarily leaves a stable company during a difficult job market, not for declining health or retirement, but for a “change of pace.” She wants to ensure she receives the same treatment (severance and state unemployment benefits) as a worker laid off against their will due to downsizing, bankruptcy, etc. I can think of a few adjectives in addition to “savvy” that might better describe Christine.

That aside, it’s interesting to see the gamut of severance packages across the responders who have more unfortunate stories. Thanks for the helpful information.

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Financial Samurai April 3, 2013 at 5:18 pm

If you can figure out how to engineer your layoff, that is the sure fire way to go. I was able to get 6 years of living expenses as part of my severance and deferred compensation. I’ll take it!

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K April 5, 2013 at 7:39 pm

Thank you for posting this article. I’ve been with a very large, well known digital company for 13 years working remotely and now they are looking to take that away from me not due to performance but due to policy changing where they want people in market. They are telling me they would like to find me a comparable position in our NY Office which is 2 hours door to door commute. Unfortunately, I have 2 children still in diapers and my husband is out of the house for 12 hours a day so this won’t work at this time. I’m still looking for a position within the organization that I can do remotely but keep hitting dead ends. If I don’t accept the NYC position when one comes available and if I don’t find one before then they said “they would give me 2-3 months severance opposed to the normal 2 weeks.” I don’t think this is right since I’ve given them 13 years and it’s not due to performance. Is there anyway to fight this? I’m an employee at will so I don’t think there is. :( I wish i lived in Canada!

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Steven October 9, 2013 at 3:09 pm

I was downsized at a local public hospital just 10 months before I became eligible for retirement. A 22 year dedicated employee with exemplary reviews. I lost all my accumulated sick leave of 1500 hours and was offered a mere 12 weeks at base pay. Labor laws are very weak in the State of Ohio. Of course, they always say it’s not personal.

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Mike November 20, 2013 at 5:03 pm

I am aware of an entire Finance team working at a silicon valley high tech company (Fortune 500) that was laid off recently and only got two months severance….much less than what I have seen people get at companies with much less notoriety receive.

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Sydney November 24, 2013 at 10:23 am

That’s frustrating it wasn’t closer to six months, especially since it was a Fortune 500 company. If you can get out early before a huge round of layoffs it can be easier to negotiate better severance packages, but sometimes things shut down completely out of the blue.

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Financial Samurai November 24, 2013 at 10:32 am

Mike, that means the entire Finance team got ZERO severance, b/c the WARN Act of California requires all companies with over 100 employes to provide 2 months worth of pay.

Please check out this book or send to your friends who are at risk of being laid off or who want to leave. This is serious business with big bucks at stake.

http://www.financialsamurai.com/how-to-make-money-quitting-your-job-2/

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Sandy March 23, 2014 at 2:38 pm

I got laid off after 20 years of continuous service. I was offered only 4 weeks severance pay.

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Sydney March 28, 2014 at 12:20 am

Wow 20 years straight of employment is a LONG time! I’m so sorry to hear you got laid off. What industry were you in and roughly how big was the company? Thanks for sharing with us!

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newlifeinak April 27, 2014 at 2:31 pm

I got laid off in Seattle after 25 yrs. I received 50 weeks of severance, 50% of my Cobra paid for six months, and six months of outplacement support.

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Financial Samurai April 27, 2014 at 5:35 pm

Now that sounds awesome! Congrats!

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Peggysue May 13, 2014 at 10:25 am

From a Fortune 500 business, is a severance package of $19,500 enough after 38 years of dedicated support to the company?

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