Negotiating an exit package

Godknows Hofisi
Business Law

It is common in the corporate world for managers or executives to leave their employment through a negotiated exit. In such circumstances, the executive ought to negotiate well and be sure when to accept or keep pushing.

In this article, I give some advice on how to negotiate.

Termination of employment through negotiation

Many factors may lead to the termination of employment through negotiation.

Some of them include the following:

Restructuring or re-organisation by the company.

A company prefers an amicable settlement instead of dismissing the executive.

An executive sees an opportunity to negotiate and leave instead of resigning or fighting.

Factors to consider when negotiating an exit package

There is no one correct way of doing it. It is all situational. Some of the considerations are explained below.

Contract position

Check your contract of employment if it provides for negotiation of an exit package. Some contracts may have A formula or minimum packages, yet others are silent.

Company position

In the event of restructuring or retrenchment, the company may have a template for computing terminal benefits. Make sure you understand it. Use the template to carry out some computations before engaging the employer to push for more.

The company may have set a precedent or standard when it separated from some executives in the past. It is important to have an idea of what was paid or how the exit package was computed.

Position at law

In the case of retrenchment, there are usually minimum packages, currently one month’s salary for every year served. The other position at law may be according to your contract of employment with the employer.

Negotiating power

Where the employer is negotiating with the employee to leave, such an executive may have better negotiating power, though there are no guarantees. On the other hand, if it is the employee who wants to leave, the employer may not be pleased. The executive may even be asked to resign if he wants to leave.

Relationship with decision makers

Negotiations are easier when the executive has good relations with the decision makers, such as the human resource manager or director, chief finance officer, chief executive officer or the board of directors, particularly the chairperson.

Consider your personal circumstances

Each person may have a peculiar situation at the time of negotiating. Try to negotiate as much as you can, knowing very well that some of your demands or requests will not be accepted. They will be turned down. There is a saying that goes “ask for more to get less”.

Compile a checklist of issues to negotiate

It is advisable to compile a checklist of the things you want to negotiate to avoid going back and forth. It usually irritates decision makers if the executive keeps coming back, especially to negotiate new things. Some of the issues may include the following:

Severance or retrenchment package.

Stabilisation allowance.

Motor vehicle.

Treatment of outstanding loans.

Benefits such as medical aid, school fees.

Avoid resigning first and then trying to negotiate terminal benefits. At times, it might be better to seek certain assurances before resigning.

Rank your priorities

It is rare to get all your demands or requests. Prioritise them. Target the more important ones.

Be prepared to compromise if that does not seriously prejudice you. Employers are usually put off by demands or requests they consider to be out of greed or unreasonable.

Consider your post-employment situation

Do not confine yourself to the current situation. Look into the future and consider that in your negotiations. If you are unable to find employment soon, negotiate for that reality.

Direct versus represented negotiations

Decide whether you want to negotiate personally or have your legal advisor to assist you.

It all depends on your situation. Through personal or direct negotiations, the executive may be able to make use of personal relations. Negotiation through a legal advisor may be faster, focused and it may be possible to push for what is correct at law.

A company may assign its lawyer to handle the negotiations so it may end up being lawyer to lawyer.

Tax implications

When negotiating, consider both the gross and net exit package. It is advisable to consult a tax consultant before or during negotiations.

Conclusion

Depending on situations, at times it is possible to negotiate exit packages. Negotiation is a skill.

Disclaimer

This simplified article is for general information purposes only and does not constitute the writer’s professional advice.

Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), ACCA (Business Valuations), MBA(EBS, Heriot-Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, a chartered accountant, insolvency practitioner, and commercial arbitrator, registered tax accountant and advises on deals and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He was recently appointed to sit on the Council of Estate Administrators in Zimbabwe. He writes in his personal capacity.

He can be contacted on +263 772 246 900 or [email protected] or [email protected]. Visit www//:hofisilaw.com for more articles.