Compensation Series

Severance Policies

While severance programs are not a legal requirement, having one in place can be a competitive advantage in the market. In the event an employee is terminated – voluntarily or involuntarily, severance provides a financial buffer in uncertain times. Often associated with layoffs, severance packages provide a cushion in other scenarios such as mergers and acquisitions.  This report explores the typical practices among companies that have a program in place, and how the packages differ by level.

CEO

CEO – Not-For-Cause

Absent a Change-In-Control

In the event of a not-for-cause termination absent a Change-in-Control, around one-third of companies have a severance policy, program, or agreement that covers the CEO. This will most commonly include base salary continuation for either 6 or 12 months, and benefits continuation of 6 or 12 months. Approximately one-third of CEOs also receive a payout equal to their target bonus, prorated based on the length of the severance period, as well as full equity vesting acceleration.

View Chart:
Policy
Base Salary
Annual Bonus
Pro-Rated Bonuses
Benefits
Equity Vesting
Extended Exercisability

CEO – Not-For-Cause

Change-In-Control

Only 13% of companies have a separate policy, program, or agreement that covers the CEO in the event of a not-for-case termination after a change-in-control. Where companies do have a program in place, it will most commonly include base salary and benefits continuation.

View Chart:
Policy
Base Salary
Annual Bonus
Pro-Rated Bonuses
Benefits
Equity Vesting

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C-Suite – Not-For-Cause

Absent a Change-In-Control

Among companies that have a program in place in the event of a not-for-cause termination, the majority have a policy that applies to all eligible C-suite roles, as opposed to specific policies for individuals. This will most commonly include base salary continuation for either 3 or 6 months, and benefits continuation of 3 or 6 months. In instances where companies do offer accelerated equity vesting, the majority opt for full acceleration rather than partial.

View Chart:
Policy
Eligible Roles
Base Salary
Annual Bonus
Pro-Rated Bonuses
Benefits
Equity Vesting
Full vs. Partial Acceleration
Extended Exercisability

C-Suite – Not-For-Cause

Change-In-Control

In the event of a not-for-cause termination after a change-in-control, where companies have a policy in place it applies to all eligible C-suite roles. At a minimum, policies will typically include base salary continuation for 6 months.

View Chart:
Policy
Eligible Roles
Base Salary
Annual Bonus
Pro-Rated Bonuses
Benefits
Equity Vesting

Senior Vice President & Vice President (SVP & VP) – Not-For-Cause

Absent a Change-In-Control

Severance programs for SVPs in the event of a not-for-cause termination will typically include base salary and benefits continuation. Most companies do not include either accelerated equity vesting or an extended exercisability window.

View Chart:
Policy
Base Salary
Annual Bonus
Pro-Rated Bonuses
Benefits
Equity Vesting
Extended Exercisability

Senior Vice President & Vice President (SVP & VP) – Not-For-Cause

Change-In-Control

After a not-for-cause termination in the event of a change-in-control, most companies do not have a program in place for their SVP and VP roles. Among companies that have a program in place, they ill most commonly cover base salary and benefits continuation.

View Chart:
Policy
Base Salary
Annual Bonus
Pro-Rated Bonuses
Benefits
Equity Vesting

Want advice on your severance program?

Below VP – Not-For-Cause

Absent a Change-In-Control

For employees below the Executive level, where companies have a severance program in place the package is often determined by tenure, with employees typically accruing 2 weeks of severance for each year of service.

View Chart:
Policy
Eligibility
Base Salary
Level-Based Continuation
Tenure-Based Continuation
Pro-Rated Bonuses
Benefits
Tenure-Based Benefits Amount
Extended Exercisability

Below VP – Not-For-Cause

Change-In-Control

After a change-in-control, in the event of a not-for-cause termination most companies do not have a severance plan in place for those below the Executive level.

Methodology

Insights from this report represent data collected from Sequoia’s 2022 Dataforest Severance and Change-In-Control survey, and anonymized information and trends from our database. Dataforest is refreshed periodically with updates from new survey submissions.

Learn more about our data sources and methodology →

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