Case Study | Senior Executive severance negotiations

Background

For over eight years Mr A was employed as the Finance Director of a large privately owned limited company. He enjoyed a basic salary in excess of £110,000 per annum, fully expensed company car, BUPA, life insurance and company pension. Mr A also had stock options worth potentially over £67,000. As far as he knew he was successful in his job and was regarded by the company's chief executive (CEO) as a key member of the senior management team.

On a Tuesday morning in 2008, Mr A was preparing to participate in a meeting at which he was going to give a presentation. He was met by the CEO who simply said a decision had been taken that Mr A was no longer going to be part of the company and his colleagues would be told that he was on sick leave. Mr A said he was not sick, but was told by the CEO: "you are now".
Mr A was instructed to go home and wait for the company's lawyers to make contact with details of the severance offer.

Initial advice

Mr A wanted to know what his legal position was and to better understand his options. He therefore instructed Quantrills to meet with him and take his instructions so that we could assess the value of the anticipated compensation package and the merits of the possible claims he could advance if the severance offer was unacceptable.

We reviewed Mr A's service agreement, bonus scheme rules and the terms of the share option plans. Mr A had the benefit of a 12 month contractual notice clause and this would have to be reflected in the settlement offer.

The severance offer

To be fair to the employer it was not wholly inadequate but it was too low in value and did not include compensation for key aspects of Mr A's remuneration package. The company had based their offer on only six months' notice on the basis that they were not exercising their discretion to pay Mr A in lieu of his 12 months' notice. They were limiting his pension and fringe benefits to six months as well. The company also wanted to pay the compensation in three instalments which would cease in the event that Mr A found 'comparable employment'. The company had not included any details about compensating Mr A for his loss of stock options which in theory would be lost upon the termination of his employment. On the plus side, the company was offering to pay Mr A his bonus entitlements, provide a reference and contribution towards his legal fees.

The negotiations

We engaged in negotiations with Mr A's employers. We asked to see copies of all relevant documentation, including relating to the stock options. The employer was adamant that they could, need not, nor could they even if they wanted to, compensate Mr A in relation to his lost options. On the last page of an appendix to the stock option agreement we found a clause which gave to the employer a discretion to compensate Mr A for his stock options. This was pointed out to the employer and they relented and made a significantly improved offer which Mr A was happy to accept.

We advised Mr A on the terms and conditions of the severance agreement and obtained suitable amendments to it before it was formally completed to conclude this case.

Note: All case studies are based on cases we have recently handled, but you will not be surprised to know that we have changed all names and some other key details to ensure client confidentiality is preserved.