No One Talks About Severance And That's Because The Process Sucks

If you’re a people manager, eventually you’ll have to fire someone

One of the things I had to do as an executive at multiple companies is fire people. It’s not a part of any job that I particularly like to dwell on, but it is a part of any job where you’re managing a team.

I’ve fired people for whom the conversation felt like a surprise (no matter how clear I thought I’d been in the weeks leading up to it). I’ve fired people who sat down and said “I’m being fired now, aren’t I?” I’ve had honest conversations during which we’ve come to a common understanding that a person and role are no longer a fit. I’ve given people gentle, weeks-long exits. I’ve had people escorted from the premises before they could wreak further havoc. The vast majority of the time, these terminations have been uncomfortable, maybe upsetting, but have ultimately enabled a graceful parting of ways where all parties felt respected.

However, this is not always the case. And in my experience one of the most complicated aspects of firing people and much of where things go sideways in a termination that’s otherwise well executed is in determining appropriate severance to pay.

In a society where money connotes value, severance can get emotional

Money is a way of measuring value in our society, and when that’s applied to a person, it understandably can be an emotional topic. I’ve had multiple scenarios where someone who didn’t feel they deserved to be fired fixated on severance as a way to demand that the organization value them on their way out. Sometimes they’ve used less than savory tactics to get what they wanted -- angry or insulting emails to the whole company, threats to torch the company on their way out -- and at least once I’ve felt ill upon signing the severance check, wondering what the difference was between the negotiation I just conducted and blackmail.

Startups have it the worst

I think these issues probably aren’t as salient at larger companies with distinct HR departments who handle terminations of people with whom they’ve never directly collaborated with policies devised to work for thousands of people. It’s easy in that case to say “this is the policy” because it’s been done that way 1,000 times and you’re saying it to someone you don’t know.

But at a startup there may be little to no precedence for a given situation, and there’s often little to no distance between the person being fired and the executive team. Sometimes not only is there not much of an HR department to handle these issues, a single termination of an operations person may mean you’re firing a substantial portion of your HR “department.”

I’ve asked a lot of people over the years for information on how they calculate severance as I’ve yearned to create standardization in this process even when a company is in the startup phase. In my conversations I’ve found that the most common guideline is “one week’s pay per year of service.”

This type of objectivity may seem fair, and certainly is easy to implement, but it breaks down when you start to apply a humanist lens to the analysis.

Traditional severance logic favors the powerful

Consider someone early in their career. A young employee who only lasted a few months in a role would end up getting only a few hundred dollars under the ‘one week per year’ logic. Early in their career they may not have much savings, and if their family isn’t equipped to provide a safety net, getting little to no severance is potentially financially devastating for them. What they need is not a cut and dry policy, but rather enough to be sure they can pay next month’s rent while they job search.

I definitely can make the argument that this is not the company’s concern. But I also think that treating your employees well even on their way out is a humane thing to do in a society with weak safety nets. So while I understand the desire for a fixed, linear policy based on salary and length of service, I don’t think that always yields the most fair result. It doesn’t give you the chance to treat your most junior, and often most financially vulnerable, employees well.

But a flexible approach makes your company vulnerable

But having a flexible approach can backfire as well. Without a fixed policy in place, it leaves you vulnerable to negotiating every exit. And that’s when bad actors can exploit the fact that, as an executive you are first and foremost a fiduciary for the company, and thus you should be acting in an economically rational way to protect the organization and its interests. A fixed policy will favor the more senior folks, but a flexible policy, while allowing for discretion to support the more junior folks, will favor the more unscrupulous.

For example, I had a situation once where I authorized the termination of an individual who then began sending long, rambling, angry, threatening emails to the entire company. The emails contained personal insults directed at me and my colleagues. The person threatened to begin to send further communications out publicly -- unless we paid him several times the severance we had initially offered.

At this point I felt kind of stuck. The person’s behavior was disappointing and hurtful but -- most importantly -- it was distracting. Between my time creating crisis communications plans, talking to lawyers, and talking to board members, and the team’s time discussing the situation over extended coffee breaks, hours upon hours were being wasted. The amount that this person was asking for wasn’t that much from the organization’s perspective. The economic analysis was clear: pay and move on. Perhaps not what the person was asking, but the choices were to call what we hoped was a bluff or to negotiate and pay, and the latter option carried less risk. Either way, it was costing way too much in terms of time and opportunity cost to let this situation drag on.

And a flexible approach can mean the bad actors get rewarded

But while this “pay and move on” approach was economically rational, it felt deeply unfair. After all, someone who behaved well after being fired would get the severance offered -- this was the normal course of affairs. But someone who was terminated and behaving unpredictably and maliciously would get more because their behavior was costing the organization more and it would be cheaper to pay them to make it stop than to weather it or risk it continuing.

In one scenario I remember thinking: Isn’t this basically how blackmail works? “Pay or I’ll go public?” The advice I got ranged from “don’t negotiate with terrorists” to “pay and move on.” And I’m still not sure which is right.

This is particularly dangerous when you’re parting ways with someone senior

I’ve had other situations that were even more extreme: if the person leaving on less than ideal terms is an organizational fiduciary, the company can truly be in jeopardy. Consider a case where a co-founder is leaving, or a company executive. Someone who has access to or controls bank accounts, funder or investor relationships, or other sensitive information. Someone who is publicly associated with the company’s brand.

In this case, a real risk assessment is important. Angry emails are upsetting, but it’s much different when the person leaving is someone who could block access to your money or credit and who controls other employees’ health insurance plans and retirement accounts. You don’t want to believe anyone is capable of that type of destruction, but I’ve been in situations were the outgoing employee is specifically threatening to bring down the company unless a particular amount of severance is paid.

So does a flexible approach just leave you open to blackmail?

Again, I struggle with the line between negotiation and blackmail. It feels like blackmail, but somehow when lawyers are involved it’s billed as a negotiation (literally and figuratively). And the lawyers don’t take it personally. As painful as it may be from an emotional standpoint to pay someone who is threatening you, to take resources from your company and put them in an individual’s pocket, what’s the point in saving some money for your company if doing so may jeopardize the company’s very existence?

And while a fixed severance policy might have made a retort to threats easier, would it have worked? If not, wouldn’t we still have had to negotiate in order to protect the company?

The economic argument for paying the bad actors is clear. But it’s important to note that the emotional cost of paying is high -- the feelings of betrayal, anger, and sadness are real. Not to mention the feeling that it’s unfair that hard won resources are going to those trying to destroy your company rather than those trying to build it.

But even these emotional factors suggest that paying might be the right thing -- if you’re that emotionally invested, chances are any prolonged negotiation will be extremely distressing and distracting. Orchestrating a graceful exit and soft landing for that person may be be a matter of organizational survival even if it feels like way more than they “deserve.”

Ultimately, though, the key is moving on

Though I’ve found that I do feel real shame about how certain scenarios played out over my years of managing at different companies, and the resentment does fester in cases where I feel like I’ve been taken advantage of, I hope that having been through these breaches of trust in the process of parting ways and determining severance will make me a better leader moving forward. I’d like to remain trusting, but also to be better able to build smart redundancies to distribute power in case of a breach of fiduciary responsibility so that an outgoing employee’s blackmail is less effective and the severance that it makes sense to pay is lower.

And learning for next time

And in the end, with the gift of a little perspective and the ability to plan in advance rather than react to a bad scenario, I think I would actually come up with a hard and fast severance rule. Not the typical linear one that heavily favors more senior, better compensated folks. One with more equity baked in that reflected the values of my company. I would create that rule up front and then when the bad actors threaten the company, as will inevitably happen at some point since no one hires perfectly all the time and everyone does not react well to a termination, I’d create a crisis communications plan, hold my breath, and call their (fingers crossed) bluff.