Sample Executive Severance Agreement

What follows is an example of a severance program, which we describe in greater detail in How to Negotiate an Employment Contract.

Be aware that severance agreements such as the one below can vary widely from company to company and depending on the position being hired. This should only be used for reference and not as the basis for constructing one’s own severance package.

Severance:

Should X terminate your employment for a reason other than “Cause” (as defined below), or should you terminate your employment for “Good Reason” (as defined below), X agrees to continue your base salary for a period of twelve (12) months after your date of termination and provide you with comparable benefits for the twelve (12) months following your date of termination, to the extent permitted by the terms of X’s benefit plans and applicable law.

 X will also pay your target incentive compensation for the year in which your date of termination occurred, multiplied by the actual plan pay-out factor and prorated for the number of months that you actually worked for X during the year in which your date of termination occurred.  This amount will be paid as a lump-sum on the date the Company pays bonuses to senior executives employed by the Company.

Notwithstanding any provision to the contrary in any X stock plan, or under the terms of any grant, award agreement or form for exercising any right under any such plan, any stock options or restricted stock awards held by you as of your date of termination shall become exercisable or vested, as the case may be, as to an additional number of shares equal to the number that would have been exercisable or vested as of the end of the twelve (12) month period immediately following your date of termination.

For the purpose of this letter, “Cause” shall mean misconduct including, but not limited to: (1) conviction of any felony or any crime involving moral turpitude or dishonesty; (2) participation in a fraud or act of dishonesty to the detriment of X; (3) material breach of any X policy; (4) intentional damage to X’s property; (5) material breach of any agreement between you and X (including your Invention and Non-Disclosure Agreement and X’s Code of Business Conduct and Ethics); or (6) failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness).

For the purpose of this letter, “Good Reason” shall mean (i) a material reduction in the nature of your duties or the scope of your responsibility, without your express written consent; (ii) a reduction in your base salary as in effect on your Start Date or as the same may be increased from time to time, without your express written consent, other than a reduction which is part of an across-the-board proportionate reduction in the salaries of all senior executives of the Company imposed because the Company is experiencing financial hardship; (iii) the Company’s requiring you to be based anywhere other than within fifty (50) miles of the X’s headquarters in Y, Z., without your express written consent; provided, however, that a termination for Good Reason by you can occur only if (i) you have given the Company a written notice of intent to terminate for Good Reason at least ten (10) days before giving your termination notice and the Company has not cured the cause for Good Reason within ten (10) days after receipt of such notice, and

(ii) such notice is given within sixty (60) days after the occurrence of the event giving rise to Good Reason. 

Section 409A Compliance:

If any of the severance payments payable hereunder are deemed to be nonqualified deferred compensation subject to regulation under Section 409A of the Internal Revenue of 1986 (“Section 409A”), then the parties agree to negotiate in good faith and amend all applicable provisions of this Agreement on a timely basis to the extent necessary to comply with Section 409A, in a manner that preserves, as near as possible, the economic benefits which you and X have negotiated in good faith herein.