New York Executive Severance Lawyers
Providing Legal Counsel to Executives in New York
Executive employees—such as chief executives and other high-level leadership positions—are entitled to substantial compensation and employment benefits that are commensurate with their skill, the scope of their responsibilities, and their work performance. Ultimately, executives are employees like anyone else and, therefore, are also subject to certain terms regarding the termination of their employment.
However, executives have more leverage than average employees when it comes to negotiating and determining the terms of their termination. As a result, it is highly recommended that an executive retain experienced legal counsel to represent them when negotiating the terms of their employment and termination.
At Nisar Law Group, P.C., our skilled executive compensation attorneys in New York have the necessary knowledge and sophisticated awareness of the key legal issues that come into play when negotiating severance pay for executive employees. You can count on our dedicated team of lawyers to guide you through the essential issues so you can understand your legal options and decide on the best course of action for your future.
To discuss your legal options and interests, call us at (212) 600-9534 or contact us online today.
Forms of Executive Compensation for Severance Purposes
Negotiating severance pay for executives requires familiarity with sophisticated legal and financial matters under New York and federal employment law. In general, employees are not legally entitled to severance pay in certain circumstances. However, the employer and employee are free to enter into an agreement that provides for severance pay under specific conditions.
At Nisar Law Group, P.C., we have experience with the following issues when it comes to executive compensation for severance pay:
- Bonuses: A major incentive for executives involves bonuses for extraordinary work performance. A severance package for executives may include compensation covering earned bonuses or prorated bonuses.
- Equity grants & stock options: A major component of an executive’s compensation involves incentives based on a company’s equity, such as stock options and restricted stock units (RSUs).
- Retirement benefits: Executive compensation may also come in the form of retirement and pension benefits.
Comprehensive Advice on Severance Provisions
In addition to understanding the form of compensation you may be entitled to receive as severance pay, it is important to know the conditions for receiving or forfeiting severance pay. Having an experienced attorney from Nisar Law Group, P.C. to advise you on these issues and advocate for your interests gives you a significant advantage when it comes to establishing the terms of your severance pay as an executive.
We can review and negotiate the following provisions when it comes to executive severance pay:
- At-will termination: Most employment arrangements are “at-will,” meaning that the employer and employee can terminate the employment relationship for any reason, or no reason at all. If the employer terminates the employee for no specific reason, the employee may be entitled to severance pay. If the employee quits for no reason, they usually forego the opportunity to collect severance pay.
- For-cause termination: An employee that is terminated for “cause” forfeits their right to receive severance pay. Typically, “cause” for termination involves unethical, immoral, and illegal conduct. We can review and negotiate the details of “for-cause” termination to make sure your employer does not use such a provision to withhold severance unjustly.
- Termination for “good reason”: This type of termination provision allows an executive to receive severance pay if they voluntarily quit for “good reason.” We can negotiate and review such provisions to establish what constitutes “good reason.”
- Death or disability: A termination clause qualified upon death or disability of the executive governs the employment relationship when the employee dies or becomes physically or mentally disabled.
- Non-compete clauses: An employment contract can restrict an executive’s right to work for a competitor within a particular geographic location and for a specific amount of time. We can advise you as to whether the nature and extent of a non-compete provision is fair and comports with applicable anti-trust laws.
- Waiver of claims: Some severance agreements include a provision that purports to waive the employee’s discrimination and retaliation claims. Generally, such waivers are enforceable, so we can review and negotiate such language to ensure your rights and interests are not threatened.
You Can Benefit from Our Executive Compensation Lawyers in New York
If you are concerned about issues regarding severance pay for executives, it is in your best interest to consult a professional attorney from Nisar Law Group, P.C. Whether you need legal advice as an employer or as a prospective executive employee, you can count on our legal team to deliver comprehensive legal counsel on matters involving executive severance pay under New York and federal law.
Call Nisar Law Group, P.C. at (212) 600-9534, or contact us online for an initial consultation exploring your available legal rights and options today.
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Frequently Asked Questions About: Executive Compensation
A typical executive compensation package includes four main components: base salary, short-term incentives (annual bonuses), long-term incentives (equity-based rewards like stock options or restricted stock), and benefits/perks. The base salary usually represents 20-40% of total compensation, while the majority comes from variable pay tied to performance metrics.
Executive packages also commonly include supplemental benefits like enhanced retirement plans, deferred compensation arrangements, life insurance, and perquisites such as company cars or club memberships. The specific mix depends on company size, industry, and the executive’s role, with CEOs typically receiving the most comprehensive packages.
Reasonable executive compensation should align with company performance, industry standards, and the executive’s experience and responsibilities. For public companies, compensation is often benchmarked against peer companies of similar size and complexity. A reasonable package balances fixed and variable pay, with significant portions tied to measurable performance outcomes.
Courts and regulators generally consider compensation reasonable when it’s comparable to what other companies pay for similar roles, reflects the executive’s contributions to company success, and includes appropriate performance metrics. Excessive compensation can face scrutiny from shareholders, regulators, and in some cases, legal challenges.
Executive compensation is typically determined by the board of directors’ compensation committee, often with input from independent compensation consultants. The process involves benchmarking against peer companies, analyzing industry data, and considering the executive’s performance, experience, and the company’s financial results.
Key factors include company size and complexity, industry norms, individual performance metrics, retention considerations, and regulatory requirements. The committee also considers shareholder feedback and proxy advisory firm recommendations when setting compensation levels and structures.
A good executive severance package typically provides 12-24 months of base salary and target bonus, continued benefits coverage, and accelerated vesting of equity awards. The package should reflect the executive’s tenure, performance, and the circumstances of departure. Higher-level executives often receive more generous terms.
Executive severance agreements commonly include “double-trigger” provisions for change-in-control scenarios, meaning severance is only paid if both a corporate transaction occurs and the executive’s employment is terminated. The package should also address restrictive covenants, outplacement services, and ensure compliance with Section 409A tax regulations.
Start by thoroughly researching market data for comparable positions and understanding the company’s compensation philosophy and constraints. Focus on the total compensation value, not just base salary, and consider the mix of fixed versus variable pay that aligns with your risk tolerance and the company’s performance metrics.
Key negotiation points include base salary, bonus targets and structure, equity awards and vesting schedules, benefits enhancements, and severance protections. Consider engaging an executive compensation attorney to review complex equity arrangements, ensure proper tax planning, and negotiate favorable terms for restrictive covenants and change-in-control provisions.
Section 162(m) of the Internal Revenue Code limits the tax deductibility of executive compensation to $1 million per year for public companies’ covered executives (CEO, CFO, and three other highest-paid officers). This doesn’t cap what companies can pay but limits what they can deduct as a business expense.
Prior to 2018, performance-based compensation was exempt from this limit, but tax reform eliminated that exception. The limit applies to current and former public company executives, and some private companies that later go public may also be subject to these restrictions under certain circumstances.
For public companies, executive compensation is determined by the board of directors’ compensation committee, which must be composed entirely of independent directors. This committee typically engages independent compensation consultants to provide market data and recommendations, ensuring arm’s-length decision-making.
The committee considers input from management (except when determining the CEO’s compensation), shareholder feedback, proxy advisory firm recommendations, and regulatory guidance. The full board typically approves the CEO’s compensation package, while the committee may have authority to approve other executive packages within established parameters.
High executive compensation can create negative public perception and shareholder criticism, particularly when company performance doesn’t justify the pay levels. Excessive compensation may also attract regulatory scrutiny, proxy fights, and governance challenges that can distract from business operations.
From a legal perspective, poorly structured compensation can violate tax regulations (like Section 409A), trigger securities law issues, or create conflicts during corporate transactions. Additionally, compensation that’s not properly aligned with performance can lead to shareholder derivative lawsuits or governance challenges that expose companies and boards to legal liability.
A typical executive bonus ranges from 50% to 200% of base salary at target performance levels, with potential payouts often reaching 150-300% of target for exceptional performance. The bonus is usually tied to a mix of financial metrics (like revenue, EBITDA, or earnings per share) and individual or strategic objectives.
Most executive bonus plans use a combination of threshold, target, and maximum performance levels, with different payout percentages for each. The weighting between corporate and individual performance varies, but corporate metrics typically account for 70-80% of the bonus opportunity, with the remainder based on individual achievements or strategic initiatives.
A generous executive severance package typically provides 18-36 months of base salary and target bonus, accelerated vesting of all equity awards, extended benefits coverage, and substantial outplacement services. Some packages include “gross-up” payments to cover excise taxes on change-in-control payments, though this practice has become less common.
Additional generous features might include enhanced retirement benefits, supplemental life insurance payouts, continuation of perquisites, and minimal or no restrictive covenants. The most generous packages also provide “best net” provisions that optimize the executive’s after-tax position and may include legal fee reimbursement for reviewing or enforcing the severance agreement.
