Amid Pandemic, Some Executives Still Exit with Eye-Popping Severance Packages
In 2019, we wrote about 10 executives who negotiated 24 karat golden parachutes. Little did we know how much the world would change over the next two years. In 2020, the U.S. saw steep pandemic-related economic declines, but that didn't stop companies from giving their execs hefty severance payouts.
Severances Worth NotingWith bankruptcies and workforce reductions come severance packages (as well as the oft-criticized golden parachutes for executives). While tens of millions (about 1/4 of Americans) were terminated without a newsworthy severance, the following companies paid severances worth noting:
- Whiting Petroleum Corporation ($14.6 million for top executives)
- University of Arizona ($7.29 million for head football coach)
- University of Texas ($24 million for football coaches)
- Tenet Healthcare Corporation ($875,000 bonus and $11.3 million in stock awards for CEO)
- MGM Resorts International ($32 million for CEO)
- ABC (8-figure payout for The Bachelor and The Bachelorette host)
In this article, we’ll take a closer look at these top-notch severance packages. Then we will dive into some of the legal changes that have happened since 2019 and how they may impact severance negotiations in the future. Finally, we will close with a few actionable tips for negotiating a severance if your employer is facing workforce reductions.
Let’s start with a detailed look at some of the best severance packages since 2019.
Severance Packages in DetailPlenty of severance packages do not make the news, but a few well-represented individuals walked away with eye-popping golden parachutes at a time when many were facing pay cuts and unemployment.
Here are some of the most noteworthy severance packages paid in the wake of a global economic recession:
- CEO Brad Holly, Whiting Petroleum Corporation, $6.4 million.Whiting Petroleum, a shale oil producer, filed for bankruptcy in 2020, but not before the board approved $14.6 million in cash bonuses for executives. Out of that total, CEO Brad Holly took home $6.4 million.
- Head Football Coach Kevin Sumlin, University of Arizona, $7.29 million. University of Arizona, like many colleges, lost large sums of money due to the pandemic. Amid layoffs, UA decided to fire head football coach Kevin Sumlin on the heels of a devastating loss to Arizona State. But Sumlin’s contract buyout provision secured him a $7+ million payday.
- Head Football Coach Tom Herman, University of Texas, $15 million. University of Texas was not immune to the financial losses incurred by many schools during pandemic shutdowns. After laying off 35 people in the Athletic Department, furloughing workers, and cutting the pay of 300 employees, UT terminated Coach Herman’s contract. However, despite financial struggles, UT will have to buy out Herman’s contract to the tune of $15 million.
- CEO Ronald Rittenmeyer, Tenet Healthcare Corporation, $875,000 bonus plus $11.3 million in stock awards. Despite furloughing thousands of workers, Tenet continued to pay CEO Rittenmeyer over $1 million in salary, an $875,000 bonus, and millions in stock awards.
- CEO Jim Murren, MGM Resorts International, $32 million. When MGM Resorts CEO Murren stepped aside to lead Nevada’s coronavirus task force, he was awarded a $32 million severance package. Surprisingly, the payout deviated from his contract, which stipulated that he would not receive a severance for leaving voluntarily.
- Television Host Chris Harrison, ABC’s The Bachelor and The Bachelorette, 8-figure payout (exact number unknown at this time). Amid a racism controversy, ABC’s Chris Harrison stepped down from his role as host of The Bachelor and The Bachelorette series after a 19-year run. He’s reported to receive an 8-figure payout as part of his separation from the station.
As you might imagine, these paydays were exceptions to the norm. Many workers found themselves out of work and taking pay cuts during the pandemic (making these golden parachutes even more striking).
Some Companies Left Workers Hanging While Rewarding ExecutivesWhile some executives walked away with staggering severance packages, many front line and middle-management workers felt the squeeze of the pandemic economy. Amidst the many lessons learned as we navigated a historical crisis, coronavirus shined a light on the stark disparities between those at the top of corporations and the rest of America’s workforce.
Notably, a study found that 31 garment factories (supplying clothes to name brand companies) owed roughly 40,000 workers about $40 million in severance pay. While workers lost their jobs and took pay cuts, many CEOs continued to receive extravagant pay packages and million-dollar bonuses. J.C. Penney, for instance, filed for bankruptcy in 2020, but not before paying their CEO, Jill Soltau, a $4.5 million bonus. Rental car company, Hertz, followed suit, declaring bankruptcy days after handing out $16 million in bonuses to their executives.
Although many companies did not refer to the bonuses as severance packages or golden parachutes (opting instead for terms like “retention bonus”), such provisions highlight the growing inequality between American workers and executives. There are many causes of economic inequality, but one driving factor is the lack of advocacy and bargaining power on behalf of entry-level and middle-management employees. Yet, some states are changing laws to better protect employees in light of the major power imbalances that have emerged in the last several decades.
Legal Changes Could Impact Severance PayAside from the WARN Act (the Worker Adjustment and Retraining Notification), there are no federal or state laws that require employers to pay a severance. Under the WARN Act, certain employers may be required to pay employees wages for a specified period of time if they do not provide adequate notice of a mass layoff. However, WARN Act payments are mainly seen as penalties for failing to comply with the law rather than a true severance.
But, in 2020, New Jersey became the first state to require severance payments in certain situations. New Jersey’s WARN law requires large employers to pay one week of severance for each year of service to employees are laid-off as part of a plant closing or mass layoff.
Only time will tell if other states follow New Jersey’s lead, or if New Jersey will face a corporate exodus as a result of their progressive legislation. Some legal experts have proposed changes to federal law, requiring universal severance pay and a “temporary termination” status modeled on Canadian law. The temporary termination provision would exempt employers from the severance pay obligation if layoffs are a short-lived response to economic fluctuation (like a pandemic). If those companies were unable to rehire laid-off employees after the economic fluctuation, they would be required to pay a severance. It is an interesting proposal that could change the state of severance pay significantly if it becomes law.
Tips for Negotiating SeveranceIf you are in the market for a new job or about to accept an offer, a severance package and exit strategy may be the last thing on your mind. However, it is wise to negotiate a severance package long before ending a relationship with your employer. You likely have more bargaining power when accepting a job (as opposed to waiting until things turn sour or the company nears bankruptcy).
To negotiate a fair severance package, keep the following tips in mind:
1. Consider benefits and perks aside from salary. Insurance benefits are worth their weight in gold. It’s smart to negotiate for continuation of insurance in any severance package, because COBRA premiums can be incredibly expensive. You might also ask for assistance finding another job or other perks like company stock (assuming the company will continue operating).
2. Secure your right to claim unemployment insurance. Ensure your employer will not dispute your right to unemployment insurance payments. Also make sure your severance will not interfere with your ability to collect unemployment compensation.
3. Get paid for unused time off and unreimbursed expenses. If you have accrued paid time off that you have not used, make sure you are compensated for that time. Likewise, if you have incurred any business expenses that have yet to be reimbursed, do not leave that money on the table.
Additional resources provided by the author
- 2019 Golden Parachutes Article
- Pandemic-Related Economic Declines
- Pandemic-Era Job Loss
- CEO Brad Holly
- Head Football Coach Kevin Sumlin
- Head Football Coach Tom Herman
- CEO Ronald Rittenmeyer
- CEO Jim Murren
- Television Host Chris Harrison
- Garment Factory Severance
- Extravagant Severance Pay for CEOs
- J.C. Penney Exec Bonuses
- Hertz Exec Bonuses
- Bargaining Power
- WARN Act
- New Jersey's WARN law
- Proposed Layoff Law
- COBRA Premiums