When you’ve reached the top of the corporate ladder, how you leave can be just as important as how you lead. C-level severance packages—for CEOs, CFOs, CTOs, and other senior executives—carry high stakes and legal complexity. From severance pay and health benefits to stock options and non-compete clauses, these executive severance packages require careful planning, review, and negotiation.
In this comprehensive guide, we provide insight into the key benefits, legal terms, and negotiation strategies that shape severance agreements for C-level executives under California law.
What Is a C-Level Severance Package?
A C-level severance package is a structured severance agreement between a company and one of its top executives, often triggered by a termination, resignation, or change in leadership. Unlike standard packages, executive severance agreements address not just financial compensation, but also:
- Lump sum severance payments
- Continued healthcare benefits and health coverage
- Treatment of stock options and equity
- Restrictions under non-compete agreements or non-solicitation clauses
- Clauses for non-disparagement, confidentiality, and mutual releases
Given the influence of C-level executives on a company’s reputation, these agreements often include reputation management provisions and are customized to fit specific circumstances.
Why C-Level Severance Agreements Are Unique
Executive severance packages are more comprehensive due to the leadership roles of other senior executives and their contributions to the company. These packages must account for:
- Bonuses, deferred pay, and expenses
- Complex employment contracts or employment agreements
- Obligations arising from a service relationship or further service relationship
- Significant equity stakes or accelerated vesting provisions
Each terminated employee must assess their contractual rights carefully to ensure financial stability and protect future opportunities. Not only do these agreements affect finances, but they also touch on long-term reputational impacts, equity timing, and compliance with regulatory and industry-specific guidelines.
Severance Pay: Financial Foundation of Executive Packages
The core of most executive severance packages is severance pay, which may:
- Equal 12 to 24 months of base salary
- Include bonuses, prorated bonus amounts, or long-term incentives
- Address unpaid expenses, deferred compensation, and further compensation
This financial compensation may be delivered as a lump sum or in structured payments over time. Understanding how your pay is structured is crucial when negotiating severance. Moreover, executives should evaluate whether bonuses due from prior performance periods are included and whether their payout schedule aligns with standard financial planning goals.
Equity and Stock Options: Key Benefits to Secure
Executives often receive equity as part of their employment agreement, making it essential that the severance agreement specifies how to handle:
- Unvested stock options and RSUs
- Accelerated vesting upon termination
- Continued vesting post-departure
- Extension of option exercise periods
Inadequate handling of these terms could cost executives substantial compensation. Working with a lawyer to align severance terms with your original employment contract ensures no surprises. If you have equity tied to company performance or public offering outcomes, make sure these benchmarks are considered in your departure agreement.
Health Benefits and Healthcare Continuation
C-level departures often come with concerns around ongoing healthcare benefits. Under COBRA, health benefits can continue, but the executive may negotiate:
- Employer-paid health coverage for a longer duration
- Premium assistance or full coverage extensions
These provisions can make a significant difference in career transitions, especially if there is a delay in securing a new job or job offer. Executives who hold board positions or consulting roles post-employment may also require flexibility in health coverage terms.
Restrictive Covenants: Non-Compete, Non-Solicitation, and More
California generally prohibits non-compete clauses through California Business and Professions Code § 16600, yet employers still include them in agreements. Executives should:
- Review non-compete agreements closely
- Negotiate removal of overly broad language
- Assess whether non-solicitation clauses restrict contact with former clients or colleagues
Some of such provisions may still be enforceable, especially in the context of protecting trade secrets or client relationships. Experienced legal review is critical here. Further, if an executive serves in a niche industry or holds insider information, additional confidentiality terms may apply.
Confidentiality, Non-Disparagement, and Reputation Management
Most severance packages include terms that impact future communication:
- Confidentiality clauses restricting disclosure of internal matters
- A non-disparagement agreement preventing negative statements
- Often, executives seek mutual non-disparagement to protect their own standing in the industry
These provisions affect not only your current job prospects but also future employment with other C-level executives or new companies. A breach of these provisions—intentional or accidental—can lead to legal complications, so it’s essential to understand their scope clearly.
Legal Releases and Waivers
Nearly all severance agreements require an executive agrees to release legal claims in exchange for the severance package. These waivers typically cover:
- Wrongful termination
- Discrimination or retaliation
- Breach of employment agreement or employment contract
Ensure the release of claims does not extend to future legal issues unrelated to your tenure. Also, consider the enforceability of such waivers if you’re departing due to concerns you previously raised internally, such as ethical violations or shareholder disputes.
Tax Implications and Golden Parachute Rules
High-value severance payments may trigger additional tax consequences, especially under golden parachute provisions in the tax code. Watch for:
- 20% excise taxes under Section 280G
- Loss of deductions to the company
- The need for a tax advisor to coordinate with your legal team
Being aware of the tax implications allows executives to plan for financial stability during a career transition. In some cases, restructuring compensation or equity acceleration can reduce exposure to these penalties.
Outplacement Services and Other Considerations
Some packages include outplacement services to support a smooth transition, including:
- Resume preparation and job search assistance
- Networking resources
- Coaching for interviews with potential employers
These other key benefits can be particularly useful for executives navigating a competitive job market. Additionally, services like personal branding support and executive recruiters may be negotiable in lieu of or alongside financial benefits.
Change-in-Control Provisions and Executive Protections
For many C-level executives, severance rights are closely tied to change-in-control clauses—contractual provisions that activate enhanced benefits if the company is acquired, merges, or undergoes significant restructuring. These provisions are designed to protect executives from sudden terminations or role eliminations that often accompany major corporate transitions.
A well-crafted change-in-control clause may include:
- Automatic vesting of unvested stock or equity
- Guaranteed severance multipliers (e.g., 2–3 times base salary and bonuses)
- Continuation of benefits for an extended period
- Protection against demotion or forced relocation
Legal counsel can assess whether your current severance structure adequately prepares you for a sudden change in ownership and help renegotiate if needed.
Strategic Timing and Leverage in Negotiation
Whether initiated by the company or employee, timing matters. A well-timed resignation, for example, may allow executives to secure more favorable exit terms—especially when coupled with the delivery of key performance benchmarks or successful project completion. Executives who are being asked to leave may be able to slow the process down to align their exit with fiscal periods or major corporate events, increasing their leverage.
It’s also important to consider how external market factors affect leverage. For instance, if your industry is experiencing consolidation, or if your company is preparing for IPO or acquisition, you may hold greater negotiation power due to the optics and potential disruption your exit could cause.
Executives should take time to assess their existing contractual obligations before entering negotiations. Reviewing change-in-control provisions, bonus eligibility triggers, and vesting schedules can offer crucial insight into when it is most advantageous to begin discussions.
Key tips:
- Request time to review before signing
- Leverage your service relationship and contributions
- Use ongoing negotiations to improve severance terms
Don’t rush—negotiating severance pay thoroughly ensures your long-term success. Maintaining confidentiality during transition talks, while keeping relationships intact, can preserve goodwill and enhance future opportunities.
Negotiating Severance Pay: Work with an Employment Attorney
Because C-level severance packages are complex and vary widely, executives should never go it alone. A California employment attorney will:
- Evaluate the fairness of your severance agreement
- Help you negotiate better compensation, equity terms, and healthcare benefits
- Advise on enforceability of non-compete, non-solicitation, and confidentiality clauses
- Ensure your employee rights are not waived unfairly
The financial and reputational implications of your exit require thorough planning and legal insight. Don’t leave anything to chance.
Free Consultation with Hershey Law
At Hershey Law, we have experience in executive severance and California employment law. Our firm helps senior executives maximize every component of their severance package.
📞 310-929-2190
🌐 hersheylaw.com
Let our legal team advocate for you, so you can transition with confidence and secure your future.
