Severance Package
A severance package is compensation and benefits offered to a departing employee in exchange for a signed release of legal claims against the company. The departure can come through layoff, termination, or negotiated exit. Typical terms are 1-4 weeks of base pay per year of service, extended health insurance (COBRA subsidy), and accelerated vesting on equity. It's the company's standard tool for ending employment relationships cleanly.
The standard severance package components:
Base severance: typically 1-4 weeks of base salary per year of service. Common patterns:
- 2 weeks per year of service: most common at venture-backed companies.
- 4 weeks minimum + 2 weeks per year: more generous; sets a floor.
- 3 months minimum for senior roles: executives often get 3-6 months as a starting floor.
- 8 weeks fixed for layoffs: many companies use a fixed minimum (e.g., 8 weeks) plus per-year additions for layoff situations.
Health insurance continuation: COBRA subsidy for 2-6 months is common. Pays the employee's COBRA premium so coverage continues without the employee paying.
Equity acceleration: sometimes accelerates vesting (especially for involuntary terminations); often does not at lower-level positions; standard accelerated vesting (single-trigger / double-trigger) provisions kick in at change of control events.
PTO payout: accrued unused PTO paid out. Required by law in some states (CA, MA, NY, etc.); not in others.
Outplacement services: career coaching, resume help, job search resources. Optional but common for layoffs.
Bonus proration: bonus pro-rated through departure date.
Non-compete or non-solicit consideration: sometimes severance includes consideration for post-departure restrictions.
The release of claims:
In exchange for severance, the employee signs a separation agreement that typically:
- Releases legal claims against the company (employment discrimination, wage claims, etc.).
- Confidentiality provisions about the separation itself.
- Non-disparagement clauses (sometimes mutual).
- Cooperation commitments for ongoing matters.
- Continued obligations under existing agreements (IP assignment, confidentiality).
The release is the company's main reason for offering severance: it ends the legal exposure cleanly.
Severance package benchmarks (2025):
| Departure type | Typical severance |
|---|---|
| Layoff (RIF), employee < 1 year tenure | 4-8 weeks |
| Layoff, employee 2-5 years | 2 weeks per year + benefits |
| Layoff, employee 5+ years | 2-4 weeks per year + extended benefits |
| Performance termination | Sometimes minimal severance; sometimes none |
| Negotiated executive exit | 3-12+ months base salary + accelerated equity |
| Executive without cause | Often 6-12 months specified in employment agreement |
| Mutual separation | Negotiated; varies widely |
What severance doesn't typically cover:
Severance for cause: terminations for serious misconduct (theft, harassment, etc.) often get minimal or no severance.
Voluntary resignation: typically no severance unless negotiated (rare).
Independent contractors: no severance obligation in standard contractor agreements.
When founders should be more generous:
Layoffs at scale: company-wide layoffs benefit from clear, generous, consistent severance. Penny-pinching during layoffs destroys morale of remaining employees.
Early employees: people who took below-market salary for equity should be treated generously on exit.
Senior executives: standard practice is 6+ months for VPs.
Notable employees: the publicity from how exits are handled compounds over years.
Ryan's Take
Severance is one of those costs founders try to minimize and shouldn't. The employees you treat well on exit become evangelists; the ones you nickel-and-dime become loud critics. Standard 2 weeks per year is the floor; add health benefits and equity acceleration where appropriate; structure layoff severance consistently across the company. The discipline that works: clear severance policy in advance (not made up at exit); generous-but-reasonable terms; respectful execution. The pattern that fails: arbitrary case-by-case severance that varies wildly; punitive treatment of departing employees; public backlash from poor exits that costs more than generous severance would have.
What founders get wrong: Treating severance as a cost to minimize rather than an investment in goodwill and clean exits. A few extra weeks of severance prevents a Glassdoor review and a series of conversations with former colleagues that would have hurt recruiting for months.
Related: Layoffs · Performance Improvement Plan · Employment Agreement · Exit Interview · Founder Departure
FAQ
What is a severance package?
Compensation, benefits continuation, and other terms offered to a departing employee in exchange for signing a separation agreement (typically including release of legal claims). Standard at most venture-backed companies for layoffs and involuntary terminations.
What's the standard severance amount?
Typical: 1-4 weeks of base pay per year of service, often with an 8-week minimum for layoffs. Executives typically get 3-12 months. Plus health insurance continuation (COBRA subsidy) for 2-6 months, sometimes equity acceleration and outplacement services.
Is severance required by law?
Generally no in the US (with some exceptions like state-level WARN Act requirements for large layoffs). Severance is voluntary and offered in exchange for the release of legal claims. Some employment agreements (especially for executives) contractually require severance.
When do employees get severance vs not?
Severance is typically offered for layoffs (RIF) and many involuntary terminations. Often not for terminations "for cause" (misconduct), voluntary resignations, or contractor relationships. Executive severance is often contractually defined in employment agreements.
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