If you are shown the door, assess your priorities, check your entitlements and explore the possibility of keeping some perks before agreeing to any potential package.
One thing as certain as death and taxes is that somewhere today a senior executive will be shown the door. Often the executive is the victim of a company's changing commercial requirements - the careful accountant out and the entrepreneur in, or vice-versa.
There is no format for a dismissal meeting. Some employees are asked to work out their notice while others are immediately escorted, bin-bag in hand, to the door. The golden rule if you are called into a dismissal meeting is not to agree or disagree with any departure terms your employer might offer. Ask for proposals to be put in writing, then consider carefully what you want: is it simply obtaining the biggest pay-off possible or are other issues important to you, such as help in finding another job?
Assess the strength of your position. Is the company anxious to make a stock exchange announcement? Does it need your resignation as a director or trustee? Is it concerned about your joining a competitor? Is the board sympathetic or antagonistic? How have others been treated?
Once you have an offer, the next step is to compare it with your legal entitlement. If the offer exceeds your legal entitlement, an over-aggressive negotiating stance may prove counter productive and lead to its being withdrawn. On dismissal you have two potential claims: contractual and statutory.
If you are dismissed without due notice or a reason justifying summary dismissal, the starting point for calculating contractual compensation is an amount equal to the value of the net salary and fringe benefits (such as the use of a car or pension contributions) that you would have received during your notice period.
If you do not have a written contract, you will be entitled to at least the statutory minimum period of notice - one week's notice for each completed year of service subject to a minimum of one week and a maximum of 12. If you are a senior executive, you may be able to argue for a longer period of notice based on what is "reasonable" in the business or profession in which you work. For example, a senior executive in a fully listed company will often be able to argue for at least one year's notice.
Notice entitlement is vital in calculating the value of your contractual claim. The first caveat is that on dismissal, you may be under a duty to minimise your losses by seeking and accepting alternative work (get advice from an employment lawyer to be sure). If so, and your former employer discovers you have lined up another well-paid job, the compensation offered may be drastically reduced. Many employers also require executives to warrant, as part of the terms of the settlement, that they have not received another job offer. You should bear that in mind when talking to potential employers.
Then there are your statutory rights. Employees who have at least one year's continuous employment with their employer at the date of dismissal may have a claim for unfair dismissal. It is for the employer to demonstrate that the dismissal was "fair" and properly handled.
Awards for dismissal have two parts: the "basic award" and the "compensatory award". The basic award is a relatively nominal sum, subject to a maximum of £345 (depending on age) for each completed year with the employer (up to a maximum of 20 years). The compensatory award is determined by an employment tribunal and is generally aimed at compensating employees for their financial losses. It is currently subject to a maximum of £50,000.
If you think you have been unfairly dismissed, you must submit your claim to an employment tribunal within three months of your dismissal. Contractual claims of up to £25,000 can also be submitted to the tribunal, otherwise they must be pursued in the County or High Court. There is no qualifying period of service required for court actions and the time limit is six years from the date of the alleged breach.
You have only limited opportunities to use tax-planning in your termination payments. Often the first £30,000 of compensation can be paid without the deduction of tax (anything over that is taxable). Any legal fees you incur in negotiating the settlement can also be paid by your employer on your behalf without incurring a tax charge.
However, subject to the Inland Revenue limits, payments can be made free of tax into an employer's pension scheme on your behalf. Such payments must pass directly from the employer into the scheme. To ensure this happens, you should get the obligation written into the settlement agreement.
In addition to your strict legal entitlement, there are a number of ways in which you can seek to improve the settlement. Many executives are granted share options. Save in limited circumstances (such as retirement or redundancy), share options that have not been exercised by the dismissal date usually lapse with immediate effect, even if an executive has been dismissed without justification.
Many option schemes give the board discretion to enable an executive to exercise the option within a set time following the termination of employment. It is usually worth attempting to persuade the employer to exercise that discretion, using the argument that it is a real benefit for you and does not increase the headline figure of what you are being paid.
You might also get the company to provide an out-placement consultancy or, better still, a cash contribution towards such services. You can try to keep fringe benefits such as private medical insurance cover and life assurance cover at least until the company's normal group-policy renewal date. You should also explore retaining useful pieces of equipment such as laptop computer, fax machine or mobile telephone, which are of little value to the employer, but often of great use to you.
If you have a company car, you should investigate buying it from your employer at book value. For accounting purposes, the book value of the employer's car is depreciated by a uniform amount each year. This rate of depreciation often does not reflect the car's market value, which is usually more.
Finally, you should not lose sight of the value of a reference in the search for another job. If possible, the form of the reference should be agreed and the employer should give you a commitment to deal appropriately with all enquiries.
First published in the Financial Times on 12 September 2000.