Getting laid off is disorienting, and in the fog of processing the news, you're handed a severance agreement and told you have some number of days to sign. Most people sign immediately, grateful for whatever they're offered. That's almost always a mistake. Severance agreements are negotiable documents, and the difference between signing as-is and negotiating effectively can be tens of thousands of dollars and months of health coverage.
What Severance Actually Covers
A severance package typically includes more than just cash. The core components are: severance pay (calculated by formula or negotiation), continued health insurance (COBRA or employer-subsidized), payout of accrued but unused vacation (required by law in most states), treatment of equity (vesting acceleration or extended exercise windows), outplacement services, and the release of claims. Understanding each component is essential to evaluating whether an offer is fair.
Cash: N+1, 2N, and Company Policy
While the N+1 and 2N formulas are common in some jurisdictions (notably outside the US), American companies are not legally required to offer severance at all unless it's specified in an employment contract or covered by the WARN Act for mass layoffs. That said, most professional roles come with some form of severance. Typical US practice: one to two weeks of pay per year of service, often capped. A VP-level employee with ten years of tenure might receive 20-26 weeks. Individual contributors with two years might receive 4-6 weeks. Seniority, reason for departure, and negotiating leverage all matter.
Health Insurance: The Most Undervalued Component
COBRA allows you to continue your employer health plan, but you pay the full premium (both your share and the employer's share) plus a 2% administrative fee. This can easily cost $600-$900 per month for an individual, more for a family. Negotiating employer-subsidized COBRA for 3-6 months is one of the highest-value asks in a severance negotiation. If your employer pays your COBRA premiums for six months, that's potentially $5,000+ in value that costs them far less than the equivalent cash because they may already have budgeted for it.
Equity: The Wealth Component
If you hold unvested stock options or RSUs, your severance negotiation should focus heavily on equity treatment. Standard practice is that unvested equity is forfeited on your last day. But you can negotiate for partial acceleration of vesting (common at VP+ level), extended post-termination exercise windows for vested options (extending the typical 90-day window to 1-2 years), or a cash equivalent for forfeited equity. This is especially important if you were at a company for several years and your equity represents a significant portion of your total compensation.
Key Takeaway
Cash is visible. Health coverage and equity treatment are where the real value hides. Before you negotiate, calculate the dollar value of every component. Then prioritize: health coverage extension, equity treatment, and cash — in that order. And never, ever sign a severance agreement on the day you receive it. Take the full review period, and if the release includes a waiver of age discrimination claims (if you're over 40), you're entitled to 21 days minimum by federal law.
When to Hire an Attorney
If your severance agreement includes a broad release of claims and you suspect your termination may have been discriminatory or retaliatory, hire an employment attorney before signing. If you're a senior executive with complex equity and non-compete provisions, hire an attorney. If the agreement contains unusual restrictive covenants or non-disparagement clauses that could limit future employment, hire an attorney. The cost of a review ($500-$2,000) is trivial compared to the value of catching a problematic clause or identifying negotiating leverage you didn't know you had.