Severance – Creating a Clean Departure

Episode #31 – Severance – Creating a Clean Departure

In episode 29, we talked about when a leader is no longer effective for your group. As we said, it’s important to engineer a clean departure for them, and a severance package can go a long way to doing that.

If your executive leader needs to be transitioned out, and it’s not voluntary on their part, a Severance Agreement can help to create a smooth landing for them. It allows you to honor their years of service, assuming most leaders have added a great deal to the group at some point in their employment history.

We work with a lot of groups who have had a leader who evolved into being ineffective. They generally contact us when they’re at a point of crisis. Emotions are high, and frequently decision-making is not terribly clear or productive.

My strong recommendation is to shelve the emotion and honor their years of service. Keep the focus there, and on exiting them swiftly and smoothly and with a minimum of fuss. If you must girch about them to someone, let that be one of your partners, and let it be behind closed doors and in the strictest of confidence. The cone of silence, if you will.

Once you are in agreement that the leader needs to go, give it some time for emotions to settle. Then you can discuss as a group and see what the appetite is for a severance payment. Again, you may need to work through some emotion until everyone can approach the discussion rationally.

A good rule of thumb for a manager or administrator is $1,000 per year of service, so if they’ve been with you for 8 years, an offer of $8,000 for severance would be in keeping with that. Some partners may not want to pay, especially if the last few months have been difficult. Help them to see the wisdom of using this as a tool to quickly and effectively solve the problem and exit the leader. Money talks.

Help them to get past their emotion about it and see it as purely a business decision. A wrongful termination lawsuit can cost you hundreds of thousands of dollars, and even if you’re insured for some of that with EPLI coverage as we discussed in our last episode, it will still consume hours and hours of leadership time and energy and will have your group’s focus on the negativity of the lawsuit instead of positively moving forward. You can effectively use the severance package as a mini-insurance policy to protect your group from a wrongful termination lawsuit. Far less expensive in the long run.

Compare the amount you’ll offer against the leader’s current total compensation to make sure it’s reasonable. If you’ve been paying them at a rate of $100,000 per year, a severance of less than $5,000 may seem more like an insult, even if they’ve only worked with you for a couple years. You may want to increase the amount at your discretion so that your offer is enticing. Again, far less expensive in the long run!

You can also consider if they have Paid Time Off that will be paid out as you’re thinking about their total exit package. It’s good to delineate that as well, so it’s clear to them how much they’ll be paid on their way out.

You might also consider continuing to pay for medical benefits for a few months as another way to soften the blow for them. Most groups are subject to state continuation of benefits laws, or the Federal COBRA laws, which require you to offer your employees the opportunity to continue their benefits for up to 18 months at their own expense. Having the practice cover this for a few months is another classy way to indicate that you care about them and about them landing on their feet.

The severance agreement itself should include several points:

• The date it is effective, which is their last day of work
• The fact that they have the right to have the agreement reviewed by their own attorney
• The amount of severance they will be paid
• The amount of accrued time off they will be paid upon their departure
• The total amount of the last check they’ll receive once the signed agreement is returned
• The fact that they can rescind the agreement and return the money within three days
• A full release of claims from them, which means they are forfeiting their right to sue you for wrongful termination. This is key and it is why you want the written agreement.

There is a template for a Severance Agreement in the medical money matters toolkit at medical money matters podcast.com. As always, please check with your employment attorney to assure that your agreement complies with state employment law.

Generally, this is presented to the outgoing leader in a private meeting, with two of the physician leaders or owners, or one physician leader and your employment attorney or business consultant. These conversations should always happen with two representatives from the practice in the room, so you can avoid the “he-said, she-said” phenomenon. I recommend planning out who will do the talking, and who will do the listening, and in most cases, the less said, the better. These are never comfortable conversations, and they need not be long. Stick to the pertinent points, pausing along the way to see if they have questions. Begin and end by being gracious, and letting them know how much you appreciate all that they’ve done for the practice. Even if that seems out of keeping with their recent performance, and events that have caused you to make this decision, it’s best to take the high road.

Be sure that you have verbally reviewed the high points with them, and be sure that they have a few minutes to reflect. If they’re upset, sit quietly with them until they have a chance to regain their composure. Then ask again if they have any questions. Most will want to take the Severance Agreement with them and read it over more thoroughly.

Some may be in a big upset, and will storm out of the office. Best to follow them to assure that they don’t do or say anything damaging. You can offer to walk them out if you have any concern that they may do or say something inappropriate. You can also encourage them to take some time to cool down. Again, it’s good to have two representatives from the practice there, and if the employee being given the Severance Agreement is male, it’s a good idea to have a male representative of the clinic to balance the scale from a gender perspective.

In most cases, the outgoing leader will be professional and measured in their response, and while they may be feeling a range of emotions, they will process and ask a few questions. They may or may not be surprised by the conversation, so give them space for whatever reaction they may have and allow them to ask whatever questions that come up for them. There are professional standards to uphold here, and let’s remember that we’re human beings managing other human beings, with the full range of human emotion and human experience. Do your best to strike a balance – it may be an absolutely necessary change for the practice, and you just delivered some life changing news to someone. Compassion and grace are always in order.

Join me for our next episode, where we’ll talk about coaching, counseling, disciplining and termination as a continuum.