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Different Termination compensation for Executives

Different Termination Compensation for Executives

Termination of employment is common and it usually rests on two premises: just clause and valid clause. While a valid clause entails employee behavior, efficiency, and requirements of the business, a just clause may include long-term absence owing to bad health, immoral, dishonorable or malicious conduct, absence because of arrest or detention and force majeure. 

 

Whatever may be the reason for termination of employment, the employer is contractually obliged to pay compensation to the departing employee. While serving a notice period to the employee is integral to severance packages, termination arising out of a just cause may not entail any notice period. However, payment of compensation is integral to every kind of termination if the employee has worked for at least 6 months and the establishment has at least 30 employees. Nevertheless, the amount of compensation depends on the reason for the termination and seniority of the employee. The amount of compensation also differs for executive positions. 

 

Termination Compensation For Non-Executive Positions

Notice pay is an integral part of termination compensation. It depends on the employee’s gross wage along with other benefits like premiums, bonuses, heating, family allowances, clothing, health benefits, etc., which are provided along with the employee’s basic wage. However, payments like overtime allowance, payments in proportion to the profitability of the business, performance-related bonuses, etc., are not taken into account. 

 

This is where termination compensation for executives differ from that of non-executives. For employees in executive ranks, termination compensation includes a whole host of other benefits. 

 

Termination Compensation For Executive Positions

For executive positions, compensation in case of termination includes total compensation. This includes basic salary, incentive pay which depends on business performance, bonus, incentive-based on individual performance, stock options, and various stock option simulations. Termination compensation outside of the base salary is built into company policies and are the same for every executive employee leaving the company. However, the compensation is subject to executive taxation in some cases. 

 

Lawful Termination 

There are many instances when employers don’t bother to offer enough notice period or don’t mention the cause of termination. In the eyes of the courts, this is not lawful termination. In such cases, the decision to award total compensation often goes in favor of employees in executive positions. 

 

Now, full compensation entails corporate incentive based on business performance, incentives based on employee performance, stock options, pension contribution, car allowance, medical coverage, insurance coverage, etc., apart from bonus and base pay. However, the bonus does not come under executive taxation and is not liable to be taxed. 

 

All these elements of termination compensation are written in an employment contract. However, in reality, in most cases, the total compensation that the executive gets does not entail all the stipulated benefits. It is due to this reason that more often than not such terminations end up in the court. What is intriguing to note is that in most of these cases courts are sympathetic to employees, and employers are made to bear the total compensation bill for such employees. 

 

Conclusion 

Executive employees often have a complicated total compensation system. Therefore, in case of termination, the employer needs to include all the elements of severance pay that are mentioned in the employment letter as well as those that are defined and designed by various departments like finance, stock, etc. The employer also needs to deduct the right amount of tax in terms of executive taxation for individual employees.

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