Should Contractually-Provided Severance Pay Decrease as Wealth Accumulation Increases?

Employment agreements between publicly-traded issuers and their executive officers often contain severance pay provisions that are heavily negotiated at the time of entering into the agreements.  The purpose of this post is to consider whether the amount of contractually-provided severance pay could, over the employment term, be reduced proportionate to the increase in the executive’s wealth accumulation over the same time period (i.e., an inversely proportional relationship between the amount of severance pay and the amount of wealth accumulation by the executive over the employment term). Severance as Bridge Pay.  As background, contractually-provided severance pay is often required in order to incent the executive to take employment with the issuer.  A purpose of severance pay is to protect the executive’s financial downside should his or her employment with the issuer terminate earlier than originally contemplated by the…

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