THE first thing that a clever senior executive does when he falls out with his boss is reach for the phone and his lawyer. It usually pays off the last fortnight has seen the resignation of two senior executives, Dr Eddie O'Connor from Bord na Mona and Mr Jim O'Mahony from Golden Vale, both with reported £750,000 settlement packages, negotiated for them by their lawyers.
"Senior executives don't have "trade unions who would be the natural place to turn. Lawyers can point out to them their rights and entitlements and act as a buffer," explains Garret Fennel, employment law specialist at McCann Fitzgerald.
The role as intermediary can be very important when there is a personal element to the dispute, as is often the case in serious disagreements amongst senior management.
How actual settlement sums are arrived at is one of the black arts of employment law. There are three main factors taken into account, according to Mr Gary Byrne, a partner in the employment law specialists, BCM Hanby Wallace. They are the employee's contracts, the employee's statutory entitlements and the "nuisance factor".
The first two elements are the more straightforward. Chief executives' contracts are usually designed to stop them leaving the company rather than facilitate their removal. As a result unwinding many of the "golden handcuffs" in contract such as share options can be expensive.
This is particularly true in the case of rolling contracts, which are common for senior management. These contracts are constantly being renewed.
Alf employees are entitled to compensation if they are unfairly dismissed. The Employment Appeals Tribunal can award a maximum of two years gross salary as compensation, but cannot award any damages.
The figure of two times an executive's gross package, as defined by their contracts, is usually the basis of attempts to negotiate a settlement. However, the figure eventually arrived at is determined normally by the third factor how much the company is prepared to pay to get rid of some one quickly and quietly.
Companies are prepared to spend substantial amounts of money to keep their names out of the courts. This is particularly true in the case of dismissed senior executives who normally have in their possession information which may be both potentially damaging to a company's reputation and also of vital interest to their competitors.
The size of the settlement is ultimately a commercial decision. "It might be seen as money well spent to protect future profits," Mr Byrne. Ironically, the strength of the employers' case can work against them when trying to remove senior employees, as they may not want any examples of negligence by employees publicised.
"The company wants to get on with business and there is a price for that and for allowing management to keep their eye on the ball," according to Mr Fennel. Employment appeals can take around eight months to be heard while wrongful dismissal cases can take two to three years to come to court, he points out.
When all three factors are taken into account settlements in the region of £750,000 do not seem unreasonable for executives on packages in the region of £200,000 to £300,000 including car, pension and other benefits.
However, the size of the settlement sum can often be misleading in terms of the actual amount of money the individual receives, Mr Byrne said. The first £10,000 of a severance payment is tax free, provided the individual has not received one previously and another £500 of the payment is tax free for every year of service. The rest is treated as income in the year in which it is received and as such is liable for income tax, normally at the top rate in the case of senior executives.
As a result, the structuring of the settlement payment in a tax efficient manner can be a very important part of the negotiations. Pension payments often make up part of any settlement as they are a more tax efficient form of payment than a lump sum. However, the recipient may never see the benefit of the pension payment if they do not live long enough to collect it.
High profile severance packages commonly involve an agreement on confidentiality and how the announcement will be handled. They often also involve some form of on going relationship between the individual and the company, such as non executive directorship.
Severance packages will nearly always include an agreement on legal and other costs incurred by the employee which can be substantial if senior counsel are retained.
Legal fees can be charged on the basis of an hourly rate, an agreed fee or, in some circumstances, are performance related. Given the size of some recent settlements, negotiating the severance deals of senior executives is a very lucrative business and one that is currently booming.
Recent severance agreements Mr Chris Commerford, former Greencore chief executive.
After four year court battle obtained a pension worth around £70,000 a year and half his legal costs, worth a reported £500,000, in November 1995. He did not get his original £1 million package and gave up the claim to a £2.5 million loan note.
Mr Jim Lacey, former chief executive of National Irish Bank.
Received a settlement package worth £750,000 and a non executive directorship after being removed from his post in April 1994.
Mr Jim O'Mahony, former managing director of Golden Vale.
Received a package reported to be worth £750,000 following his resignation as a director of Golden Vale and as chief executive of the associated co op two weeks ago. He had previously been removed as managing director of Golden Vale.
Mr Eddie O'Connor, former managing director of Bord na Mona.
Received package reported to be between £750,000 and £1 million on his resignation from Bord na Mona.
Mr Brian Duncan, chief executive of VHI and former chief executive of Irish Life's operations in the Republic.
Received a payment of £293,000 from the company following his resignation at the end of 1994. The payment was in recognition of his long involvement with the company and the number of years left to run in his service contract.
Mr David Gavigan, former executive director of DCC.
Received a package worth £250,000 to compensate for loss of office after resigning in September 1996. It comprised a £150,000 compensation payment and a £100,000 special pension payment.
Mr Joe Treacy, former chief executive of First National Building Society.
Received a lump sum of £150,000 plus pension entitlement in February 1995, as settlement of a legal dispute after his resignation in March 1993.
Mr Eamonn Conor, former director of Jones Group.
Received a payment of £130,000 for loss of office following his retirement in December 1994.
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