Here's a scenario: A hospital CEO or CFO voluntarily "resigns" due to pressure from a board but is not actually fired, which would have prompted severance payouts. Should the hospital pay that executive anyway?
According to an article from David Bjork, PhD, a senior vice president and senior advisor at Integrated Healthcare Strategies, the hospital probably should. He said when a hospital fires an executive, it will automatically trigger severance payments and could lead to discrimination claims. Although paying severance "seems outrageous" in instances of resignation, Mr. Bjork said it is pragmatic and avoids several legal pitfalls.
"Even if they are not obligated to do so, many employers routinely pay severance to get the terminated employee to agree not to file any claims, not to disclose confidential information, not to compete and not to recruit other employees to jobs elsewhere," Mr. Bjork wrote.
Paying severance on "resignation" essentially is paying the executive "to go away," according to Mr. Bjork. However, if both the board and executive have failed in their leadership duties, it may be best to pay and move on.
"Admittedly, paying severance when an executive 'resigns' looks bad, and it's hard to defend," Mr. Bjork wrote. "When a board pays severance to a CEO who resigns, it may even appear to be a failure of governance…The question is how the board should document this to be able to defend itself against a charge of paying severance on voluntary resignation."
According to an article from David Bjork, PhD, a senior vice president and senior advisor at Integrated Healthcare Strategies, the hospital probably should. He said when a hospital fires an executive, it will automatically trigger severance payments and could lead to discrimination claims. Although paying severance "seems outrageous" in instances of resignation, Mr. Bjork said it is pragmatic and avoids several legal pitfalls.
"Even if they are not obligated to do so, many employers routinely pay severance to get the terminated employee to agree not to file any claims, not to disclose confidential information, not to compete and not to recruit other employees to jobs elsewhere," Mr. Bjork wrote.
Paying severance on "resignation" essentially is paying the executive "to go away," according to Mr. Bjork. However, if both the board and executive have failed in their leadership duties, it may be best to pay and move on.
"Admittedly, paying severance when an executive 'resigns' looks bad, and it's hard to defend," Mr. Bjork wrote. "When a board pays severance to a CEO who resigns, it may even appear to be a failure of governance…The question is how the board should document this to be able to defend itself against a charge of paying severance on voluntary resignation."
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