Tricky communications with exiting executives

An exit interview is one of the trickiest aspects of labour management, and infinitely more complicated and delicate if involving a senior executive wielding significant power and influence within the company

In 2021, the Shanghai First Intermediate People’s Court issued a trial white paper analysing labour disputes involving executives and senior management between 2019 and 2021. It found the number of disputes with executives on the rise, with cases characterised by multiplicity of claims, complexity of circumstances, difficulty in post recovery and struggles with application of laws in cross-cutting areas. These are consistent with the author’s professional experience in negotiating such settlements with executives in recent years.

ESSENTIAL UNDERSTANDING

The communication process surrounding departure of executives differs significantly from that of ordinary employees.

The Labour Contract Law stipulates that employees whose average monthly salary exceeds three times the average monthly salary of employees in the same region the previous year are entitled to economic compensation no more than three times the average monthly salary, with a maximum period of 12 years, effectively capping executives’ compensation. Trial practice does not favour executives’ claims for continued employment contracts, even if illegally terminated, which limits their labour rights and puts them at a relative disadvantage.

However, with considerations of management and social impact, companies prefer to resolve issues through amicable communication and negotiation.

Compared with ordinary employees, executives have a more comprehensive grasp of the company’s situation, can collect more evidence, and are therefore in a much stronger position to negotiate or potentially square off with the company.

Apart from the risk of legal disputes, potential negative publicity should also not be underestimated. Exit negotiations with executives can be tricky for the negotiator, as the departing member could very likely be a close co-worker, or even a superior.

SIGNIFICANT DIFFERENCES

Executives are exposed to information beyond the access of ordinary employees. Accordingly, they may have a drastically different mindset in dealing with issues. Executives have a separate payment structure and different payroll principles. Reflecting a combination of responsibilities, rights and benefits, their income composition is more complex. In addition to salary, performance bonuses and allowances, it may also include stock options and risk bonuses. This can result in a high basis for calculating compensation during exit negotiations, leading to a persistently high total amount and complex structure. Additionally, there may be legal issues regarding the application of laws from various fields.

Furthermore, executives possess greater decision-making power and significantly more resources at their disposal, internally and externally, compared with employees. As a result, their influence within the organisation is considerably higher. Therefore, it is crucial that executive exit communication does not replicate the approach used for ordinary employees. Finding the appropriate point of entry is essential.

BEST STRATEGY

Integrated application of the Company Law and labour laws, balancing management objectives and executive satisfaction.

Accurate factual and legal basis is fundamental, but the key lies in effectively using it during communication.

Executives have a dual role: holding management position while subject to the same rules and regulations – as well as the Company Law and labour laws – as ordinary employees. As disputes vary case by case, which inevitably affects the choice of lawsuit, one must make a practical decision by further analysing the facts of the case. The company’s proposal should take into account its operational autonomy granted under the Company Law, as well as the right to appoint and dismiss executives under the articles of association. To identify the appropriate entry point for resolving the issue at hand, it should also consider the conditions and procedural requirements of labour laws for terminating employees.

Balancing corporate management objectives and humanised approach.

The proposal should set the tone for the communication, recognising past contributions of the executive while also upholding the company’s right to lawfully adjust employment relations.

Executives may struggle to comprehend and accept the company’s decision. If the exit negotiator becomes embroiled in this sentiment, it can impede progress towards effective solutions for any discontent and dissatisfaction. The negotiator must be able to separate the two issues. They should acknowledge the historical contributions of executives while also guiding them to confront realities in a manner that preserves their self-esteem and past achievements, yet still allows the company to exercise its legal right to manage its business effectively.

Compensation in line with legal requirements, while emotionally considerate.

Executives occupy crucial positions that greatly influence the company’s operations and management. When a company decides to terminate an executive’s employment contract, swift implementation is essential. Failure to do so could result in the executive remaining in their position, working with the company without the trust necessary for smooth co-operation, leading to misunderstandings and communication barriers. Therefore, it is usually best for executives to negotiate their departure legally, smoothly and efficiently to minimise impact on the company’s brand, business development and team management.

This approach also mitigates the risk of cost escalation due to delays.

THE RIGHT NEGOTIATOR

Apart from requirements to keep the communication lawful, rational and “people-oriented”, the choice of negotiator is a critical factor success or failure of negotiations. A negotiator should possess the following characteristics:

1. Equal status with the executive, demonstrating respect for the other party;
2. Strong foundation of interpersonal relationships, able to establish communication and trust quickly;
3. Keen sense of insight and recognition, able to anticipate and respond rapidly to the executive’s ideas and demands; and
4. Precise negotiation skills to guide the pace and direction of the conversation, avoiding getting sidetracked by details and staying on course to achieve a mutually beneficial outcome.

In the event of a lack of suitable communicators within the company, it may be worth bringing in a professional third party to assist with the process.

Shao Bo is a partner at Labour Consulting (LABOURS). He can be contacted by phone at +86 10 8225 5618 and by email at shaobo@laibei.com