Severance Payout: Lessons from Texas A&M’s $75 million mistake
Even if you’re not a sports fan, you’ve likely heard of this severance payout received by former A&M football coach, Jimbo Fisher. While you will never deal with this type of buy-out, the saga teaches us a great deal about hiring decisions, employment contracts, and, well, human nature.
Jimbo’s the One!
The following facts are taken from a November 12, 2023, piece by Sam Kahn Jr. appearing in “The Athletic.” Jimbo was the head coach of the title winning Florida State Seminoles. Seeking the same success, the Aggies hired Jimbo in 2017. The basic terms included a 10-year, $75 million employment contract. There was early success. (I will get back to early success in a minute). A smitten A&M then doubled.
In September 2021, A&M extended Jimbo’s contract through 2031 to the tune of at least $75 million, fully guaranteed. Here is part of the announcement from the University’s Athletic Director (AD): “Coach Fisher continues to demonstrate he is building our program for long-term success, and he is a perfect fit for A&M.” The AD goes on, “There is momentum in all phases of our program, and we are excited about what lies ahead for Aggie football.”
And what did lie ahead? Disaster from A&M’s viewpoint. The numbers tell the tale: a 19-15 win/loss record; 10-13 against competitors in the SEC; and 12-15 against Power 5 schools. There are other metrics, but you get the idea. When Jimbo was fired this fall, A&M’s win/loss record was 6-4.
Hiring Thoughts
When hiring for a position, always look at the previous success of a candidate. But it’s important to ask yourself: Was the previous success the result of chance and circumstance (luck plays a role in our lives), or was it the result of the applicant’s strategic and tactical talent?
By way of example, one could ask: Was the early success experienced during Jimbo’s tenure the result of the preceding coach’s ability to recruit talented high school players to A&M?
And remember this: Don’t buy into the idea that any one person will be the fix for your company’s issues. Instead, look to a candidate’s overall philosophy of working with others, identifying their talents, and inspiring/incentivizing them in pursuit of the company’s success. Gen Z employees are especially synced up to team projects and this type of supervision.
Contract Thoughts
Jimbo’s contract contains one saving grace for A&M: a long-term payout. The Aggies owe Jimbo $26.6 million by March 11, 2024, and the rest will be paid out in annual installments of $7.2 million from 2025 through 2031.
Assuming you use an employment contract, a pay-off over time is a good idea regardless of the amount. Here is a better idea: End the pay-off when the former employee finds another job or decrease the pay-off by the amount made in the new job. Write those provisions into the contract.
Another contract thought: Insert a provision that if fired for cause, then there’s no severance payment. Cause can of course vary from contract to contract. Had this been detailed in Jimbo’s contract, this article would have taken a different turn. And, for all the nice words in the AD’s announcement, they’re just euphemisms for this: Bring home a national championship (or close to it) or leave.
Contract Avoidance Thoughts
Many readers offer employment via an offer letter, and that’s fine. But every letter needs a merger clause that acts as an antidote to contract formation. Here is some suggested language: “This letter contains the entire understanding of the parties with respect to the terms and conditions of the offer of employment and supersedes any prior verbal or written communication. This offer may only be modified in a document signed by the parties referring specifically to this order.”
What does this language do for you? It wipes out any statements made by you before the candidate signed the offer letter.
And as long as I’m at it, consider inserting the following: “You must be employed by the company on the date that (bonus/annual incentive compensation etc.) is awarded to be eligible for any (bonus/incentive compensation). If your employment is terminated any reason before the award date, whether the termination is initiated by you or by the company or is mutually agreed upon, you will not receive any (bonus/incentive compensation). No employee or officer of the company is authorized to make any oral or written agreement to you about any (bonus/incentive compensation).”
What does this language do you for? It simplifies the issue of paying money when an employee leaves. Note that this can be modified. By way of example, if the employee leaves on good terms, you might want to promise to give a pro-rata share of any bonus or incentive compensation. It all depends on how you want to run your business.
Final Thoughts
What starts well, ends well. When any type of new relationship starts, keep a level head, practical orientation, and realistic expectations. And if you make a mistake, well, remember Seneca’s advice that “every day is a lifetime.”
Michael P. Maslanka is a professor at the UNT-Dallas College of Law. You can reach him at michael.maslanka@unt-dallas.edu.
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