Severance payments for managers: Calculation and conditions

At G. Elías & Muñoz Abogados, we are lawyers specialising in calculating and claiming compensation for the dismissal of senior executives with more than 30 years of experience. In this article, the head of the employment department and founding partner of the firm, Vicente García Elías, analyses how compensation for a senior executive is calculated, the applicable limits and the required documentation.

The summary outline for calculating compensation for a senior executive is as follows:

• If there is termination at the employer’s discretion:
  o The compensation agreed in the contract applies.
  o If there is no agreement: 7 days’ cash salary per year, with a maximum of 6 months’ salary. If the notice period of 3 months (6 months in some cases) is not observed, the outstanding notice pay is added.
• If there is a disciplinary dismissal and it is declared unfair:
  o The agreed compensation applies.
  o If there is no agreement, 20 days’ cash salary per year, with a maximum of 12 months’ salary.
  o If declared unfair or null: the company and the executive may agree on reinstatement or compensation; if no agreement is reached, compensation applies by default.

How to calculate your compensation for senior executive dismissal in 5 steps

The first thing to know is that a senior executive employment relationship is governed by the Royal Decree regulating the special employment relationship of senior management staff.

To calculate compensation for dismissal as a senior executive, follow these steps:

     1. Determine whether you are a senior executive or an ordinary manager

The job title is not decisive. What determines a senior executive employment relationship is whether the following characteristics are met:

• Exercise of company powers.
• Work performed with autonomy and responsibility.
• Activity limited only by instructions from the company’s governing bodies.
• A relationship based on trust.

     2. Determine how the senior executive contract has been terminated by the company

This may involve termination at the employer’s discretion or a disciplinary dismissal. 

     3. Review the contract

It is essential to read the contract you signed and check whether there is any severance protection clause in the event of dismissal or termination by the employer.

     4. Calculate the compensation

First, apply what is set out in the contract. If nothing is specified, the compensation rules mentioned above apply:

• In the case of termination at the employer’s discretion: 7 days’ cash salary per year, with a maximum of 6 months’ salary. If notice is not respected, the missing notice pay is added.
• In the case of disciplinary dismissal: 20 days’ cash salary per year, with a maximum of 12 months’ salary.

Examples of calculating compensation for senior executive dismissal

Example of an unfair disciplinary dismissal

Consider the following example: you are the CEO of a technology company. You signed your senior executive contract on 1 January 2020, you are dismissed, you challenge the dismissal and it is declared unfair. The employment relationship ends on 31 December 2024. Your salary is €200,000 per year. The contract does not specify compensation for this situation. Let us calculate the compensation:

• Length of service: 5 years.
• Daily salary: 200,000 / 365 = €548 per day
• Compensation days: 20 days × 5 years = 100 days
• Compensation amount: €548 × 100 = €54,800
• Maximum: the cap would be €200,000 and does not apply as the compensation amount is lower.

Example of termination at the employer’s discretion

Consider this case: you are a managing director in a renewable energy company. You signed your senior executive contract on 1 April 2021 and the company notifies you in writing of termination effective 31 March 2025. Your salary is €165,000 per year. There is no agreed compensation in the contract for this scenario.

• Length of service: 4 years.
• Daily salary: 165,000 / 365 = €452.05 per day.
• Compensation days: 7 days × 4 years = 28 days.
• Compensation amount: €452.05 × 28 = €12,657.40.
• Maximum of 6 months’ salary. Monthly salary: 165,000 / 12 = €13,750. Six months: €82,500. Since €12,657.40 < €82,500, the cap does not apply.

Common mistakes that can cost you money when calculating senior executive dismissal compensation

There are small details and actions that can cost you money and affect your compensation. The most common are:

• Signing the dismissal letter without stating “not agreed” where appropriate.
• Forgetting to include variable remuneration received in cash.
• Failing to analyse post-contractual non-compete clauses.
• Not seeking legal advice from lawyers specialising in executive dismissals.

Frequently asked questions about compensation for senior executive dismissal

To address the most common queries and summarise what we have seen, we set out the following questions and answers:

Am I a senior executive or an ordinary manager, and why does this affect my compensation?

The compensation will be that agreed in the contract and, if there is no agreement, the Royal Decree on senior management staff applies: 7 days’ cash salary per year, with a maximum of 6 months’ salary, in the case of termination at the employer’s discretion. If notice is not respected, the missing notice pay is added.

The compensation will be 20 days’ cash salary per year, with a maximum of 12 months’ salary, in the case of unfair dismissal.

Is dismissal compensation exempt from income tax (IRPF)?

In the case of termination at the employer’s discretion: the amount of 7 days with a maximum of 6 months is considered the mandatory minimum and is therefore exempt from income tax according to the criteria established by Supreme Court Judgment 1528/2019 of 5 November.

If dismissal occurs and is declared unfair: the portion of compensation that does not exceed the mandatory minimum (20 days’ cash salary per year of service with a maximum of 12 months’ salary) is exempt.

What is “cash salary” and which elements are included in calculating compensation?

The remuneration of a senior executive is agreed with the employer and may consist of:

• A fixed cash salary.
• Bonuses, incentives or premiums for achieving targets.
• Stock options.
• Profit-sharing.
• Benefits in kind (company car, pension contributions or private medical insurance, for example).

For compensation purposes, only amounts received in cash are taken into account.

What happens if I have a severance protection clause: does the contract apply?

Yes, the compensation agreed in the senior executive contract applies.

If I come from a standard employment relationship, do I have the right to return to my previous position?

In this case, a senior executive contract must be signed, specifying whether the new relationship replaces the previous one or whether the latter is suspended. If the contract does not regulate this, the standard employment relationship is deemed suspended, meaning the employee may resume it unless it is a disciplinary dismissal.

What deadlines apply to claim compensation and what documents should I keep?

The deadline to challenge the dismissal and claim compensation is 20 working days from the date of dismissal. Some of the documents you should gather include:

• Employment contract and any signed annexes.
• Dismissal letter.
• Payslips.
• Tax withholding certificates.
• Proof of bonuses and variable remuneration.
• Proof of benefits in kind.
• Emails, corporate chats, minutes and reports that may support your claims.
• Evidence of targets achieved.
• Witnesses.

In conclusion, compensation for senior executive dismissal has specific features that should be understood before signing the contract or when considering making a claim.

At our firm, we have employment lawyers specialising in senior executive dismissals. Contact us if you have any questions.

Author: Vicente García Elías, head of the firm and employment lawyer with more than 30 years of experience, specialising in senior executive contracts and compensation.

Article updated on 9 February 2026.

Sources:

• Workers’ Statute.
• Royal Decree regulating the special employment relationship of senior management staff.