The severance pay gap is a central issue for top earners at BMW and Mercedes: anyone earning €150,000 a year today who, after a termination, only lands a role at €85,000 must deploy their severance wisely to bridge that gap. The employer’s initial offers often sound tempting, yet they mask a fundamental problem: severance is meant to compensate for the loss of the job, not for a permanent income shortfall. An advisor warns of typical mistakes that can cost high earners dearly. In this article you will learn what matters when your salary is far above average and you are confronted with a severance offer.
Why BMW and Mercedes Represent a Particular Severance Trap for Top Earners
The automotive industry is undergoing a profound transformation. Manufacturers such as BMW and Mercedes are cutting jobs on a massive scale, especially in administration and among executives. Precisely there, salaries of €150,000 and more are not uncommon. These figures often reflect years of tenure, responsibility and specialist knowledge – yet exactly those factors make the situation so delicate for those affected.
Because anyone who has worked for a corporation for a long time is often heavily dependent on that high salary. Mortgages, loans, living costs and retirement provision are tailored to the previous income. After termination, income drops abruptly to a level only half as high – in the example from €150,000 to €85,000. The severance is supposed to bridge this gap, but it often falls short if viewed merely as a one-off compensation. The real trap lies in the fact that many top earners fail to see the severance for what it truly is: a bridge into a potentially lower-paid future.
Added to this: at large companies like BMW and Mercedes there are often social plans and reconciliation of interests that formally fix the severance amount. These are negotiable, yet many executives underestimate their own room for manoeuvre. They accept the first offer because it looks high compared with their income – and overlook that the long-term loss is far greater.
Severance Pay Gap: From €150,000 to €85,000 – What This Means for Negotiations
The difference between the old and the new salary amounts to €65,000 per year. Even a six-figure severance – say €300,000 – covers this gap for only four and a half years. That is a period many employees consider too short, particularly if they are still far from retirement. In practice, severance is frequently calculated on the basis of tenure. A rule of thumb: half a gross monthly salary per year of employment. With 20 years’ service and a €150,000 annual salary that yields €150,000 (20 × 0.5 × €12,500). This sum is significantly below what many top earners deem appropriate.
For the negotiation this means: you must align your demands not only with the formula but with your actual loss. This includes lost wages until the next job, forfeited bonuses, company car or stock options, and higher costs for private health insurance if you have to switch to voluntary coverage. An experienced specialist lawyer for employment law can identify these items and bring them into the negotiation. Without such a calculation you risk accepting a severance that inadequately closes your salary gap.
Moreover, bear in mind: severance is not a statutory entitlement in every termination. It is paid only if the employer offers it or if you negotiate a settlement in the course of a wrongful termination lawsuit. The well-known § 1a KSchG applies only if the employer explicitly offers severance in the termination letter and the dismissal is for operational reasons. Otherwise you must act yourself. Further basics on severance can be found in our Severance After Termination Guide.
Where the Trap Lies: Typical Mistakes When Accepting a Severance Offer
The biggest trap is premature agreement. Many top earners sign an offer because they feel pressured to find a quick solution – whether out of concern for their reference or fear of financial bottlenecks. The severance pay gap is more than a one-time payment – it must bridge the income gap for years. In doing so they overlook fundamental points: is the termination legally valid at all? Is there a possibility to continue working or achieve a better settlement? And what are the tax consequences of the severance?
Another mistake is ignoring additional benefits. Often a company car, work phone, stock options or a company pension scheme are part of the total package. These values must feed into the negotiation. Anyone who ignores them leaves money on the table. The timing of the release also matters: paid leave at full salary can be more valuable than a higher severance because it extends the employment relationship and secures social security contributions.
Added to this is a misjudgement of the labour market. Anyone who believes they will quickly find a new job with a similar salary underestimates the situation in the automotive sector. The market is saturated with highly qualified specialists and executives, and many companies now pay less than before. The figures cited by BMW and Mercedes are symptomatic: €85,000 is a realistic offer for many positions that were previously remunerated at €150,000. Anyone who refuses to accept this reality risks ending up with an even worse outcome after prolonged negotiations.
To avoid these mistakes you should take your time and examine all options. Also read our article on Severance for Executives: The Bobic Case Example.
How to Properly Assess a Severance Offer as an Executive
First: examine the termination. Is it socially justified? In operational dismissals the employer must have carried out the social selection correctly. Errors there make the termination challengeable. An experienced lawyer can perform this check and tell you whether a wrongful termination lawsuit has prospects of success. The deadline for filing suit is only three weeks after receipt of the notice – a missed deadline means the termination is deemed valid even if it was actually invalid. Information on the lawsuit is available on our page Wrongful Termination Lawsuit: Everything You Need to Know.
Next you should follow the severance calculation. Have the calculation basis provided in writing: tenure, age, maintenance obligations and severe disability all feed into the amount. Compare the offer with the rule of thumb and check whether additional benefits were considered. Request a statement of all claims, including remaining leave, overtime and any bonus payments. These can be claimed in addition to the severance.
Also consider whether a termination agreement or a settlement agreement makes sense for you. A termination agreement ends the employment relationship by mutual consent but may trigger a blocking period for unemployment benefits. A settlement agreement, by contrast, accepts the termination but grants additional payments. Your lawyer can weigh the pros and cons and help you choose the most favourable variant. Incidentally: even if you already know comparable cases – every situation is different, as our case study on Early Retirement and Severance at Evonik shows.
Tax and Social Security Consequences of a Severance for Higher Earners
A severance is not a tax-free payment. It is subject to income tax and can – depending on the amount – lead to a substantial tax burden. Many employees use the quintuple rule to reduce the tax. This rule spreads the severance over five years for tax purposes and thus lowers the top tax rate. However, it is only applicable under certain conditions and must be claimed in the tax return. A tax advisor can help here – because a mistake quickly costs several thousand euros.
In social security terms the blocking period for unemployment benefits is especially relevant. If you resign yourself or sign a termination agreement, the Employment Agency usually imposes a blocking period of up to twelve weeks. During this time you receive no unemployment benefit. The amount of unemployment benefit I also depends on your previous salary, but only up to the contribution assessment ceiling. At an annual salary of €150,000 your unemployment benefit I is not proportionally higher than at €85,000 – it is simply capped.
Additionally you should review your health insurance. As a high earner you were likely privately insured. After termination you can switch to statutory health insurance if your new income falls below the annual earnings threshold. The switch can, however, bring disadvantages, for instance regarding supplementary benefits. Independent advice is therefore advisable.
All these points should feed into your negotiation strategy. A severance that looks high on paper can shrink considerably after tax. Anyone who fails to account for this negotiates against themselves.
Why an Independent Specialist Lawyer for Employment Law Is Decisive
Especially with high salaries the risk of making wrong decisions is great. An independent specialist lawyer for employment law knows the case law, the employer’s typical errors and has negotiation experience. They can realistically assess the prospects of a wrongful termination lawsuit and – if necessary – secure a higher severance before the labour court. The costs are usually based on the value in dispute, which depends on your income – at €150,000 annual salary the value in dispute is high and so is the lawyer’s fee.
This is where a litigation funder like RechtStark comes in: we are not a law firm and do not represent you ourselves. Under certain conditions, however, we assume the financing of your wrongful termination lawsuit so that you do not have to advance any lawyer or court fees. Our aim is to enable you to access the labour court even if you cannot afford upfront costs. Only an independent lawyer represents your interests – we take care of the financial side.
A lawyer is also important for conducting the negotiations. They can rebut the employer’s arguments, point out social selection errors and negotiate a settlement that adequately accounts for your salary gap. Do not rely on statements from HR or the works council – they naturally represent other interests. A lawyer has only your welfare in mind.
How such cases play out in practice is also illustrated by our article on Rights During Job Cuts in the Auto Crisis.
Your Next Steps: Securing Your Financial Future After Termination
The first and most important rule: do not act rashly. The three-week deadline for a wrongful termination lawsuit applies, but you can use the time to inform yourself thoroughly and consult a lawyer. To use the severance pay gap wisely, you should examine all options. As soon as you receive the termination you should do the following:
- Note the date of service and check whether the termination is in writing and signed.
- File your lawsuit in time or have a lawyer do so – even if you still wish to negotiate.
- Have your entitlements to remaining leave, overtime and other items explained.
- Draw up a list of all additional benefits you would lose in the event of termination.
- Contact a tax advisor to calculate the tax impact of the severance.
In parallel you should plan your professional future. Update your application documents and contact headhunters specialised in leadership positions. Bear in mind that a salary of €85,000 is still above average in many sectors – you will not starve. But your expectations must remain realistic. If you consciously factor in the salary gap, you can use your severance as a sensible bridge into new employment.
Finally, check whether an out-of-court settlement with the employer is possible. Often the employer is interested in a quick solution and willing to go beyond the formal severance – for example through longer paid leave or transfer of the company car. Use all levers, but let yourself be legally accompanied. A severance is no cause for panic, but an opportunity to consciously reshape your standard of living – provided you make the right decisions.
The advisor’s warning mentioned at the outset is to be taken seriously: the severance is not compensation for the loss of the workplace, but compensation for a permanent income reduction. Anyone who understands this and negotiates accordingly can master the crisis. Anyone who ignores it risks financial losses that remain tangible for years. Rely on expert advice, calculate precisely and safeguard your rights – then you will emerge from the situation stronger.
Note: This article is for general information purposes only and does not replace individual legal advice. For a free initial assessment of whether litigation funding may be an option for your case, you can contact RechtStark.