Don't Negotiate Your Severance Without Watching This First!
00:00:00.000 | (upbeat music)
00:00:02.580 | - Did you actually, when you decided to leave,
00:00:07.420 | get Financial Samurai to a place
00:00:09.440 | that it was gonna replace your job?
00:00:11.880 | Or did you more just get it to a place
00:00:13.400 | that you saw an opportunity to do something different?
00:00:17.220 | - So my goal, first of all, was to save and invest
00:00:20.960 | at least 50% of my after-tax income every year until age 40.
00:00:26.520 | But I didn't last till age 40, I lasted till age 34.
00:00:30.360 | And the reason why was because I was able
00:00:32.600 | to negotiate a severance.
00:00:34.360 | Because during the global financial crisis,
00:00:36.320 | you know, talk about making lemonade,
00:00:38.240 | I saw many people get laid off,
00:00:40.100 | and some of them were my friends.
00:00:41.560 | So I asked them, "Hey, is everything okay?
00:00:44.040 | "Can I help you find a job?
00:00:45.240 | "Do you wanna interview with me?
00:00:46.620 | "You know, I'm still surviving."
00:00:48.160 | And a lot of them were thankful, and we tried.
00:00:50.420 | But I also asked them, "Are they okay?"
00:00:52.080 | And they said, "Yeah, I'm okay,
00:00:53.000 | "because I got a severance equal
00:00:54.700 | "to two to three weeks per year work,
00:00:57.000 | "two to three weeks worth of pay."
00:00:59.080 | And that was when I realized, oh, well, come 2012,
00:01:03.560 | I will have been at my previous firm,
00:01:05.440 | Credit Suisse, for 11 years.
00:01:07.920 | So if they gave me two to three weeks worth of severance,
00:01:11.080 | you know, that's 22 to 33 weeks,
00:01:14.560 | and if they could give me my deferred compensation,
00:01:17.840 | because I was an executive director then,
00:01:19.400 | and I had three years of deferred compensation
00:01:22.480 | in stock and cash, and a private investment
00:01:26.260 | that they made us buy in 2010,
00:01:28.380 | which were full of those, quote, toxic assets.
00:01:31.420 | If I could get that severance
00:01:32.420 | and all my deferred compensation,
00:01:34.460 | there was no reason why I shouldn't take that leap of faith,
00:01:37.700 | because it bought years of living expenses.
00:01:41.380 | - Most people listening to this are not,
00:01:42.740 | I mean, hopefully we aren't in the middle
00:01:44.780 | of a global financial crisis,
00:01:46.380 | maybe just like a minor recession.
00:01:48.500 | But, you know, are the tactics you use
00:01:51.380 | something that anyone could use,
00:01:53.000 | or are they really dialed into,
00:01:55.200 | I'm in the financial company
00:01:56.800 | in the middle of a financial crisis?
00:01:58.680 | - Yes, these are the tactics that anybody
00:02:02.160 | in any organization can use.
00:02:04.720 | Because the biggest pushback I have is,
00:02:06.680 | why would anybody give me a severance
00:02:08.800 | if I'm a decent employee, right?
00:02:11.060 | I'm great, whatever.
00:02:12.640 | The point is, if you wanna leave anyway,
00:02:15.920 | and your heart is not into it,
00:02:17.160 | your employer doesn't really want you.
00:02:18.720 | They want someone who's hungry,
00:02:20.440 | who wants to do their best to stay overtime, do whatever.
00:02:23.420 | And if you are a manager in this environment,
00:02:26.340 | still in this environment,
00:02:27.460 | it is very hard to find a replacement.
00:02:29.700 | It could take three months, six months,
00:02:32.100 | and once you find the replacement,
00:02:33.680 | it could take three to six months to train them
00:02:36.540 | to be up to par with your level.
00:02:39.320 | And so if you say, peace out, see you later,
00:02:42.860 | two weeks notice, you actually leave your colleagues
00:02:45.260 | and your manager in a lurch.
00:02:47.340 | They're gonna be scrambling to find your replacement,
00:02:50.020 | and they're gonna be suffering
00:02:50.980 | while they're looking for your replacement.
00:02:52.900 | And so the idea of negotiating a severance
00:02:55.260 | is to think about the classic win-win scenario.
00:02:58.240 | How can you help your colleagues and your manager
00:03:00.920 | find your replacement, provide seamless transition
00:03:04.700 | during that replacement finding, and train them
00:03:07.220 | so that when you leave, hopefully they'll save money
00:03:09.560 | and they'll replace you with someone who's hungrier,
00:03:12.280 | cheaper, and just more motivated in general.
00:03:15.900 | - And so that's the simple trade-off.
00:03:17.140 | It's I'm going to help you make this transition easy,
00:03:20.100 | and in return, you're going to give me money
00:03:22.860 | or vested stock or something.
00:03:25.460 | And how have you seen that work?
00:03:27.240 | I'm sure you've gotten readers write back,
00:03:28.900 | say this worked, it didn't work.
00:03:30.540 | What's the kind of hit rate?
00:03:32.260 | - The hit rate is high.
00:03:33.720 | It's like 80 plus percent.
00:03:36.300 | And a lot of people just come back to me and say,
00:03:38.580 | I cannot believe I was able to leave on my terms.
00:03:42.620 | I mean, a severance can not only be just a severance check,
00:03:46.300 | but it can be, hey, how about work three days a week
00:03:49.180 | out of five, and we'll still pay you
00:03:51.340 | the same amount of money.
00:03:52.300 | So if you're working 40% less,
00:03:53.780 | it's kind of like getting a 60% raise.
00:03:55.860 | If you do that for six months, a lot of people will be like,
00:03:58.140 | hey, I'll take that.
00:03:59.060 | I mean, that's pretty good bet.
00:04:00.120 | Don't have to work for two days a week,
00:04:01.420 | shut it off and do my own thing.
00:04:03.580 | I mean, so it's really great.
00:04:05.220 | And a lot of people have just surprised and shocked
00:04:08.540 | by how they were able to negotiate something
00:04:12.580 | that they thought was not possible.
00:04:14.220 | And in this day and age, I think the reason why
00:04:16.900 | a lot of people will ghost people on the phone,
00:04:20.580 | text message, email, or not,
00:04:23.100 | they wanna just break up over the phone
00:04:24.300 | is because they're afraid of confrontation.
00:04:26.620 | And that's, I would say like natural,
00:04:28.500 | but it's also kind of cowardly, right?
00:04:30.220 | You wanna face your oppressor.
00:04:32.720 | You wanna face the people who could help you and say,
00:04:35.700 | look, these are my reasons for leaving.
00:04:38.060 | I've been a loyal soldier.
00:04:40.460 | And the other thing is companies are afraid of backlash.
00:04:44.380 | This is one of the things that companies
00:04:45.620 | are really afraid of.
00:04:46.660 | There's social media, there's bloggers.
00:04:49.060 | You can blow up a company online
00:04:51.180 | and say like a lot of bad things in like a tell-all.
00:04:53.900 | That's the last thing a company wants.
00:04:55.900 | That's reputational damage.
00:04:58.180 | And so companies understand this.
00:05:00.140 | They don't wanna get into a long litigation process.
00:05:02.140 | They don't wanna get their reputation smeared.
00:05:04.980 | So they wanna work with employees
00:05:06.480 | who have actually been there for at least a couple years,
00:05:08.820 | three years, and try to come up with a win-win scenario.
00:05:12.140 | - Is that metric that you had at Credit Suisse
00:05:15.580 | of two to three weeks pay for every year worked,
00:05:19.580 | is that a general benchmark that kind of still applies
00:05:22.220 | or what do you think kind of is a broadly applicable
00:05:26.740 | benchmark for a severance package?
00:05:29.300 | - One to three weeks.
00:05:30.580 | And three weeks being at the high end, maybe four weeks,
00:05:33.300 | but it's usually one to three weeks.
00:05:34.580 | And there's one thing that people don't really understand
00:05:38.380 | and that is to differentiate between the Warn Act,
00:05:42.220 | which is a worker adjustment training notification
00:05:46.220 | and a severance.
00:05:47.100 | So Warn Act pay is reserved for larger companies.
00:05:50.660 | Usually I think it's in the hundreds or thousands of people
00:05:54.860 | and they do a mass layoff.
00:05:56.300 | They're mandated by law to provide,
00:06:00.460 | it's one to three months of severance pay
00:06:04.420 | or not severance pay actually, one to three months of pay.
00:06:07.940 | That's by law, mandatory.
00:06:10.300 | Whereas a severance is optional.
00:06:12.540 | A severance is the company can pay you
00:06:15.700 | or they won't pay you, right?
00:06:18.100 | And so the idea is a lot of people who get two months,
00:06:20.980 | they think it's severance,
00:06:21.980 | but it's actually mandatory Warn Act pay.
00:06:24.060 | Severance goes above and beyond that.
00:06:26.700 | - And so now you're on your own and you start financials
00:06:30.020 | or you're still, let me think where I take this.
00:06:32.420 | I know there are a lot of people listening
00:06:35.300 | who might want to use some of these tactics.
00:06:38.020 | So I'll link the book in the show notes
00:06:40.060 | 'cause we're not gonna spend a whole episode
00:06:42.300 | on how to engineer a layoff, though I'm sure we could.
00:06:45.300 | And can people reach out if they have questions
00:06:47.420 | or how do you feel about comments and feedback?
00:06:50.140 | - So yeah, just go check out financialsamurai.com
00:06:53.380 | to buy how to engineer layoff.
00:06:56.820 | It's about severance negotiations.
00:06:58.420 | And I also have a lot of articles online
00:07:00.780 | about severance negotiations for free.
00:07:03.300 | So you just Google severance negotiation financial samurai,
00:07:06.180 | leave a comment and I'll be able to see it
00:07:08.820 | because I can see it from the backend.
00:07:10.100 | And if you have a question, I can respond to it.