Hello everybody, it's Sam from Financial Samurai and in this short episode I want to talk about the largest severance package ever. It blows any severance package I have ever seen out of the water and I think it should help you believe, if you don't believe you can negotiate a severance package, that you can.

So over the years, I've received some doubt from three types of people regarding the feasibility of negotiating a severance package. The first set of people I'll call the holier than thou people. They tell me that "they'd never do such a thing" to their employer as if their employer was a sacred cow.

But what they don't seem to realize, probably due to having never experienced a recession, is that corporations won't hesitate to lay them off as soon as times get tough. It's globalization folks, competition is higher than ever. The second set of non-believers are those who don't know their worth. They're the type that let colleagues and bosses step all over them because they're too afraid to speak up.

And I gotta tell you folks, bosses hope that employees don't speak up for a raise in promotion they deserve, so they can save the company money and get paid more. These type of non-believers also fear they do not provide enough value to warrant a severance. And it could be true, they are bad employees, but if you have a job, know that you only have a job because you provide more value than your compensation.

Otherwise you would be fired already. Finally, the final set of non-believers are those who think they are God's gift to their employers. They think they provide so much value, they can't fathom an employer paying them to leave. But what they fail to realize is that it is precisely because they offer value that they have leverage to negotiate a severance to ensure continuity in the job.

The last thing an employer wants is a value-added employee suddenly saying "see you later, I'm out of here in one or two weeks" while not finding a replacement. So this is something really important to know. Further, once you indicate you want to work something out, no employer will want you to stay long term no matter how valuable you are.

So despite all the doubters, I believe with all my heart that trying to negotiate a severance package is the financially savviest move if you plan to retire early, take a break, go back to school, or change careers, or maybe even be a stay-at-home dad like I've been for the past 30 months.

If you plan to leave anyway and if you negotiate the situation properly, there is no downside to having a conversation. And this is what really gets me is that so many people fear having a conversation, fear having confrontation as if it's something taboo. It's not scary if you approach the conversation and the severance negotiation properly.

And that's why I wrote my book which is now on its third edition. And since I first published the book in 2012, I've heard back from hundreds of readers who've successfully negotiated between $10,000 to $700,000 severance packages. But in this episode, I want to highlight the one that takes it all, takes the cake, the largest severance package ever in the history of America and the world is the one given to Adam Neumann, founder of WeWork, who was able to negotiate a $1.7 billion severance package from SoftBank, operator of the Vision Fund, which is an owner and investor in WeWork, and it's the largest venture capital fund in the world at about $100 billion.

Adam will get the ability to sell about $1 billion in stock back to SoftBank. He'll also receive a $500 million loan to repay a credit line. Further, he will get an estimated $185 million consulting fee. In exchange for the severance package, Adam will get to say bye bye to the board, but I think they still have some voting right power.

I'm not so sure, the story's developing. Okay, so let's say the severance package is only the $185 million consulting fee since Adam's stock had already vested and the $500 million was a loan that he has to eventually pay back. $185 million is still the largest severance package ever for torpedoing your company.

And although the dollar amount truly is staggering, what is even more amazing is the fact that he got a severance package at all. Part of a severance package clause is that you actually do no wrong, there's no fault in what you've done, you didn't harass an employee, you didn't kick someone in the face, you didn't steal company secrets, and so forth.

When I was working in investment banking, our bonuses had a clawback provision where if an individual, department, or the firm was found to have done something wrong, the firm could "claw back" the employee bonuses for the past three years. Our bonuses were already structured in a way that kept us handcuffed for years.

For example, the most our bonus could be paid at immediate cash was between 10-30%. So if you got a $100,000 bonus, only $10,000-$30,000 was in cash. Still sounds like a good number, but again, you got a $100,000 bonus. The remainder of the bonus was paid out in cash, deferred cash and stock, over a three-year time period.

So let's say the deferment was $90,000 out of the $100,000. You would get $30,000 in a year's time, another $30,000 after two years, and then the final $30,000 after three years. Therefore, if you quit before the three-year time period was over, you forfeited a portion of your bonus in a prorated amount.

The only way you could be made whole was to negotiate a severance and capture all that deferred compensation as part of the package. So if you do something wrong, you're going to get a clawback. So although Adam and his management team were able to get private investors like SoftBank to invest in them at a $47 billion valuation before 2019, public investors balked at that valuation once the S-1 was filed for public review.

The S-1 is just an official document where public investors get to review the information about the company before making an informed investment. Investors after reading the S-1 realized there were a lot of corporate governance issues going on between Adam and the company. For example, ahead of its IPO filing, WeWork reorganized and rebranded as the "We Company." To rebrand itself around the word "we," the company paid Adam $5.9 million for trademark rights that he owned.

He went to buy that trademark with the plan to re-brand and then pay himself $5.9 million through the company. WeWork also disclosed details on some interesting rental arrangements with Adam. The company said Adam owned four properties that had WeWork as a tenant. For one building, the company entered a lease within a year of Newman acquiring his ownership stake.

For the other three, it signed a lease on the same day the co-founder obtained his stakes. How did Adam get the money to buy buildings to lease back to WeWork? Probably from his WeWork stock that he sold and from the income he earned. This kind of double-dipping arrangement is really smart and probably goes on a lot in private companies where there's no corporate governance and you can do whatever you want.

But again, as a public company, shareholders are going to balk at this double-dipping. The final corporate governance issue is Adam hiring a lot of friends and family off the WeWork payroll to do work. That's fine if you have a private company. In fact, that's one of the biggest benefits of owning a private company and staying private, being able to hire whoever you choose to take care of them.

As a dad now, my hope is that my son and my kids will be their own people and be independent after they graduate high school. Now there's a chance that they might not be and maybe old man is going to have to hire them back to do some work.

Who knows? But it's nice to have that insurance mechanism, that flexibility if you own your private company and that's something everybody should think about on why they should start their own company. But again, if you're going to go public with public shareholders and people to account for, it's probably not going to be looked upon favorably.

But the biggest reason for the decline in WeWork's valuation is the sustainability of its business model. WeWork takes out long-term leases. They estimated to have $43 billion worth of long-term leases and an average duration of 15 years. And then they collect short-term rents after remodeling a space. So you get in there and you say you want to rent a room or a conference room for $700 a month, done and you don't have any long-term obligation at all.

And this is where investors kind of fear the business model is not going to work because in a recession, are you really going to spend money to go to a WeWork and pay $700 a month? Probably not. You're probably just going to work from home or you're going to work at a free coffee shop.

So WeWork lost $1.6 billion on $1.8 billion in revenue in 2018. And it's really hard to see profitability improving without massive restructuring and downsizing. It clearly needed the money it was going to raise from its IPO. So if it didn't have a savior, it was probably, I would say the years were numbered without any capital infusion.

So that's where SoftBank comes in. In a face-saving move, SoftBank decided to bail out WeWork with $5 billion in further funding after already investing like $10 billion, something. And then they already have $1.5 billion of which had already been pledged for the future. Plus they had an additional $3 billion tender offer for existing shareholders outside SoftBank.

So that is the move where Adam was able to take advantage and get his $1.7 billion severance package because now SoftBank owns about 80% of the company, it seems. The media is making WeWork's collapse to be all Adam's fault, and I think that's totally unfair to him given there's a board of directors and other top management and founders involved in making company level decisions.

But let's say the $32 billion valuation collapse was 10% due to Adam's fault. That's still a $3.2 billion hit. And in every single severance negotiation I've ever been a part of or have witnessed, if you materially hurt the company, you'll not only not get a severance, you'll get fired and be forced to forfeit all stock and deferred compensation.

You may also be fined or sued depending on what you do for causing harm. And the sad thing is, look, the valuation is a huge collapse, 70-80%. The 12,000 employees who are all hoping to get rich and liquid are not getting rich and liquid. It's also estimated that 1/3 of the global employee count is going to get fired, and that probably has to happen given the valuation collapse.

It's unclear whether these employees will get severance packages, but if they do, you can bet they won't be very good. And that $3 billion tender from SoftBank is probably at valuation 70% lower than $47 billion. So really, some employees are going to get something, but it's probably not very good at all for the large majority of them.

And so, due to all this carnage, I think Adam shouldn't get a severance package, let alone one that's valued at over a billion dollars. Because you forget, he already cashed out on $700 million in stock in late 2017. So let's review six things, six lessons we should all learn from this amazing, amazing situation.

1. To get rich, you must own equity. About $1 billion of Adam's severance package comes from SoftBank buying out Adam's stock at roughly a $9-10 billion valuation. It's very hard to get rich off salary alone because salaries get turned off once you lose your job. Further, salaries are also valued at a 1 to 1 ratio, whereas equity is valued at a multiple of earnings.

You want to earn both on your road to financial freedom. 2. To get rich, you must learn how to sell. Adam was able to sell his vision extremely well to very smart investors such as SoftBank. 3. Benchmark. Benchmark is a big name that has had huge home runs in the past.

JP Morgan, Goldman Sachs, T. Rowe Price, Wellington, Harvard Corp, and the former CEO of Boston Properties. He was able to convince them that we work as a technology company that deserved a higher valuation multiple, despite it really only being a poorly capitalized REIT. 3. To get rich, you've always got to go fishing.

What are you fishing for? You're fishing for fish. You're fishing for suckers out there. There's a fun saying that goes at the poker table, "If you don't know who the sucker is in the room, it's you." So try not to be the sucker. There's always a sucker out there though that you can take advantage of because they either have these empire-building ego tendencies, or they have too much money, or they found other suckers to invest in their fund, or simply they just don't understand what's going on.

It's sad. It's sad to take advantage of some suckers if they're just not well-off suckers, but if they're very, very wealthy suckers, I don't know. It's like, "Here, let's distribute the wealth here." Although it seems like SoftBank's $100 billion Vision Fund is the sucker, it's kind of not really the sucker because it was able to convince Saudi Arabia's Foreign Wealth Fund to invest $45 billion into the fund and Abu Dhabi's National Wealth Fund to invest $15 billion into the fund.

So 60% of the fund is made up of two sovereign wealth funds and SoftBank's founders and employees get to earn carried interest and management fees off those billions. So it's always awesome to get rich off other people's money without having the corresponding downside risk. Because look, if SoftBank loses $50 billion, it's like, "Well, it's not their money.

It's the client's money." And as a startup, you hope SoftBank launches its Vision Fund 2 as it's touting so you can raise even more money or cash out to SoftBank Vision Fund 2. And look, only time will tell if SoftBank's takeover of WeWork turns out to be an incredible move or not.

I mean, right now it looks like a face-saving move, but in the future, you can say, "Hey, you know what? The time to buy is when there's blood on the streets." And clearly there's blood on the streets with WeWork and the time to buy was back in 2009 and 2010, right?

So maybe SoftBank will turn out to be a great move. All right, the fourth lesson, you should always diversify your wins. You can never lose if you lock in a win. I know we all think we're brilliant geniuses in this 10-plus year bull market, but bad things still do happen.

First look at WeWork, look at Uber, look at Lyft. Adam brilliantly sold $700 million of stock before IPO at a huge, huge valuation, despite trying to convince the public and its employees to buy part of his company and work for him. I mean, it's not good optics to sell out that big of a chunk of your holdings before IPO.

Even if he didn't get the $1.7 billion in sovereignty package, he would be set for life. So when things are going splendidly well, that is when you should have your spidey senses turned on to the max. Five, you probably shouldn't work for a startup. Look, the media loves to talk about big winners and big hits.

It's sexy. But if 90% of startups fail, then by definition, 90% of employees will not get richer than if they had worked at a traditional firm for a higher salary. Startup employees make less salary, make less cash compensation for the hopes of the lottery ticket winnings. But that lottery ticket generally doesn't pan out.

Just look at Uber and Lyft again. Anybody who joined after about 2015 is probably just treading water or below water, frankly, because they took a lower salary. So I would say work at a startup if you don't need the money or you really, really believe in the mission or you just want to gain a lot of experience quickly so that you can start your own startup one day.

That's what a lot of startup funders do. But don't trick yourself into believing that you are going to win the lottery because most people don't win the lottery. Finally, obviously negotiate a severance package. For goodness sake, if Adam can negotiate a 1.7 billion severance package despite helping torpedo his company into the ground, you too should be able to negotiate a severance if you work with your employer to provide a smooth transition.

Find out what the employer wants. Find out how you can provide value to allow for that transition to be smooth and for there to be minimal, minimal disruption. If you do, you will get that severance package or you'll get something better than nothing, which is what most people get when they quit.

There is so much money out there for the taking, folks. It's up to you to develop awareness and your selling and negotiation skills. Awareness comes with knowledge. So please read up as much as you can, understand various scenarios and case studies and go get that money. Go get that money that you deserve.

You are or were a valuable employee, otherwise you wouldn't have had the job. You would have been fired a long time ago and that is why you have leverage to be able to negotiate a severance. Once you realize how much money is out there for the taking, you'll come to realize how much money is always being left on the table every single day by people who don't know better.

I hope this was an eye-opening episode because it was an eye-opening episode for me. The bar has been raised for severance negotiations to an amazing, amazing amount. If you want to read the book, go check it out from my homepage and use the code "SAVE10" to save $10. Thanks so much, everyone.

If you enjoyed this episode, please leave a positive review and share it around.