Money doesn't feel very special most of the time because we work hard for our money. When we get our paycheck or the proceeds from a successful investment, of course we deserve the money. It's when we win the lottery or find a dollar on the street when we start experiencing that giddy feeling money sometimes brings. Receiving deferred compensation feels a bit like the latter. Even though you worked hard to earn it, when it hits your bank account it can feel like receiving a surprise windfall.
I got a nice surprise in the mail from my old employer the other week. It was a notice about upcoming deferred compensation. It's shocking to think it's been over three years since I last worked a stable job. The mail simply notified me that another tranche of employer stock was going to hit my brokerage account soon.
Sweet! I haven't thought about receiving deferred compensation in a while now. I've been so busy writing, consulting, finding ideal new tenants, and managing my never ending bathroom construction.
Finance industry bonuses are generally broken out into cash, stock, and private investments, depending on your seniority. The more senior you are, the less cash you get. I was a Director (one up from VP) at my old shop, so my bonus was heavily weighted towards deferred compensation that was spread over three to seven years! That's how firms make it expensive for employees to ever leave.
If you quit your job in finance, you will lose your deferred compensation. This is much like how you'd lose your remaining unvested stock grants if you work at a startup. But if you have a dialogue with your manager, you just might be able to keep what's yours. This goes for both deferred compensation and stock options. I strongly encourage everyone not to quit, but to get laid off instead.
Remember, everything is negotiable. The sooner you realize this, the more wealth you'll be able to create!
Deferred Compensation 3 Years Later
Here are a couple screenshots of my brokerage account. I received the proceeds of my deferred compensation and then transferred $11,381.75 into my checking account. The gross amount of stock proceeds was over $20,000. But thanks to our benevolent government, they decided to leave me with a little over half. If you're fed up with how much you pay in taxes each year, here's how to pay little to no taxes for the rest of you life.
$11,381 is not a ton of money. But, it sure feels like I just found 113, crisp one hundred dollar bills stuffed in a fat envelope on the street! Every time deferred compensation hits my brokerage or checking account, it feels like Christmas.
An easy trick to make a smaller amount of money seem more significant is by going through a list of what such money can buy. I encourage you to do this type of exercise every so often. It helps you appreciate what money can buy. That in turn can help motivate you to build more passive income streams, save, and plan for retirement.
What could one buy with $11,000?
- A soul-searching three week business trip for two to Asia.
- 256 gig version of the 13″ MacBook Pro for $1,650, a new Macbook for $1,400, a $700 version Apple Watch, and an iPhone for $700 with ~$5,500 left over.
- 10,000 Mcdonald's cheeseburgers and $20 for the doctor's co-pay when you go for heartburn treatment.
- 55 pairs of the iciest retro Air Jordans, Bo Jacksons, and Andre Agassi shoes.
- 72″ by 42″ jacuzzi tub for $5,000 and 10 rubber duckies with $5,800 to spare.
- 70″ Sony 4K Ultra TV for $4,500 plus an incredible McIntosh 6:1 surround sound system for $6,500.
- A Hermes 50cm Bleu Indigo Veau Sikkim leather palladium plated Kelly Relax Bag for $11,000.
- Two tickets to the finals of the French Open, US Open, Australian Open, and Wimbledon.
- Four lower level tickets to every single Golden State Warriors playoff game, even the finals.
- Help slay the final $21,000 in mortgage owed on my first rental property.
- 2,000 square feet of refinished floors with meticulous sanding and staining with $4,000 left.
- A new 1,600 square foot roof for $6,200 with $4,800 to spare.
- New paint job on a 2,000 square foot house for $7,000 with $4,000 to spare.
- One year's worth of private grade school tuition.
- Used Honda Civic, Toyota Corolla, Honda Fit.
- Yamaha R6 racing bike or a 1200 cc 2015 Harley Davidson Sportster.
- A doubling up of my Financial Samurai portfolio, which is so far outperforming the S&P 500 thanks to winning positions in Netflix, Honda Motor, Fiat Chrysler, Hawaiian Holdings, and KB Home.
- Sponsor two poor children via Childrens.org for 16 years each so that they survive and grow up to be amazing people!
- Invest in real estate crowdfunding across the country to diversify my real estate holdings. Fundrise is the best platform that is free to sign up and explore.
Deferred Compensation Isn't Over Yet
Despite receiving this deferred compensation tranche of equity proceeds three years later, I'm still waiting for my deferred cash proceeds to directly hit my checking account. Same goes for the remaining portion of a private investment vehicle that has a seven year vesting schedule. These amounts are substantially more than this most recent $11,381 net stock sale.
A baby panda dies every time someone quits their job, instead of negotiating a severance. You might fail at negotiating a severance, but at least you will never have any regrets knowing that you tried. If you were really planning on quitting anyway, you've got nothing to lose!
Taking on a new job in a new industry often requires a pay cut. Trying to do something entrepreneurial will probably crush your soul for the first couple of years. Negotiating a severance to do something new is the responsible thing. It's similar to maxing out your 401k every month or reading the prescription label before taking any medication.
Why wouldn't you want a financial buffer to fulfill your dreams? Are you too afraid to ask?
Recommendation For Leaving A Job
If you want to leave a job you no longer enjoy, I negotiating a severance instead of quitting. If you negotiate a severance like I did back in 2012, you can get a severance check, and potentially subsidized healthcare, deferred compensation, and worker training. When you get laid off, you're also eligible for unemployment benefits. Having a financial runway is huge during your transition period.
Conversely, if you quit your job you get nothing. Check out, How To Engineer Your Layoff: Make A Small Fortune By Saying Goodbye, on how to negotiate a severance. I first published the book in 2012 and have recently expanded it to over 200 pages with new resources, strategies, and additional case studies thanks to tremendous reader feedback.
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Not a day goes by where I'm not thankful for starting Financial Samurai in 2009. I have maximum freedom now thanks to working on my side-hustle while working for 2.5 years. You never know where your journey will take you!
Updated for 2021 and beyond.
12 thoughts on “Fight For The Deferred Compensation You Deserve As Part Of Your Severance”
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I work at UC where we have a 403b 457b and mandatory automatic pretax 8% deduction as part of a whole retirementplan.
My question: I yearly max out on the 403b and contribute half of max on the 457, in addition to the automatic pretax deductions. should i contribute less and use after tax money somewhere else to invest?
Wow sweet, what a nice surprise! You can definitely do a lot with that money. I like your list of ideas on what you could buy with it. If I had an inflow like that right now I think I’d split it up and put some towards investing, some towards mortgage principal, and some towards travel. I like splitting things up into smaller chunks because it feels like I got more.
So what would you say to someone who doesn’t get deferred compensation and who works for a large company with a typical corporate job that occasionally does workforce reductions with the standard 2 weeks/yr package for everyone (usually with some minimum like 2 months). There’s always the bonus, if scheduled to be paid out later, but that’s usually included with the layoff packages.
If you quit outside of one of these times, they don’t offer packages and you don’t really have much leverage unless you’re just threatening to quit while showing them a higher offer somewhere else to get a raise. You could always try to get one of those 2 weeks/yr package outside of standard layoff times, but if you fail, then they know you want to leave and you will get looked over for raises/promotions.
Great question -I have a flip-side question to piggy back off this too, if I may.
How would you recommend negotiating a great package that works for you when switching jobs in to a new company?
I am currently in the position of Josh – at my current company and am looking to move on to a position at another big company. I feel like your package is pretty much what they offer you and there isn’t much room for negotiation unless you want to risk the offer. Even though it is a great market in the valley to be a job candidate right now, unless you have multiple offers at the same time (which is tough given that most companies are super aggressive and want you to turn around with a decision within 24 hours) it’s hard to negotiate as an individual.
Ok, you win. I guess I’m going to have to read your book, because it seems completely counter-intuitive to be paid to leave my company at my level. At the executive level, sure, but for an individual contributor I’ve not heard of it in my industry.
Do you find this is more accepted in certain industries, e.g. finance, than others?
I have experience in two large industries: finance and tech/internet. The bottom line is that everything is negotiable. You just need to approach the situation in a way that helps your employer transition so there is no fall off. No employer wants an employee to stay if they really don’t want to be there, no matter how strong the economy. At the same time, employers are always looking to “upgrade” their work force in good and bad times.
After leaving Corporate America for three years now, I’ve seen a completely different side of things. It’s seriously like the movie The Matrix. People just do what they’ve always been told, and don’t know how else to proceed. My book and my various articles here to provide such insights.
I got a large payment about 9 months after leaving (involuntary) a job with a large international company a few years ago. I had a new job in barely a month, so I was getting paid twice in essence after the initial transition (vacation and severance were about 12 weeks of pay, so for 8 weeks it was like 2 paychecks!). When the bonus showed up 9 months later I was surprised as I didn’t expect to be eligible. Not quite the same as true deferred compensation, but it was still nice to have that money roll in to my accounts.
So I’m confused. You quit and negotiated a severance package? Can you write an article on how you did that?
@Kathryn check out the book he published on the top right of the page : )
On a rational level, people always want to negotiate, but the potential to hear the word “no” and the rejection and fear of it, has a tendency to override any sense of rationality- even when there’s nothing to lose.
That would be sweet if you could make that negotiation right before full retirement, but I wonder how many directors make it into their late 50’s/early 60’s in such a stressful position.
You can also work that angle pretty good with some residual businesses, life insurance, etc….