As someone who wrote a book on how to negotiate a severance package, it always makes me happy to see public case studies. The latest case study is on the “golden parachutes” received by three ex-Twitter executives.
A golden parachute consists of substantial benefits given to top executives if the company is taken over by another firm, and the executives are terminated as a result of the merger or takeover. Common benefits may include stock options, cash bonuses, and generous severance pay.
If you receive a golden parachute, you're more than happy to jump off a cliff or even out of a burning plane. You will land softly on your feet and feel like you won the biggest lottery ever!
The Size Of The Golden Parachutes For Twitter Executives
Chief Executive Parag Agrawal, Chief Financial Officer Ned Segal and Vijaya Gadde, Twitter’s head of legal policy, received a “golden parachute” clause in Twitter’s TWTR merger with Musk’s X Holdings.
After the $44 billion acquisition on Thursday, October 27, 2022, Musk fired all three. However, the “Golden Parachute Compensation” clause in Twitter's SEC filing shows the trio would automatically vest stock worth $119.6 million as severance if terminated.
The estimated total golden parachute severance packages are:
CEO Agrawal: ~$74 million
CFO Segal: ~$65 million
Head Of Legal Policy Gadde: $60 million
Not bad for a company that went public in November 2013 and provided almost no shareholder value until Musk decided to overbid. Twitter went public for $26 a share, went as high as $50.09 intraday, and closed the day at $44.09. When Musk made an offer on April 14, 2022, Twitter's share price was at $45.09.
Believe You Deserve To Receive A Severance Package Too
One of the biggest pushbacks I get when I encourage people to negotiate a severance package is: Why would management ever grant me one?
Yet, here are three executives who are set to receive eight-figures worth of severance packages despite providing almost no value to shareholders in nine years! These golden parachutes should motivate you into believing you also deserve a severance package, especially if you actually created value.
Companies want employees to leave on good terms, especially if the employee was any good. The last thing a company wants is a disgruntled employee who writes a negative tell-all in a major newspaper. A company's reputation is important, as it may affect its future business prospects and the type of new employees it attracts.
If it becomes known an employee got screwed by a former company, then the company may find it much harder to hire great talent.
I've shared my wife's severance package case study before. She was a high-performing and loyal employee of 11 years. But by 2015, she had grown weary of the work and the oftentimes unruly clients who treated her poorly. I'm sure she also longed to spend more time with me.
As a result, I coached her into receiving a severance package worth over $100,000. The severance negotiation went so well her company invited her back as a part-time consultant for 60% more pay!
Fired Versus Getting Laid Off
Unfortunately, the golden parachutes for these Twitter executives are not guaranteed to pay out. The reason why is that it is reported Elon Musk fired these executives for cause. If you are fired for cause, it means you did something inappropriate and negates your ability to receive a severance package.
The large majority of the trio's severance package comes in the form of unvested Twitter stock, some $119.6 million worth. By firing the executives for cause, Musk gets to save $119.6 million in unvested Twitter stock payments plus the actual discretionary severance payment based on the trio's respective salaries.
In 2021, Agrawal had a base pay of $623,000, while Segal and Gadde’s base pay was $600,000 each. A severance payment usually equals 1-3 weeks of base pay per year worked. Gadde worked at Twitter for 11 years. Hence, she would have received a severance package between 11 – 33 weeks of base pay, or $126,923 – $380,769.
The most common reasons for getting fired include:
- Having an affair with the boss's spouse
- Feeding inside information to your competitor
- Physically and verbally abusing colleagues, subordinates, or your boss
- Stealing company products
- Sexually harassing colleagues
- Going on a racist public tirade online
If you do any of these things, why would a company ever offer you a severance package? Offering a severance package is discretionary.
A Severance Package Is Not Mandatory WARN Act Pay
Further, don't confuse a severance package with mandatory WARN Act pay. WARN Act pay non-discretionary and required by law for employees at larger companies involved in a mass layoff (100 or more employees).
Below is an example of more severance package and WARN Act pay confusion from Stripe's latest layoffs.
You Want To Get Laid Off, Not Fired
If you are laid off, on the other hand, you are eligible for severance payment and your deferred compensation. You are also eligible for unemployment benefits. Being laid off means you were let go, usually through no fault of your own.
The most common reasons for getting laid off include:
- Poor department or company profitability
- An economic downturn
- Cost cutting measures
- Department shuts down / office closes
Besides potentially receiving a severance package and all your deferred compensation, another benefit of being laid off is no black marks on your employment record. A clean employment record helps you land a new job, if you want one. You will also have more favorable references who will vouch for you.
The reason why I was able to cover my normal living expenses for at least five years after I left finance in 2012 was because I volunteered to get laid off. As a result, my old employer paid me three weeks of base pay for years worked, all my deferred cash and stock compensation, and all of my private investment proceeds I was forced to invest in 2010 that had a seven-year payout.
What Was The Cause For Twitter Executives Getting Fired?
Musk may have a difficult time justifying firing the Twitter executives for cause. However, from Musk's perspective, it is very clear why he fired them.
The Twitter executives ended up becoming his enemies during the Twitter acquisition negotiation. Ultimately, Musk wasn't able to get management to agree to a lower purchase price. He thus views these executives as the key reasons why he had to pay more than he thought was reasonable.
Musk may also believe the Twitter executives were incompetent for not:
- Monetizing the platform enough
- Minimizing the number of Twitter bots
- Limiting disinformation
- Earning gobs of money despite poor share price performance
Elon is probably thinking why the heck should Parag Agarwal, only 38, be paid over $60 million in severance when he hasn't even been the CEO for a year. Musk likely believes Agarwal did nothing meaningful to deserve his compensation. If Agarwal had co-founded Twitter, that would be a different story. But he started off as just another engineer.
On the flip side, Twitter shareholders are happy Agarwal and the board held their ground and got Musk to pay $44 billion for the company. If there was no acquisition offer, Twitter would probably trade at less than $20 billion today based on comps.
So as a Twitter shareholder, you're actually ecstatic to be getting bought out for more than 100% of fair market value today. However, over the long term, Elon could make Twitter even more valuable than ever.
Why can't Twitter be worth $100 billion or way more in the future? We'll just have to wait and see. Too bad the public won't be able to participate in the upside.
There may very well may be a lawsuit against Elon and Twitter by the ex-executives to fight for their golden parachutes. So much money is at stake for these laid off executives.
Negotiate Your Golden Parachute Severance Package
If you're gainfully employed, please do some research on whether you have a golden parachute. Ask HR or your manager what would potentially happen to you and other employees if another company bought your firm. If what you hear is unsatisfactory, you should ask for ways to improve your golden parachute.
Most of the time employees should be happy when their company is bought. They might get a great severance package to do something else. Or they may be asked to stay with an even better retainer package.
From there, you can decide to “rest-and-vest” where you basically quiet quit for years until you receive all your vested stock. Or you can decide to work harder to try and make more money and get promoted.
As I've been writing about since 2009, everything is negotiable when it comes to money. The key to receiving a great severance is understanding what your employer's needs are. Once you understand this and can help with the transition, your employer should be much more amenable to offering you a severance package.
I've done it. My wife has done it. So have thousands of others who have read, How To Engineer Your Layoff: Make A Small Fortune By Saying Goodbye since 2012. The ebook is now in its 5th edition as I've incorporated more strategies and case studies over the years. HTEYL will give you the courage to negotiate like an expert.
You Must Fight For Your Freedom
I understand confrontation can be scary. It's why some people ghost or text others when breaking up instead of speaking face-to-face.
Just know that quitting your job is selfish because you're only thinking about yourself. As soon as you start thinking about both parties, you realize how much better things can be.
Negotiating a severance package was my #1 catalyst for leaving my well-paying finance job. More than 10 years later, I am ecstatic about my decision.
Without a severance, I would have stayed miserable for at least another three years in finance. I'd probably be 20 pounds heavier with continued chronic back pain and sciatica. No amount of money is worth sacrificing my health! Now I am free to do as I please.
If you are unhappy with your job, I hope this latest Twitter golden parachute case study motivates you to make a change. If you want to buy the #1 book that teaches you how to negotiate a severance, click the button below.
Readers, why don't more people believe they can negotiate a severance? Why are we so afraid of creating a win-win scenario for our employer and ourselves?
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