A while back, Twitter laid off a bunch of employee and offered a severance package. This post reviews whether Twitter's severance package was any good. It will help you determine whether your severance package or future severance package offer in the tech space are any good.
The return of Jack Dorsey as Twitter CEO led to an immediate 8% culling of its global workforce. Ironically, Jack has two jobs as CEO of both Twitter and Square, while 336 people now have none. At least he's donating a good portion of his Square stock to charity!
Despite the volatility, Twitter is still above its IPO price and is still worth circa $20 billion dollars. Therefore, it is somewhat surprising that Twitter would focus on cutting product and engineering folks, the prized worker bees of Silicon Valley.
Jack wrote to his employees, “We feel strongly that Engineering will move much faster with a smaller and nimbler team, while remaining the biggest percentage of our workforce. And the rest of the organization will be streamlined in parallel.”
According to Twitter's filing with the SEC, the estimated cash cost of the reduction in force (RIF) will be between $10 million and $20 million, or about $30K to $60K per laid-off employee, “substantially all of which will be severance costs.”
Let's say the average laid-off employee got a severance valued at $40,000 since not 100% of the cost goes to severance. Given I wrote the book on severance negotiations, let's try to compare Twitter's with other severance packages.
TWITTER'S SEVERANCE PACKAGE
To first understand whether a $40,000 severance is good, we must first find out what the median income is for software engineers and business development managers. Here are some salary estimates from Payscale, a website which allows users to input their salaries.
- Senior Software Engineer (based on six salaries): $158,636
- Software Engineer (based on six salaries): $134,219
- Business Development Manager (based on three salaries): $129,000
Based on my observation of employee salaries as a landlord vetting potential tenants, my conversations with other tech employees, and my own search for tech jobs, these figures seem accurate. Average out the three salaries and we get $140,000.
A $40,000 severance package is therefore equal to 3.4 months of severance for the $140,000 a year employee. Is that good? Some might say they'd be happy with a $40,000 check ($28,000 after 30% taxes).
But if you were making $140,000 + another $60,000+++ in Restricted Stock Units (RSUs) every year, I'm not so sure. If you consider the employee's entire compensation package, that's really only 2.4 months of severance ($40,000 / $200,000+).
WARN Act Pay Is The Law
What practically everybody doesn't know about severance negotiations is that if you get laid off from a company with 100 or more employees, the company laying you off must give you mandatory WARN Act pay. Not only that, the company must provide 60 calendar-day advance notification of plant closings and mass layoffs of employees.
WARN Act pay varies by state to state. In California, WARN Act pay is two months of salary and a more generous three months in New York. The idea of this labor law is to help laid off employees during a potentially difficult transition period.
Hopefully most will find new jobs within two months in California. But if they can't, then that's where unemployment insurance and good old fashion savings come in.
Given the California WARN Act is two months of salary, and most laid off employees were based in the San Francisco Bay Area, their actual severance was really only more like 0.4 – 1.4 months of salary because Twitter had to pay them two months anyway!
If the average tech employee getting laid off was at Twitter for a realistic two to three years, we're talking 1 – 2 weeks of severance per year. Not bad, but not amazing.
Severance Pay Is Separate From WARN Act Pay
It's important to understand that a severance package is in addition to WARN Act pay. Employers like to roll both into one to make themselves look better. Don't be fooled. A severance package is what can be negotiated. WARN Act pay is the law.
At the end of the day, it’s best to maintain a default mindset that assumes you won’t receive severance if you get laid off (especially if you’ve never read my severance negotiation book). This way, you can plan your finances based on worst case scenarios – like surviving on ramen noodles and water while driving for Uber at $20 net/hour to make ends meet.
It took me a full year after I wanted to leave my firm to actually break away because I didn't want to give up a six figure job, deferred compensation of stock and cash that vests over three years, and a deferred partner investment that paid out over seven years. At the time, I was only generating roughly $80,000 in passive income and had a hefty $4,300/month mortgage to pay.
But thank goodness for having a severance package conversation. Otherwise, if not already fired, I might be on my 15th consecutive year at the firm!
Know your rights employees of the world. And be thankful if you received any severance. A severance is up to the firm's discretion.
If you're wondering how to negotiate a severance as a high-performing employee, here is my wife's case study. Quitting your job and giving two weeks notice is the weak way out.
Related:
Negotiate Your Severance Before You're Hired
A List Of Career Limiting Moves To Blow Up Your Future
Recommendation For Leaving A Job
If you want to leave a job you no longer enjoy, negotiate a severance instead of quitting. If you negotiate a severance like I did back in 2012, you not only get a severance check, but potentially subsidized healthcare, deferred compensation, and worker training.
Since you got laid off, you're also eligible for up to 27 weeks of 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 since expanded it to 200 pages from 100 pages in the latest edition thanks to tremendous reader feedback and successful case studies. It is the only book of its kind on th market.
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My understanding is that the WARN Act requires employers to provide notice of mass layoffs or plant closures — not provide “WARN pay”. However, there is a provision for penalties if the employer doesn’t provide the required notice.
My larger concern about Twitter is how they will survive with half a CEO. If I were an investor in Twitter or considering an investment in Square, I’d be reconsidering the wisdom of investing in a company with a distracted CEO.
Jack, am curious, did you get a deadline to sign the severance package ? Was it the exact two months or earlier ? One of 100 Fortune companies, HR says 45 day deadline and 2 months to find an internal job.. Restructuring impact.. Am trying to negotiate for 3 months, but am still not that clear about disparities btw sign off deadline vs last day employed. Thank you. and thanks to Sam for this valuable big picture knowledge.
Having survived more layoffs in Silicon Valley than I can count, and being laid off twice, I can say with authority that Twitter’s package is meh in local terms. Severance packages often come in stages with restrictions.
Specific to WARN, you’re typically “notified” day 1, and told your services after no longer needed, equipment and id surrendered, etc. to comply with the act, but you’re still considered an employee those first two months but not allowed in the office. After 2 months, you’re officially laid off and no longer an employee. Since you’re still employed those 2 months, if you start a new job, you lose the pay you would have received during that notification period plus you lose your severance pay since you voluntarily left the company and were never officially laid off. So if you’re looking for work those 2 months, you have to make sure you negotiate your start date for after the notification period so you receive your severance.
You also typically are restricted by things like NDAs not to disclose the terms of your severance package, arbitration agreements, and not to disparage the company. In states where they are enforceable (not California) there are often non-compete clauses as well. So while many consider these severance packages free money, that’s naive. TANSTAAFL.
Given all that, I won’t disclose much about my layoffs other than to say both packages were significantly larger than that, even when considered on average.
Jack, it sounds like you have a lot of war stories to share! I’m glad you received better severance packages. I do like Twitter’s Moments feature. But it’s hard to say how they plan to really monetize their platform as their user base has stalled.
Sponsored / targeted tweets just aren’t that effective or interesting.
I suppose that’s part of the risk of working at a high-growth, not stable (i.e. not profitable) company. In the case of Microsoft, seems the same goes if you work in a segment that’s struggling.
Hardly a “generous” payout, but I suppose there are worse things than being handed ~4 month’s pay to find a new job. I think the real kicker is that some of these people were likely taking a pay cut (cash portion) in exchange for more equity, so they got a double whack… stock hasn’t done much of anything and now they’re out of a job!
Maybe this is why “old” companies still seem to have intrest. It may be easier to stomach a layoff if an entire division is struggling (e.g. Microsoft handsets) rather than the entire company like Twitter.
I think it’s good once in a while to show that even the wildly valued tech giants can come down to Earth eventually if they can’t reach a stable business model. Even if VC’s don’t stop throwing money everywhere, at least employees may be a bit more cautious when making an employment deal.
I, thankfully, have never been laid off, so I don’t fully understand severance packages.
If the WARN Act requires employers to pay for 2 months (CA) of salary as severance, why would a company even bother to give anything additional, let alone negotiate additional severance for anyone? What is in it for the employer?
This is probably in your book, Sam, but it’s one of those fundamentals, I haven’t yet grasped.
Offering more than what’s required by law can help protect the employer by reducing the risk of laid-off workers going postal and seeking retaliation. The more support an employee has when they’ve been laid off, the better chances they will make the best of an unfortunate situation versus the worst.
Goodwill. In a world full of litigation, social media, bad press, and danger, treating employees well can go a long way.
Just look at how ex employees bashed up Amazon in the NY Times recently.
It helps to have a good severance plan when you think about retention needs. If those retained see that the company did not take care of those that were cut, they are unlikely to stick around due to financial security concerns.
If I’m getting laid off, I don’t think $50,000 would cut because I do not know when the next job will come along, and we all know those are hard to come around these days. If I support a family, $50,000 wouldn’t last me more than a few months, and is definitely not commensurate to the anxiety I will bear during that time. I do know that most companies don’t offer more than 3 months worth of salaries as severance pay, which I suppose is better than nothing. But I think if you’re losing your job because of something the company did or didn’t do (i.e. didn’t make enough profits, or didn’t figure out a way to be efficient), then the workers deserve more.
This is a good reason not to hire too many people. If you have to let folks go you are considered evil since you didn’t give them lots of money to do no work on the way out. Free money is a workers right isn’t it?
Insightful post, Sam! And I’m not surprised by the layoffs. As much as I love the platform, Twitter’s struggled with mainstream appeal since the beginning. And I doubt Jack or Moments are going to change anything.
Anyway, your post prompted me to look up more information about WARN and how the protections differ in Tennessee. Looks like Federal WARN applies to companies of 100 or more full-time employees. However, I discovered Tennessee’s Plant Closing and Reduction in Operations Act only requires companies with between 50 and 99 full-time employees to protect workers.
I was laid off at 22 and only received two weeks severance. Honestly, I don’t expect anything from any company. So, I consider the laid off employees at Twitter pretty fortunate.
Nice job looking up your local WARN act law. I hope everybody looks that up, and does more research if they ever plan to move on, or see that their situation is shaky.
Winter is coming.
Bottom line, TWTR makes no money and won’t. When the company recently tried to be acquired and sell, there were no buyers. The product is up and running, making no money, and the value of engineering is almost impossible to measure except in new product that makes money. This RIF of 336 will cut costs about $60mm per year, and cost $20mm. It is in everyone’s interest for these RIFed to take this generous offer and leave. Severance pay is not required. The WARN Act just requires 60 calendar days notice. So these 336 have been notified, but must still show up to work and work. As for the $20bb valuation and stock price, all those holding shares (including the founders) are counting on a favorable acquisition.
Here is a question for those pondering TWTR’s situation…would you invest in the company that purchases TWTR? Me neither. Sam has mentioned in previous posts, and I agree…winter is coming. For those interested, dailyjobcuts.com summarizes layoffs across the country and it is astounding. Monsanto, HP, Miller-Coors, etc. have been recently laying off hundreds and thousands. My brother was recently offered a buyout from HP, over one year’s salary plus medical and +5 years on the pension calculation; way into six-figures, but he declined and will take his chances. The next round at HP won’t be so generous.
FS’s book “How To Engineer Your Layoff” was a revelation for me, and I can easily say it changed my life for the better and paid for itself 1,000X over. Those interested in my own utilization of the book’s guidance can read my story by clicking the link on my handle. Buy it, you won’t be sorry.
JayCeezy,
I appreciate your support as always! Makes my day every time I hear you say the book helped you out so much.
It really did. It doesn’t cost anything to pay a compliment if it is true.
Great insights! First of all, I was really shocked to hear the news about the Twitter layoffs. Eight percent is a lot. I think Twitter’s severance package is fair. Not bad, not great, but okay.
Of the approximately 240 people that got laid off from the San Francisco office, I think they have a great shot at finding work within 1-2 months though, which is good. Engineers are so high-demand here and having a company like Twitter on your resume definitely gets noticed. I actually wouldn’t be surprised if companies are actively trying to track down the people who got laid off in pursuit of the best candidates.
The unemployment rate in SF is at 3.6%, so that’s also good news for those who unfortunately lost their jobs. Oh and to answer your question – yes, I’ve confused WARN act with severance before. Thanks to your book I know so much more about severance packages, negotiation and was able to negotiate my own earlier this year!
Yeah, I think the engineers will land on their feet. The labor market is absolutely ridiculous here for engineering talent.
WARN doesn’t matter if the company is out of money. Three big casinos closed in Atlantic City in the past 18 months and I know for sure that one in particular (short-lived Revel casino) gave employees little notice and diddly squat money when the doors shut. Corporations aren’t people so once it’s gone, there’s not a lot you can do.
True. If a company is heading for bankruptcy, laid off employees are often SOL. Hopefully, many employees see the signs and do something about their situation before the ship sinks.
For Twitter, they’ve still got lots of cash on the balance sheet. Their IPO was not too long ago.