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.
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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