The largest severance package is over one billion dollars! Let me share with you who got such a record severance package amount and why you can negotiate a severance package as well.
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 employees.” 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.
The second set of people are those who do not know their worth. They are the type that let colleagues and bosses step all over them because they are too afraid to speak up. They also fear they do not provide enough value to warrant a severance, even though they provide enough value to have a job.
The final set of unbelievers 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.
What these people don't realize is that it is precisely because they are so valuable that they have leverage to negotiate a severance to ensure continuity in the job.
No employer wants to have its superstar employee leave suddenly and not have an immediate replacement. Further, once you indicate you want to work something out, no employer will want you to stay long-term.
Negotiating A Severance Package Is Possible For Most
Despite 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. If you plan to leave anyway and if you negotiate the situation properly, there is no downside to having a conversation.
If I had not received a severance package, it is highly unlikely I would have left my job at 34. I would have kept on working until at least 40. When I look back and realize how much more stress and unhappiness I would have had to endure had I stayed for six more years, my severance package only appreciates in value. Being able to travel, pursue other interests, start a family, be a stay at home dad, and build Financial Samurai have been priceless endeavors.
Now that my severance negotiation book is on its 6th edition, I've heard back from hundreds of readers who've successfully negotiated between $10,000 – $700,000 severance packages. But in this article, I want to highlight the one that takes the cake.
The Largest Severance Package Ever
Adam Neumann, the main founder of WeWork, negotiated a ~$1.7 billion severance package from SoftBank, operator of the Vision Fund, the largest venture capital fund in the world.
When the news broke in 2019, it was reported that Neumann got the ability to sell up to around $1 billion in stock back to SoftBank. He was also reported to receive a ~$500 million loan to repay a credit line. Further, he got an estimated $185 million consulting fee. In exchange for this severance package, Adam left the board. Long story short, he sued SoftBank and more drama ensued.
OK, let's say the severance package was “only” the $185 million consulting fee since Adam's stock had already vested and the $500 million was for a loan that has to be paid back. $185 million is still the largest severance package ever.
According to Vanity Fair, Neumann reached a settlement with SoftBank in 2021 for 50% of what was initially offered. But that still left him with roughly $480 million, $50 million for legal fees, a $50 million noncompete, and a five-year extension on a $430 million loan.
Although the dollar amount is truly staggering, what is even more amazing is the fact that Adam got a severance package at all!
An Employee Shall Do No Wrong
A severance package, also know as an exit package or separation agreement, is usually given to an employee only if there is no fault.
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 “clawback” 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 in immediate cash was between 10% – 30%. The remainder of the bonus was paid out in cash and stock over a three-year time period.
Therefore, if you quit before the three-year time period was over, you forfeited a portion of your bonus. The only way you could be made whole was to negotiate a severance and get all your deferred compensation as part of the package.
The clawback provision is a way to encourage employees to always do the right thing. Shareholders loved it, as they should.
Different Severance Package Terms For A Founder
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 the valuation once the S-1 was filed for public review.
Investors realized there were a lot of corporate governance issues going on between Adam and the company. For example, ahead of its initial-public-offering 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. Smart by Adam when the company was private but suspect as a publicly owned 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 Neumann acquiring his ownership stake. For the other three, it signed a lease on the same day the co-founder obtained his stakes.
It's nice to be able to own your own building and then collect rent from the company you own as a private company. But as a public company, shareholders are going to balk at this double dipping arrangement.
WeWork Business Model Had Lots Of Holes
Then there was investor doubt in the sustainability of WeWork's business model. WeWork would take out long-term leases (~$43 billion worth with an average duration of 15 years) and collect short-term rents after remodeling a space. The business model works in a booming economy, but in a recession, the business model collapses because short-term tenants aren't locked in.
Instead of commuting to a WeWork office and paying rent for a room, workers would work from home or a free coffee shop. Meanwhile, companies would reduce their usage of WeWork office space as well.
WeWork lost $1.6 billion on $1.8 billion in revenue in 2018. It's hard to see profitability improving without massive restructuring and downsizing. It's hard to see WeWork surviving without new capital.
Despite having gotten SoftBank to invest in WeWork at a $47 billion valuation, WeWork faced an icy reception during its IPO process. Even at a $15 billion valuation, institutional investors weren't even interested, which is why they shelved the IPO.
In a face-saving move, SoftBank decided to bailout WeWork with $5 billion in further funding, $1.5 billion of which had already been pledged for the future, plus an additional $3 billion tender offer for existing shareholders outside SoftBank. This is where Adam Neumann's billion-dollar severance package comes into play. SoftBank now owns ~80% of the company.
How Much To Blame The CEO And The Economy
The media is making WeWork's collapse to be all Adam's fault. I think that's unfair to him given there's a board of directors and other top management involved in making company decisions. But let's say the $32 billion valuation collapse was 10% due to Adam, that's still a $3.2 billion hit.
In every severance negotiation I've been involved with or witnessed, if you materially hurt the company, you will not get a severance. You will get fired and be forced to forfeit all stock and deferred compensation. You will probably also be fined or sued for causing harm.
Part of the fallout from the valuation collapse is that not only do 12,000 employees fail to get rich and liquid from an IPO, it's estimated that some 4,000 employees will also get laid off. It is unclear whether these employees will get severance packages, but if they do, you can bet they won't be very good.
As a result of all the carnage, Adam should not get a severance package, let alone one that is valued at over $1.5 billion. He already cashed out $700 million in stock in late 2017.
Lessons Learned From The Largest Severance Package Ever
Here are some lessons we should all learn from this debacle:
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 billion valuation. It's very hard to get rich off salary alone because salaries get turned off once you lose your job. Salaries are also valued at a 1:1 ratio. Whereas equity is valued at a multiple of earnings. You want to be able to earn a salary and grow your equity to supercharge your wealth.
2) To get rich, you must learn how to sell.
Adam was able to sell his vision extremely well. He convinced smart investors from SoftBank, Benchmark, JP Morgan, Goldman Sachs, T. Rowe Price, Wellington, Harvard Corp, and the former CEO of Boston Properties to believe WeWork was a technology company that deserved a higher valuation multiple despite it really only being a poorly capitalized REIT.
Related: All The Things To Consider Before Selling Your Business
3) To get rich, always go fishing.
There's a fun saying that goes, “If you don't know who the sucker is in the room, it's you!” There is always a sucker out there you can take advantage of because they either have empire-building tendencies, have too much money, found other suckers to invest in their fund, or simply don't understand what's going on. You've always got to go fishing to catch a sucker.
Although it may seem like SoftBank's $100 billion Vision Fund is the sucker, it's not really since SoftBank only funded around 28% of the fund. SoftBank was able to convince Saudi Arabia's sovereign wealth fund to invest around $45 billion into the fund and Abu Dhabi's national wealth fund to invest $15 billion into. In other words, it's always awesome to get rich off other people's money without the corresponding downside risk.
As a startup, you hope SoftBank launches its Vision Fund II so you can raise even more money or cash out to them. Only time will tell if SoftBank's takeover of WeWork turns out to be an incredible move.
Related: How To Get Someone To Sell You Their Property When They Really Shouldn't
4) You should diversify your wins.
You can never lose if you lock in a win. I know we all think we're geniuses in this 10+-year bull market, but bad things still do happen. Adam brilliantly sold $700 million of stock before IPO at a huge valuation, despite trying to convince the public to buy part of his company. Even if he didn't get the $1.7 billion severance package, he would be set for life. When things are going splendidly well, that is when you should worry the most.
Related: Lessons Learned From The Financial Crisis
5) You probably shouldn't work for a startup.
If 90% of startups fail, then by definition, 90% of employees will not get richer than if they worked at a traditional firm for a higher salary. So many people thought working at Uber or Lyft would be financial home runs as well. But if you joined either of these companies after 2015, you're likely just treading water with your equity.
Work at a startup if you don't need the money or just want to gain a lot of experience and responsibility so you can start your own startup one day.
Related: Career Advice For Startup Employees: Sleep With One Eye Open
6) Obviously, negotiate a severance.
If Adam can negotiate a $1.7 billion severance despite torpedoing his company, you too should be able to negotiate a severance if you work with your employer to provide a smooth transition. Employers want to work something out with their employees. Stop believing you have no power.
One man was able to negotiate a mass severance package worth $40 million for 2,000 employees!
The Largest Severance Packages In History
Here are some other amazing severance package offers in history:
- Former GE CEO, Jack Welch, received a ~$417 million severance package in 2001. But Jack was consistently rated as one of the best CEOs in history. Under his guidance, GEO stock increased 40X.
- Former CVS CEO, Thomas Ryan, received a $120 million severance package in 2017.
- Former CBS CEO, Les Moonves, received a $120 million severance package after being accused of sexual harassment. Alas, his severance package was contested and not paid due to inappropriate acts against an employee.
- Former Yahoo CEO, Scott Thompson, received a $7 million severance package after working for just four months at Yahoo. He was ousted for lying he had a computer science degree on his resume.
- Former Aramark CEO, Eric Foss, received a severance package in August 2019 estimated to be worth $87 million.
- Former Google Executive, Andy Rubin, received a $90 million severance package in 2018 despite claims of sexual misconduct at work.
- Former PG&E CEO, Geisha Williams, received a $2.5 million severance package in January 2019 as her company went into Chapter 11 bankruptcy for causing so many fires.
- In 2008 Target paid its CEO, Robert Ulrich, $164 million when he stepped down as CEO.
- In 2006, after only nine months on the job, Viacom’s Tom Freston walked away with a 100 million dollar payout.
Always Negotiate A Severance Instead Of Quit
There is so much money out there for the taking. It's up to you to develop awareness and your selling and negotiation skills. Once you do, you'll come to realize how much money is left on the table every day.
Please never quit your job. There are plenty of people who do poor work and get to receive lucrative severance packages. You should be able to get a severance package as well.
To learn how to negotiate a severance package, buy a copy of How To Engineer Your Layoff: Make A Small Fortune By Saying Goodbye. Use the code “saveten” at checkout to save $10.
Readers, despite so many examples of people negotiating amazing severance packages, why do some people still not believe? When CEOs are getting paid millions despite a tanking share price, why don't more employees fight for their own compensation? Do people not realize that performance is only one part of the compensation equation?
Two points:
1) Adam Neuman was a majority owner – not an employee…gave him tremendous leverage against Soft bank ( who he had previously conned into investing) and
2) Don’t be too glorified toward Jack Welch. The short term stock price went up spectacularly on his watch but many of GEs woes today are directly attributable to his actions and style…
Hi Sam,
Haven’t yet read the book, but definitely plan on doing so. I am curious… If one were to have a new opportunity on the horizon, and was to start that opportunity shortly after bonus being paid out at the current/old company, is there a method to approaching that conversation? Mum is the word until bonuses are paid, and then soon thereafter the conversation of leaving is mentioned. With an immediate urgency to start at the new opportunity, do not think there would be a lot of time approach the negotiation, offer support in transition, etc.
Curious your opinion. Again, going to buy the book!
Thanks
I suspect that SoftBank did not want to be perceived by future start-up creators as being willing to burn their creators should the 90% chance of failure actually occur. Had Softbank put the screws to Adam, no creator with a great but highly risky business in their right mind would give Softbank any control, assuming alternative investors were out there. Every start up creator and future start up creators now are well aware that (barring some huge no-no such as wearing black face to the company Christmas party or something like that) Softbank has their back.
Now that is a great point! Softbank is trying to raise their Vision Fund II. Although it’s hard to turn down billions of capital at a super high valuation, Softbank screwing over its largest position would set bad precedence.
You are spot on here. Well, except for Justin Trudeau, who won again despite wearing black face multiple times.
thanks
Unfortunately, I am going to have to “pay” my employer to leave since I have a 2-year clawback on my bonus.
You’re fortunate because you would only leave if you got a massive massive offer elsewhere! Congrats!
I own a small company and I can tell you Sam is 100% correct. I have never paid a severance simply because no one has ever asked. If you don’t ask, I’m not going to pay. I only have 14 employees, but I have 3 currently, who if they came to me and wanted to leave I would give them a severance if they were flexible with their transition.
All they have to do is ask!
Samurai, weworks leased like 4-6 floors at 85 Broad (your old building)
We used to sneak up there every day and use their free coffee, food and internet. If you were a tenant in the building your ID would work.
We knew right away the company wasnt run well…
re: “Former Yahoo CEO, Scott Thompson, received a $7 million severance package after working for just four months at Yahoo. He was ousted for lying he had a computer science degree on his resume.”
This is so hard for me to fathom! How on earth does anyone get a severance after lying on their resume???? at that level??? isn’t that some type of fraud? Makes me wonder what kind of dirt he had on the board members? $7 million for 4 months on the job??!? I would hate to be a Yahoo employee seeing this happen. *SIGH*
It was technically stock grants.. but yeah.. Yahoo had every right to not grant him the stock for 4 months of work.
I’m telling yah, these things happen all the time. So at the very least, normal employees should try to negotiate a severance.
Sam – Two thoughts:
1) Can you guess why SoftBank didn’t just buy the debt and wipe out Neumann and the other equity holders? It could have been the lender in DIP and get new equity for less and get a shot to get out of underperforming sites
2). I tried unsuccessfully to navigate a severance package, was basically told to go fly a kite. I was retiring early and didn’t feel like going to a new place to buyout my equity
Good question. Not sure. There must be a mathematical reason why spending $3 billion to get an 80%+ stake was the cheaper way to go and better for the business.
At least you tried to negotiate a severance. But not sure if you used the strategies I mentioned in my book and articles? There are so many strategies and case studies within.
I think there is a 4th type of person who doesn’t try to push the company extremely hard on severance pay. I retired at 60 and as a retiree company policy was to pay get no severance to people who terminate voluntarily. I did get a few months pay out of it since it was so amicable but I did not push harder because I thought I’d like to consult a little in my retirement and I wanted them to both be clients and references for me going forward. I’ve made half a million I don’t need working just a few hours a week in the four years I’ve been retired and much of that has come from that company to me. And at this point in my life having the option to do some fun work has more value than the money, which I have more than enough of. If nothing else it has made the transition to retirement very gradual. Great post as always, thought provoking.
The biggest thing that I would be doing is keeping my mouth shut on things. It’s ok to casually mention it and move to another topic of conversation (IMHO). But flaunting makes you look bad. Keeping a spirit of humility makes it easier to get hired elsewhere or do business with others down the road.
I don’t know that I would be so proud and public about extorting a 6 figure settlement from my company to go away. Doubt any company would look to hire someone with that kind of history and mentality. And teaching others to do it too will just add cost to the system that are ultimately borne by consumers.
Your attitude is exactly what management is counting on to take advantage of employees to work for less, work for longer, and eventually quit or get fired with nothing.
Saying a negotiation is an “extorting” shows no understanding of how to negotiate. It also shows low emotional intelligence because quitting your job and leaving your colleagues and bosses in the lurch is selfish.
At 63, I wouldn’t take any more BS from your corporation. You don’t want to look back at your life filled with regret for not having gone after you dreams. Good luck with Nevada.
See: https://www.financialsamurai.com/quitting-your-job-is-selfish-engineering-your-layoff-is-the-ethical-way-to-go/
I know someone who was so shy and timid that she quit her job to avoid confrontation. The next month, her good friend and ex- coworker got a severance package worth about $40,000!
If the shy person just held on for one more month, she would have been set for like nine months or longer.
Always try and negotiate instead of quit!
This is one reason why the numbers show that women earn less on average than men–they are (on average) less likely to negotiate. We usually think of that in terms of starting pay or subsequent raises, but here’s another case where timidity caused a loss.
I think you need to distinguish between privately held companies and public ally held companies. If a private owner believes giving a failed manager a huge amount of severance, so what? The owner can do whatever he wants with his money. And if it’s worth it to him, end of story. In a public company the Board of Directors doing the same thing is violating a fiduciary responsibility, and giving away the SHAREHOLDERS money, and the act becomes outrageous. People are entitled to do whatever they want with their own money; it’s when they’re spending someone else’s money that close scrutiny is necessary.
Exactly. Screw the 12,000 employees who have helped Adam get rich. It’s a private company so they can do whatever they want.
I’m sure this is why your company is so successful Don!
What a great explanation of a very timely news piece Sam. I was wondering what all the details were about as it’s been on Bloomberg every day. Absolutely disgusting if you ask me….and we’re paying our teachers how much in this country?!?!?!
I really like the concept of negotiating severance benefits. But, what if your company is a large paperwork-driven bureaucracy? Does the book cover things like that, where there’s a “policy” for every situation, and any proposals by you are met with “we don’t do that?”
Yes. Everything is negotiable.
How crazy! It just goes to show that anything really is possible. That pic and caption of the ship getting torpedoed is hilarious and so fitting here. Thanks for explaining his exit and package so clearly! I heard about it before but couldn’t really understand everything that’s going on until I read your article. Hopefully more people will realize that negotiating a severance is totally feasible for successful workers too.
“When CEOs are getting paid millions despite a tanking share price, why don’t more employees fight for their own compensation?”
Strange sentiment with the UAW out on a long strike vs GM, involving tens of thousands.
I think most employees in the United States are not covered by union contracts. Non union employees need to take more responsibility to negotiate better compensation on their own.
That is truly an unbelievable story. I can’t fault the player because he navigated the circumstances brilliantly.
I do think a lot of people do not fully appreciate their worth to the company. I read somewhere that it would cost 6 figures (off top of my head I thought it was in the $100-300k range) to replace a physician who leaves. If I was an employer it would be smarter to entice that physician to stay with a bonus that still keeps me under that amount.
Yes, the time spent to find a replacement and then train the replacement is big downside for the employer. The ideal situation is to get an employee who wants to leave to stay until the replacement comes + 1-3 months to train the replacement.