Editor’s note: Bridget Grimes is a columnist with Rethinking65. Read her other articles here.
Bridget Grimes
Since 2022, more than 500,000 jobs have been cut in the tech sector, according to layoffs tracker website Layoffs.fyi. While many of these cuts are attributed to overhiring during the pandemic, declining revenue is also driving headcount reductions.
Our firm, WealthChoice, provides financial planning to breadwinner women, many of whom are executives in the tech sector. Our clients in tech have traditionally moved from company to company more frequently than our clients in other industries. Each move has increased their compensation and responsibility. Over the past year, several of my tech clients were laid off, but none of them experienced not having a place to land.
Because my clients are breadwinners still in the thick of life and in their peak earnings years, having a Plan B has been critical in making sure they maintain financial security. Their careers and businesses are a major factor in their financial plans.
Plan Before a Layoff Looms
How can financial planners help their clients prepare for a possible layoff? We suggest having a strategy long before the dreaded pink slip is received.
We encourage every client, tech sector or not, to consider where they are going with their current employer and within their industry, and to have a game plan around their career. When the unexpected happens, our clients are as prepared as they can be.
A game plan should include spending time deciding what you truly want out of your career, taking stock of where you are right now, knowing the career path you need to take to get to where you want to be, having the resources you need to get to the next career level, having a plan to negotiate the pay and benefits commensurate with the role, and knowing what your ultimate career goal is.
I typically suggest that clients work with a business coach who can help them with all of these tasks. It’s really important for women execs to advocate for themselves. This includes negotiating what they are worth from both a compensation and benefits standpoint. Pay transparency, currently required by law in nine states, has helped here.
Proactive Positioning
Before one of our clients was laid off, she knew that revenue was declining at her firm — a very large, publicly held tech company. Her company’s financial situation was front and center in the media, and layoffs had been announced in other areas of the company.
My client began looking elsewhere for a new position. Even though she held a senior role at her company and had been discussing a promotion with her manager, we felt she was at risk of losing her job. When she was let go, she was ready to accept a new position at a new company. This was important because she was the breadwinner in her family and her income was necessary to cover the bills.
We have learned that our tech clients should expect the unexpected regarding job security. That’s why we encourage them to have conversations with prospective employers and recruiters who reach out with potential opportunities. We also encourage our clients to touch base with their peers at other firms.
Ensure That Savings are Sufficient
We are big fans of emergency funds. When we meet with clients for reviews, we create updated balance sheets showing their cash positions. We encourage all clients to have enough cash to cover three months of fixed expenses if they have a partner who works, or six months if they do not.
When a client receives stock awards and we withhold a portion to cover taxes due from vesting shares, we make sure there is enough cash held aside for that, as well. If we think a client might be at risk of being laid off, we suggest adding more cash to the emergency fund — ideally enough to cover one year of living expenses.
When a client is laid off and receives severance pay or any additional income from their employer, we encourage the client to hold onto that cash until they secure a new position. There are some terrific high-yield cash options for this purpose. One of the resources our clients use in this case is Flourish Cash, which is currently paying 5% on cash.
Revisiting Budgets
We suggest clients revisit their budgets once we get word of a layoff. We use a simple Excel spreadsheet that separates expenses into fixed and discretionary, or software that enables clients to link the accounts they use for expenses. This enables them to better track their expenses.
We ask all of our clients to update us annually on their spending. Thus, they should be fairly in tune with their cost of living if they are let go from a job. But revisiting expenses gets clients back to focusing on their needs vs. wants. In the event of a layoff, we suggest that clients put all unnecessary spending on the back burner until they secure a new job.
Getting the Best Deal on Severance
When our clients were let go, a number of them received severance packages. Before clients accept a package, we discuss it with them and let them know whether we think they need to negotiate. This package may include compensation and benefits such as health insurance, life insurance, a paid time-off payout (PTO), placement assistance, personal umbrella insurance, a pension and deferred compensation, commissions and bonuses.
For our clients with pensions, early termination will affect their projected retirement. Therefore, this is a key point to consider negotiating. If a client has unvested stock awards, we consider this lost income , and it’s another point to negotiate.
The rule of thumb for severance pay is one to two weeks of paid salary per year worked. One client was recently offered a 10-month severance when let go. After more than 20 years at the company, we felt this offer was insufficient. The client then retained an employment attorney and settled with the employer for significantly more than the initial offer.
It’s also important to negotiate the details around when clients are to receive the money. We’ve discussed what would be the best timing for our clients. Sometimes a lump sum is better and sometimes it’s better to receive payments incrementally over the normal pay periods.
Tax Implications
We make it a point to collaborate with our client’s CPA when we’re aware of the severance package and the various income components our client may be receiving. Simultaneously receiving a lump-sum severance, PTO and bonuses can push the client into a higher tax bracket, so we want to have a plan.
When clients receive salary continuation for a specific period of time, they are no longer able to contribute to a 401(k) and other tax-deferred benefits. This means that their taxable income will be higher than it had been when the client was employed.
We’ve also had the issue where a client had group term life insurance through their employer. Although the plan was portable, the client would face a much higher premium after leaving their employer. This led to a discussion about whether it was worth it financially for the client to pay the huge monthly premium or whether it was better to drop the policy. In the end, this client dropped the insurance; we have a plan in place to financially protect his family should it be an issue in the future.
Deciding on Stock Options
Our clients in tech tend to work at publicly held companies, and stock awards are a significant part of their compensation. It’s important they understand the type of equity awards they have, as well as the rules around these awards. Keeping all grant documents is key so they have all information about their stock plans.
Whether an employee can exercise stock options after they are laid off will be dictated by the grant agreement. Unfortunately, when it comes to restricted stock units (RSUs), any that haven’t vested by the time of separation from the company are typically forfeited.
Employees usually have a 90-day period after job termination to exercise incentive stock options (ISOs) and nonqualified stock options (NQSOs). This is especially important to retain special tax treatment with ISOs. This period can vary, so it’s important to double check the details in the grant documents. NQSOs and RSUs are taxed when exercised or at vesting, though employers may not withhold taxes on former employees. So, having a good tax partner here is important.
Navigating the Emotional Rollercoaster
The last point, and perhaps the most important, is our ability as financial planners to help our clients navigate the emotional impact of an unexpected transition. Anxiety, anger, shock, sadness, fear, depression and embarrassment are just some of the feelings our clients who have been let go have shared with us.
Often the identity of a client is wrapped up in their company, and losing their role in that company triggers a loss of a sense of self. In fact, 55% of U.S. professionals derive their sense of identity from their jobs, according to one Gallup poll. Add to this financial uncertainty, and the stress can be overwhelming.
We practice listening when clients reach out to us to share that they have been let go. We make it a point to check in, often, to see how they are doing. Additionally, we help them navigate the details around the separation so they are empowered to leave on better terms financially. And we stay present as they make their way to the other side of a job loss.
We cannot definitively predict if and when a client will lose their job. But having a game plan, should this happen, has really helped our clients.
Bridget Grimes, CFP, is the president of WealthChoice, a boutique financial life planning firm for women executives, and co-founder of Equita Financial Network, a collaboration of women-led financial planning firms. She is also author of the bestseller “Corner Office Choices: The Executive Woman’s Guide to Financial Freedom.” She believes in empowering women through education, collaboration and support so that they have the confidence to take action for a better life. Bridget can be reached at bridget.grimes@wealthchoice.com.
