is firing 11,000 employees, and Twitter is slashing its workforce by half, sending waves of anxiety through the technology industry.
Perhaps you feel like you might be next on the tech chopping block at another company. If so, you may have big financial decisions looming that could affect the rest of your financial life.
“It’s a huge setback,” says Chelsea Ransom-Cooper, a certified financial planner and managing partner at Zenith Wealth Partners in Philadelphia.
Ransom-Cooper’s clients are mostly in their 30s and 40s, and working in the technology industry, so she has been fielding a lot of calls lately from workers who were laid off or fear they’re about to be. She had six clients who were let go in July alone. So far, only two have been able to find jobs. Those were highly compensated employees making plans for houses, college educations and a comfortable retirement.
“I always make sure my clients have enough emergency sayings, and they can weather the storm for a little bit. But we’re getting past six months now for some of them, so it’s impacting their morale and their financial plans too,” says Ransom-Cooper. “I’m concerned about the mental health of a lot of my clients, and the way the job market looks now is not making it any easier for them.”
One conundrum that keeps coming up is what to do about employee stock options and other deferred compensation.
This is how she is helping them work through decisions:
Buy and hold
Employee stock options are a type of deferred compensation perk in which you can buy equity in a company at a discounted price. You’ll typically get a vesting schedule that determines when you can cash out the options. The tax treatment depends on the specifics of your company’s plan.
If you’re laid off or the company freezes the offering, you might lose the options, or you might have as few as 90 days to exercise a portion of them. Some companies will be more generous and give you accelerated vesting and six to 12 months to decide.
“Then it comes down to how you feel about the company,” says Ransom-Cooper.
Do you want to be invested in that company? Do you have the cash for the transaction and still have enough emergency funds to cover your needs if it takes you more than just a few months to get another job?
Ransom-Cooper has a client who was recently laid off from a privately held company whose stock options had a strike price of $1.35, and the fair market value of the shares was a little under $9. The company offered accelerated vesting for a portion of her shares over six months, and the rest of the options went away.
“This was a private company, so they couldn’t sell. They would have to just hold on and hope the company went public to cash out,” says Ransom-Cooper.
It’s a hard decision to make at a difficult time. You’re tying up a lot of money in a non-diversified way, hoping for a payout that is double or even 10 times the return you might get otherwise.
To help walk clients through a decision like this, Ransom-Cooper likes to run two retirement scenarios, one with the options and one without, so they can see the full spectrum of potential results.
“It can be over 50% of somebody’s net worth, so it’s a big bet to make,” she says. “It’s one of the biggest ways to lose a lot of money, and also make a lot of money.”
Her client ended up only buying a small fraction of the shares available to them, because they weren’t sure if, and when, the company would go public.
Ride the roller coaster
Another client worked at a publicly held company and had stock options with a $5 strike price that were trading at $35 when they were laid off. That sounds like a big gain, but when the company went public, the shares were at $180.
So do they want to exercise the options before they run out of time after the layoff? Or do they think earnings will grow — ironically, because of the cost-cutting — and hold off for a little while?
“It’s great if the company can grow, but what is the opportunity cost of buying into those stock options or retaining some of that money since you are not sure when you will get another job?” says Ransom-Cooper.
The client decided on a cashless exercise — buying and selling stock on the same day — and then putting the proceeds into a high-yield savings account for now.
For Ransom-Cooper’s clients who just got laid off by Twitter, what’s been particularly vexing is the lack of information about their options through the turmoil of the sale of the company to Tesla
CEO Elon Musk.
Twitter froze restricted stock units (RSUs), which are shares issued as a bonus that you can cash out on a vesting schedule, for a brief time, but then relented. She thinks everyone most likely will get paid out for RSUs vesting up through Nov. 4, but after that, they don’t know if the offer will get more generous.
“It does not look promising,” says Ransom-Cooper.
For those who have not been laid off but who fear company turmoil, Ransom-Cooper advises them to make sure they have abundant savings, work on knocking out debt and keep their ears out for other opportunities.
“I had clients who were expecting to get promotions and they’ve plateaued. They’re told to sit tight,” she says.
And while it sounds grim, it’s time to think about spending less and putting off travel and big house projects.
“It’s not ‘no’; it’s just not right now,” she says.