You don’t have look very far in the San Francisco Bay area to run into someone who has or has had an employment acquisition / buy-out arrangement.
Dentists, CPAs, other business owners of one stripe or another frequently have as part of the sale of their business a provision to work (“earn out period” – samples here) for some defined period of time with the people to whom they’ve sold their practice. The purpose broadly is to have people stick around to ensure the value they bring to the deal has enough time to stick so that the new buyers aren’t left in the lurch. Add in a chunk of people who have/ have had start-up coursing through their veins and you have one heck of a lot of people with this type acquisition / buy-out experience.
Bigger businesses may have similar arrangement; when Cisco buys a company like Pure Digital, the makers of Flip digital cameras, key execs like COO Andre Neumann-Loreck [Disclosure: Andre’s daughter and my son go to grade school together] generally have a financial incentive as part of the acquisition to remain with the firm for a period of time. Some execs in this type of arrangement may get a pass (my Dolores Park neighbor, former Sun CEO Jonathan Schwartz, may have not been required to work at acquirer Oracle) but many times people like Palm’s CEO Jon Rubenstein continue working for their acquirer -Hewlett Packard in Palm’s case.
In those same cases many senior executives are also covered by something called a parachute (or “golden parachute‘) arrangement that provides a specified severance benefit if their company is sold, or even in some cases if there is a material reduction in the person’s compensation or scope of their role while they are employed with their current firm. As one example, see Lewis T. “Rusty” Williams, former Chief Scientific Officer at Chiron Corporation’s severance agreement description contained in Chiron’s publicly disclosed proxy material here, right after the page 25 break. [Disclosure: I held a senior HR role at Chiron from 1996-1999.) My take – unless you accept the same job with the acquiring company – anyone covered by a parachute likely incurs a material reduction in role, prospectively triggering a severance parachute.
All this parachute business came to mind last week when I caught coffee with a client I’ll call “Shirley” who had recently pulled her acquisition parachute ripcord right before the end of a 1-year consideration period would end – meaning that her severance benefits would lapse and she would not be covered moving forward if she did not act.
So if you’re covered (or will be) by a severance parachute or earn-out, when – or if – do you pull the ripcord?
Here are the things Shirley considered – along with her answers; all good check points if you’re in a similar situation:
- Can you leave the new employer without taking any financial hit from the acquisition? (yes in this case)
- Do you like and respect the people you work with in the acquiring company? (yes!)
- Do you enjoy the now-changed and smaller role in which you’ve been placed? (no – not as much as the former role)
- Is somewhat-smaller role likely to change in the foreseeable future? (nope – no one appears to be planning on leaving or dying)
- Do you need to find a new job right away? (no)
- Can you find a new job if you want to fairly soon? (probably – good talent has a way of attracting attention)
- Can your family (if you’ve got one) handle you being around if you are on the beach for a while? (probably)
- Can you handle being on the beach while you job hunt? (maybe)
So Shirley pulled the ripcord – and lucky for her found a new role with a different firm that better fit what she wanted to do. In a way she was lucky; she maximized her financial benefits from the executive severance plan from her former company, and found new employment quickly. Not everyone is that lucky, and in this case things worked out well.
I encourage my executive coaching clients to be familiar with what’s out their with their peers so that they’re receiving competitive benefits. Things like golden parachutes are often – but not always – present. While it helps to ask and be assertive, it seldom helps to be pushy. Sources like the SEC’s Edgar database give you a great view into what public companies provide – benefits which sometimes carry over to private companies.
Life Back West is an occasional set of writings focused on ways people, teams and organizations can be both more effective (doing the right thing) and more efficient (doing the right thing well). More about executive, career and team / leadership coaching services can be found at the “About J. Mike Smith and Back West, Inc.” sidebar or the “Hire Me” tab above. You can also read an online interview with me at WhoHub, as well as participate in my learning community courtesy of KnowledgeCrush.