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Surviving the Slowdown

Tips on How to Be Prepared for Changes in Employment

Chanie Schwartz

With growing demand for healthcare from an aging population, the pharmaceutical and biotech industries are unlikely to experience a dramatic collapse as the mortgage industry did in 2007 and the banking and auto industries did in 2008. Yet, growth in both industries is being affected by the recession and other economic trends.

In this challenging environment, pharma and biotech executives must think about their careers, as well as the welfare of their companies. Every corporate leader should be asking if his or her unit is producing cash for the company, and whether the department is central to the company's mission and long-term growth. Executives who are heading divisions or departments on the periphery of a company's strategic objectives might find their budgets cut or even eliminated in a slow-growth or no-growth environment.

On a personal level, times of economic uncertainty call for executives to analyze their career path and get their financial house in order. Creating a stable foundation will benefit executives in making long-term, strategic decisions.

Make Yourself Marketable

In the crush of day-to-day responsibilities, career-building activities may fall by the wayside. Make time in your schedule for activities that can make you more marketable if you need to launch a job search.

  1. Attend industry events to network and stay abreast of what's going on at other companies.
  2. Sign up for LinkedIn and network online.
  3. Take advantage of resources offered by your current employer, such as training and counseling for you and your family.
  4. Find opportunities to speak at industry conferences and write for industry publications.

If you believe you will be leaving your position:

  1. Update your resume using a professional resume writer. It is worth the investment.
  2. Update any skills that will make you more marketable.
  3. Realize that being at one company for a long period may be perceived as a sign that you will have trouble adapting to a new culture.
  4. Before accepting a position, speak to people working at the company. Ask tough questions to determine how you would fit within the new organization's culture.
  5. Realize that in today's market, companies are no longer throwing money at executives. Keep your salary expectations reasonable. If your requirements don't fit their budget, they won't consider you.
  6. Explore what you are willing and unwilling to do if you lose your job. Discuss with your spouse options such as consulting, starting your own business, working out of state, and other industries where your skill set would apply.
  7. Hire a career coach so you can hit the ground running, rather than learning by trial and error.

Getting Your Affairs in Order

Fortunately for senior executives, having a substantial income greatly eases the challenges of getting prepared for a possible layoff or job change. However, a surprising number of high-income earners are living paycheck-to-paycheck. For executives who are financially stretched or over—committed, it's especially important to act now—well in advance of an unexpected event. A few key steps:

Benefits

  1. Review benefits for you and your spouse. Make sure the company's human resources and compensation systems accurately reflect your length of service, personal and vacation days, equity compensation, base salary and bonus, split dollar policies, SERP, and deferred compensation. Have any mistakes corrected.
  2. Learn what your company's typical severance package includes at your job level and experience level.
  3. Learn about your company's policy for cashing out equity compensation if you are laid off. Is that compensation forfeit or does an accelerated schedule take effect? Examine the tax implications of exercising options before or after you leave.
  4. Become familiar with the rules regarding your Employee Stock Purchase Plan, including the tax implications of selling the stock too early, the cost basis on the stock, and when you are allowed to keep the discount you receive when you purchase the stock, if your company has a discount.
  5. Find out about your spouse's employment benefits. For executives with a working spouse, health care coverage (as well as income) can ease the transition to another job. There are cost-effective alternatives to Consolidated Omnibus Budget Reconciliation Act (COBRA) for medical insurance, such as joining a state plan or an association that offers health coverage to its members (such as the National Association for Female Executives). Unfortunately, for the approximately 30% of executives whose spouses do not work, the financial burden of a job loss is even greater.

Personal Finances

  1. Set up an emergency fund. Executives should have at least six months of living expenses in liquid assets, such as checking accounts, savings accounts, and money market accounts. In the current economic environment, having a year's worth of living expenses in an emergency fund would be a much better idea.
  2. Understand cash flow needs. What will that six months of living expenses include? Take a look at expenses, and differentiate between those that are essential and those that are optional. Identifying optional expenses does not mean that they have to be eliminated—it just creates a plan for economizing, if necessary.
  3. Make sure your income covers your cash outlays. Over time, many executives develop a lifestyle that relies on bonuses and exercising stock options in addition to salary.
  4. Make sure you are on track to retire, so you can decide if early retirement is an option.
  5. Repay any funds borrowed from a 401(k) plan. In the past few years, employers have been permitted by the Internal Revenue Service to make it easier for individuals to borrow against their 401(k) plans. Many executives have financed down payments on property, met private school or college tuition obligations, or supported other expenditures with 401(k) borrowing. However, funds borrowed from a 401(k) must be paid off within 90 days of leaving employment, or the borrowing will be treated as an early distribution from the plan. Early distributions will incur both income tax at the recipient's tax rate and also a 10% penalty—a deadly combination at a time when income and bonuses are reduced.

If You Lose Your Job

If you do lose your job, have a labor lawyer review your severance agreement. He or she may be able to negotiate with your company if you are near a milestone such as early retirement or being vested in your pension. Your CPA should also review your severance agreement for IRS legislation 409A, which can have severe tax implications on severance packages.

Should You Retire?

For some executives, the emotional aspect of losing a job is more difficult than the financial aspect. For others, a downsizing is an opportunity to think outside the corporation. Before making a decision to retire, ask yourself the following questions:

  1. Can you afford to retire, or do you need to supplement retirement with some work to maintain your lifestyle?
  2. How will you fill your time during retirement, considering many of us may live to the age of 90 or older?
  3. Do you want to give back to your community or profession by teaching, volunteering, or working for a nonprofit?

Conclusion

A life change such as losing a job can be an emotional challenge, especially for an executive who has devoted countless hours to managing and building a company. Losing that corporate and professional identity can leave an executive feeling overwhelmed, as well as putting new financial pressures on a his or her household. When a severance package is offered, the executive is often so surprised by the situation that he accepts it without understanding whether it is a reasonable or fair arrangement, or whether it meets his needs. The result is that the financial challenges of losing a job are compounded.

The answer is to be prepared for employment change, especially in the current economic climate. Being prepared starts by having a good understanding of your current financial security. It requires having a comprehensive financial plan that incorporates information about your income, employer stock holdings and other investments, financial obligations, and so on—all in the context of your long-term financial and personal goals. And it requires having a person you can trust—an expert who knows your unique situation—who is advising you.

Chanie Schwartz is a wealth manager with Securities America Advisors and founder of A Vested Interest Wealth. Web: www.avestedinterest.net. This article was excerpted from the author's white paper on How to Protect Yourself from a Slowdown in the Pharmaceutical and Biotech Industries.