By: AnnaMarie Mock, CFP®
Pandemic investments and the continuation of gene therapy spurred the growth of companies in recent years. Still, these same companies are feeling the pinch due to growing economic uncertainty.
Life sciences do better than other industries during economic and market drawdowns, but it is not immune to global influences. Supply chain issues, outsourced manufacturing, and a rise in inflation, which directly increased costs for materials, trials, and R&D, disrupted the industry. Established pharmaceutical and biotech companies have weathered the storm more than smaller start-ups and emerging companies. However, layoffs and hiring pauses are becoming more common.
In recent months, the biotech and pharmaceutical industry experienced thousands of layoffs. According to Challenger, Gray & Christmas Inc., life-science companies laid off 7,387 people in 2022, and according to FierceBiotech, an additional 19 drug developers announced plans to follow suit in 2023.
Financial Planning Can Help You Prepare for Being Laid Off
Losing your job can feel like an enormous setback, and living with the prospect of potentially being laid off can be unnerving. Financial planning is the process of planning for the best outcomes while also preparing for the unexpected. Preparing for the unexpected can provide peace of mind and the most necessary time to avoid rushed decisions.
Four Steps to Ease the Burden of Potential Unemployment:
1) Update your resume & online professional profiles because this is where you can showcase your expertise.
Experts suggest updating your resume when there are any changes in your employment status, roles, and skills. There are many online resources to reference while updating your resume that may give you an edge over other applicants. One crucial thing to consider is that many companies use an applicant tracking system (ATS) to analyze resumes based on keywords before a recruiter reviews them. The ATS resume keywords can usually be found in the job description or simply by googling specific keywords relevant to the position.
Online profiles like LinkedIn can be a passive way to market yourself and find a potential job. Similar to a resume, your online professional profiles must also be refreshed. Here is a resource that outlines how and when to update your profiles.
2) Launch a job search or at least compile a list of potential companies.
Stay informed about what's happening in your industry through job boards. It will be easier to begin applying if you know what employers are looking for through job descriptions. Also, reflect on what career/ role you'd like to pursue; you might want to make a career shift. Doing this research in advance can save a lot of time if there are any unforeseen situations.
3) Research your current benefits and separation packages.
Severance packages vary significantly by company. Damien Weinstein, founder and attorney at Weinstein & Klein, states, "there are a lot of moving parts and companies care about different things, so it's always best to review these carefully, speak with an attorney, and identify what's fair, what needs to be negotiated, and maybe what would be nice to have."
From a legal perspective, Damien suggests paying close attention to the non-disparagement clause, confidentially clause, and release language. These are enforceable, and breaching the agreement can have significant financial implications, including a lawsuit and severance pay clawback.
The money terms include the financials and benefits to the individual, like severance pay, healthcare costs, and treatment of awarded equity compensation. Damien urges individuals to question if there is any basis for negotiating more enhanced benefits and if there are any contingencies. Severance package negotiations can span the amount of severance pay, payment of accrued PTO, and vesting terms. You may be able to accelerate the vesting of your unvested stock options and extend the time frame you have to exercise your options.
Case Study: Johnson and Johnson (J&J) bases their severance pay on years of service and employee type. Each year of service equates to two weeks of base pay up to a maximum of 104 weeks – which may not apply to most as that's 52 years' worth of service! Someone that worked at J&J for ten years may be eligible to receive at least ten weeks of pay.
Typically, J&J stock options and restricted share units (RSUs) vest over three years after the grant date. Certain types of terminations are subject to forfeiting unvested equity incentives and limiting the exercising of vested options during a window spanning from 3 months to 3 years. Any vested options not exercised within that time will also be forfeited.
Knowing the terms of the severance package in advance can help prepare the rest of your finances in the event of a termination. In addition, you can determine what parts of the severance package you'd like to negotiate.
4) Focus on the things you can control, like your personal finances.
One of the main concerns about being laid off is having enough money to support your lifestyle in the interim without the need to take out debt. Preparing your finances begins with mindful spending and awareness of how you think, feel, and act with money.
A spending plan can be a good starting point while outlining your expenses and any other sources of income. A spending plan is a blueprint for your money and gives you an actionable plan during the unknowns and begins by adding up all your costs, not including taxes or savings.
An easy way to categorize the expenses is to group them as either fixed or discretionary.
Fixed expenses. You must pay these items monthly to maintain your current household, such as your mortgage or rent, car payment, insurance premiums, and utilities. Generally, the amounts will not change on a month-to-month basis.
Discretionary Expenses. These can be described as "fun stuff" like traveling, hobbies, or dining out and are not essential to your household.
Next is identifying other income sources like unemployment insurance, potential severance pay, or a spouse's income. The difference between other income sources and fixed expenses is what you will need to bridge the gap. With proper preparation, cash savings can support this gap without relying on debt or investment assets.
Set aside cash per pay period during the preparation phase to increase your cash reserves. Consider putting it in a CD, money market, or high-yield account, as it provides yields without the risk of losing principal. Automatic savings can systematize the process and ensure this is done regularly. Consider automated savings a fixed expense, paying yourself just like any other bill. Cash and liquidity are significant.
The objective of this exercise is to develop sustainable money management skills. If you are laid off, you can pivot and reduce your expenses quickly because you have already identified the discretionary costs while having the cash available to maintain your household.
This can be a very emotional time and a difficult transition in the short term. Stay positive and surround yourself with good people who can support you. If you have any questions, I suggest contacting a trusted advisor and attorney to assist you through this process.
AnnaMarie Mock is a CERTIFIED FINANCIAL PLANNER™ and Partner at HIGHLAND Financial Advisors, LLC, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, employer retirement planning, and investment management. AnnaMarie graduated from Montclair State University with a degree in finance and management and successfully passed the CFP® national exam in 2016. She has been working at Highland Financial Advisors since 2013 as a fee-only, fiduciary Wealth Advisor and is a member of NAPFA.