With daily announcements of redundancies, including 100,000 jobs globally in the financial sector, and hiring freezes across most sectors, it is now critical for executives and seniors managers to understand the potential outcomes and options available when facing career transition or redundancy. Seeking advice is the first step in maximising your redundancy and turning it into a tool for long-term asset growth.
With fears that instability in Europe’s Olive Belt will trigger GFC Mark II, overall consumer confidence remains at record lows. As global trade slows, Australian productivity declines and large conglomerates continue to restructure to stay competitive.
GFC-imposed changes to finance sector business models have left many mid to senior management executives exposed to redundancy. Large corporates such as BlueScope Steel, KPMG, Holden, Westpac, Telstra and QANTAS are not the only ones undertaking cuts across the board. Many companies have announced ‘right sizing’ or restructuring plans without warning, leaving even long-term senior employees out in the cold.
Indeed, the number of job losses amongst high socioeconomic status (SES) workers has hit all time highs. According to demographic research firm, Australian Development Strategies (i), in areas traditionally populated by high paid professionals, such as Sydney’s eastern suburbs, the unemployment rate currently stands at 5.5%, which is an increase of 3.1 percentage points over the past year. Historical trends from economic profiling have found that employment numbers of higher SES workers and Australian share market prices are inversely linked. This means that following share price drops, the possibility of unemployment rises for the nation’s top earners and job losses across all sectors becomes inevitable.
If talk of redundancies starts making its way through an organisation, those in senior management positions should immediately seek professional advice to gain greater financial planning opportunities and place them in a better financial position. Having a pre-emptive strategy in place can assist when navigating the change to finances, career, family and lifestyle while simultaneously staying in control of how redundancy is managed and, crucially, the timeframe in which it occurs.
Typically, many over 45s initiate their own career change, but when the transition is forced by redundancy, there are several key steps that will help you maintain financial security while negotiating the next phase of your life and career. The first step is to break down your situation into short- and long-term goals.
By assessing your immediate financial status, you can work out what stop gap arrangements need be put in place to support your lifestyle and commitments such as the mortgage and school fees. What are your day-to-day cash flow requirements? Break down your assets into what you owe and what you own.
Unencumbering yourself from your employer with super, insurance and shares may also be beneficial in the lead-up to your redundancy. Finally, try and put a timeframe around how long you think you might be in this situation.
Proper planning for your lump-sum redundancy payout is crucial and a professional financial planner can not only help you get the most out of it long term, but may also be able to negotiate a payout with your employer that is better for your long term wealth. Depending on your age, there are other decisions that need to be made – such as whether you are going to cash out any or all of your superannuation or use your payout to invest in your super. You also need to be clear about the make-up of your lump sum payout and the tax obligations for each component.
More often than not, people experiencing forced career transition or redundancy battle with financial stress, family pressures and fear of the unknown. But planning after retrenchment is too late. Starting a business or consultancy, changing your industry or profession, or securing another senior management position – most of which are not advertised – takes time and planning.
Nine-point checklist for managing redundancy
- Seek professional financial advice – Do this as soon as you suspect that your job may be at risk in order to develop a redundancy strategy. Many of the points covered below will benefit from professional advice.
- Entitlements – Determine what benefit entitlements are coming your way. This may include any outstanding annual or long service leave due to you, pay in lieu of notice and of course payments you receive as part of your separation payment or golden handshake.
- Insurance – Find out if there is a continuation option with your insurance cover. Most people’s insurance cover is through their employer’s superannuation fund.
- Superannuation issues – This includes payments due to you from your super, your choices regarding defined benefit super schemes and un-deducted contributions.
- Tax implications – Understanding the tax liability on your payout is important. Issues that can affect a payout include whether the redundancy is ‘bona fide’, taxes on lump sums and the tax treatment of any super monies you plan to withdraw.
- Debt management – Having a comprehensive budget can go a long way in managing your cash flow, expenses and financial commitments. Look at your fixed and variable expenditures.
- Savings – Assessing the liquidity of your assets is integral in planning ahead.
- Protect and maintain your professional relationships, invest time in your professional networks, raise your profile and learn to network – Graduate jobs are advertised, most senior management positions are not.
- What next…? – Whether you are looking at re-employment or early retirement, knowing the financial implications for each decision must be considered.
The psychological effects of redundancy
The late Apple boss Steve Jobs said in his 2005 address to Stanford University that being let go from the computer giant early in his career was “the best thing that could have ever happened to me”. He went on to form Pixar, finally had time to find his soul mate and would eventually return to his former employer to turn it into one of the most successful business concerns in history.
Unfortunately, not everyone’s job loss story turns out this way. In the immediate aftermath, most people feel an overwhelming sense of loss, anxiety and anger.
A study in the UK medical journal Organization Studies (ii) drawn from formerly senior, highly paid male and female managers – aged 49 to 62 – who had lost their jobs in hostile circumstances found that those who fared best after being made redundant were those who saw the situation as an opportunity for growth, rather than the end of everything.
Those less successful in coping with the forced career transitions reported high levels of despair, feelings of devastation and acute depression. Faced with economic uncertainty and high-end financial commitments, many who’ve been made redundant rush into the job market with a stopgap mentality, often winding up in a job they don’t like. When emotional trauma is mixed with financial pressures, it can be hard to take the glass half full approach, which is why getting professional advice and staying ahead of the game is so crucial.
Taking control of your career
Regardless of how redundancy occurs, taking the initiative with the next phase of your life and career is key to surviving the process.
Anecdotal evidence suggests that many employees who survive downsizing feel stronger and even ‘liberated’. Often managers who had been retrenched placed less importance on job security than those who remained employed. The corporate climate has also altered the focus on career development – where once the onus was on companies, it now falls to an individual to pursue opportunities, boost their skills, seek career advice and market themselves.
With strategic financial planning advice, the insecurity and stress of redundancy can be transformed into an opportunity to develop an executive’s career and enhance their wealth.
i. John Black, CEO, Australian Development Strategies, Australian Financial Review, 10 October 2011
ii. Y. Gabriel, D. Gray, H.Goregaokar, Organization Studies December 2010 vol. 31 no. 12 1687-1712