What shall we do with a golden parachute?

• Fran Molloy
• 26 March 2009
• Page 1 of 2 : single page

In the current economic climate, the number of Australian employees likely to be retrenched is climbing. Well, duh!

Yet, there is one very interesting trend that’s emerging: a number of highly paid corporate folk who are walking away from $150K jobs with a substantial payout are deciding to invest this into starting an online business, buying a franchise or becoming a consultant.

For many, their age is a big contributing factor; after all, if you’re over 50, your chances of finding a comparable job once you’ve left the corporate sector are greatly reduced.

“Re-employment prospects decline precipitously with age,” warn Seamus McGuinness and Mark Wooden, authors of a 2007 report into job mobility by the Melbourne Institute.

However, for the majority of those who leave permanent corporate employment after a few years in the job, the lump sum payment that accompanies them can provide a very reassuring safety net.

Lump sums

The golden parachute can vary; if you’ve been retrenched, depending on your age, length of service and your employment terms, your redundancy payout might include around 20 weeks salary plus accumulated leave and pro-rata long service.

Some employees – particularly those in more senior management positions – may negotiate a severance arrangement that includes shares, payment into superannuation and a very generous salary bonus equal to their annual salary or more.

Others decide to leave of their own accord; their accumulated leave and unpreserved superannuation can form a significant lump sum takeaway.

The Australian Bureau of Statistics puts the average annual retrenchment rate at around 4%, but the figure has traditionally climbed to well over 6% during economic downturns.

Some industries have been hit harder than others; the Finance Sector Union recently announced that the industry had lost an estimated 20,000 jobs across Australia due to the global financial crisis.

Whatever your age or industry, the prospect of losing a secure corporate job is a very unsettling one for most people, and the most common response is to jump straight back into the corporate world.

Most redundancy packages these days include the services of an outplacement consultancy that traditionally helps ex-employees fine-tune their resumes and cheers them on through the job application process.

However, when retrenchments result from industry restructure, job prospects can be grim and savvy staff will look at their options, with many deciding to not only change careers, but put in motion ambitions they may have abandoned years ago.

Alternatives to outplacement

“Outplacement consultants are totally focused on getting people back into the corporate world,” says Jonathan Mills, a former sales manager who is now the owner of Wild Oats Housewares, a successful wholesale operation.

Mills spent several years as general manager of a medium-sized housewares business with an annual turnover of around $20 million. A takeover by a large publicly listed company meant more opportunities – but also more risk of redundancy, so he wasn’t surprised when he was retrenched a few years later.

The outplacement agency that handled Mills’ account only considered options that involved reintroducing him into the workplace in a senior executive role.

Although he raised the idea of starting his own business, he says that most agencies don’t have any resources or expertise in the area.

“[With outplacement agencies], it’s a case of updating your CV, getting in touch with your network and with their contacts, and finding another corporate role,” he says.

Mills spent nearly three months planning his new business. “I wrote a really significant, 30-page business plan, backed with spreadsheets with budgets and cashflow projections.”

He spent some time sourcing silent investment partners and made several trips overseas to research potential suppliers – few resources from his outplacement agency were of any assistance.

“Outplacement agencies traditionally just don’t understand small business,” agrees Laurence Harrould of Aviel, a small business coaching enterprise.

Harrould and his business partner Danita Needleman have developed a transition to small business program to help corporate employees with no experience start a small business.

“Many people who are coming from a corporate environment don’t really have the option these days to stay in the area, because there’s not the corporate jobs available,” he says.

“But it’s easy to make some really fundamental mistakes when you’re coming from a corporate environment. For those who have the enthusiasm and desire to start out on their own, they really need support and information, sometimes at a really basic level.”

Harrould relates the story of one client whose first year budget for her business included her salary as an income for the business.

“She was so dominated by a corporate mindset that she didn’t understand that her business actually had to generate the money to pay her.”

Sick of long hours for someone else

Accountant Bob Bonetti had moved around a fair bit in his working life, with a range of employers including a large bank, several universities, private corporations and government agencies.

But after a decade working for a university in a varied job he enjoyed, cost-cutting meant that his senior role as a financial controller involved very long hours and plenty of frustration.

At 43, Bonetti had paid off his home, so he and his wife decided to leave their jobs, collecting a fair sum in leave and unpreserved superannuation, and start a business.

“We figured, since we were working such huge hours, we should be the ones benefiting from the extra work and we could only do that if we worked for ourselves,” says Bonetti, adding that he had toyed with the idea of running a small business for many years.

The Bonettis were clear about their goals from the outset; they wanted a business that would keep them interested, generate reliable profits and didn’t need them to work weekends.

Buying an established retail business eliminated uncertainty about cashflow in the early phase and Bonetti’s considerable accountancy and business management experience were likely to result in improvements that would generate a higher income.