What Happens to My Equity Compensation If I Leave the Company?
If you're considering leaving your job, it's important to understand what will happen to your equity compensation upon your departure. Your company's equity plan will dictate how ending employment will impact your compensation. Factors can include your role and length of time at the company, the types of equity compensation you hold, and whether the company is public or private.
Many of the specific details will be outlined in your grant agreement. Ahead, we'll answer common questions about how leaving the company can impact your equity compensation, including:
- Is my equity vested?
- What happens to vested equity if I resign?
- Will I lose unvested equity?
- How long do I have to exercise my stock options?
- What happens to my equity if I'm fired?
- What happens to my equity upon retirement or death?
Is my equity vested?
Typically, vesting is an event trigger that signifies a transfer of rights (e.g., stock option) or ownership of company stock (e.g., restricted stock). Your equity compensation is most likely tied to a vesting schedule, which outlines the timeline that transfer occurs. Vesting schedules vary by company, but they are usually done a monthly, quarterly, or annual schedule.
What happens to my vested equity if I resign?
If your equity awards are fully vested, you either typically own your company stock outright or own the right to exercise stock options. For stock options, you generally have up to a 90-day window to exercise any remaining vested shares. If your resignation is due to an alleged violation of the term(s) of the stock option agreement, then your company may either have you forfeit any remaining vested stock option value, or worse, may ask you to payback the value of equity awards, through a "clawback" provision.
Will I lose unvested equity?
If you leave before your assets are vested, you will likely forfeit those shares when you terminate employment. If you leave due to retirement or your position was eliminated, for example, you could trigger a specific vesting schedule that will allow you to become fully vested immediately or over a certain period of time. Check your equity award agreement for more details.
How long do I have to exercise my stock options?
In many cases, you'll have up to 90 days after your final day to exercise your vested stock options. For Incentive Stock Options (ISOs), 90 days is an important date to remember, because beyond that limit, ISOs will be treated as non-qualified stock options for tax purposes (i.e., ordinary income). Make sure you know what type of stock options you own and how much time is available to you after your final day.
What happens to my equity if I'm fired?
The status of your equity may depend on the reason you're fired. Many company plans cancel any vested or unvested options if an employee is terminated for cause. If you're laid off—not fired for cause—your company plan might allow you to keep or exercise vested awards.
What happens to my equity upon retirement or death?
Check your equity award agreement for details related to retirement and death. Some companies offer a specific vesting schedule for staff approaching retirement. Your employer also might offer an extended period for your beneficiaries to exercise your equity in the event of your death.
Next steps
Leaving a job is a good opportunity to review your financial portfolio with a financial advisor. Your financial consultant can help you choose the right level of advice and service based on your goals, and connect you to specialists when you have more complex planning and financial needs.
Learn how to make the most of your equity.
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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
Investing involves risk, including loss of principal.
Programs will vary. It's important to read your company's grant agreement that contains the terms and conditions of that specific grant.
The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager) to help answer questions about specific situations or needs prior to taking any action based upon this information.
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