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.
