Gone are the days of a lifelong job with a single employer. As Millennials have entered the workforce and the landscape continues to change, it’s not unusual to see entire executive teams move firms seeking new and exciting opportunities. I’ve seen the scenario before: You’re being recruited, the employer looks amazing, the new role will be perfect and the compensation package looks attractive as well. With stars in your eyes you are ready to pull the cord and make the jump. I love the optimism, but before you run out the door, let’s button up your current financial loose ends.
When You Change Jobs, What Happens to Employee Stock Options?
As executives consider a transition to a new employer, the question we hear most is “what will happen to my stock options when I quit"? In order to answer that question, it’s critical to understand how the terms of your current employer equity awards may change with your separation. Maximizing the value of your current grants and leveraging potential changes when negotiating with the new employer will be key components to the financial success of your move.
Assuming you already have a solid understanding of your current equity award types, values, vesting schedules and tax implications, the first important concept to understand is how your employer will classify your separation. What I mean here is whether you will qualify for “retirement” treatment under the award agreements or a voluntary separation. Each of these two scenarios may result in vastly different treatments of your equity awards. (For related reading, see: The Best Strategies to Manage Your Stock Options.)
Retiring vs. Voluntary Separation
Qualifying as “retired” for your equity awards is the ideal scenario. For retirees, most employers will allow stock option recipients to retain existing equity grants in their current structure and not alter their expiration date. Some will even allow unvested options to continue to vest. Eligibility for this retirement classification is often based on a point scoring method which is determined by age and length of service. (For related reading, see: Should You Accept an Early Retirement Offer?)
If you will not qualify as retiring, the next scenario will likely drastically change your stock option portfolio and vesting dates. In this scenario, it is typically the case that any unvested options will be cancelled and vested options will have expiration dates reduced to a maximum of 90 days from separation. These adjustments illustrate how important it is to understand your holdings and work to maximize value. This potential loss of current and future value should also be utilized in your negotiations for your compensation package at your new employer.
The big disclaimer here is that each employer is free to have different features and stipulations within their option agreements, so before making any changes to your equity holdings or employment status, I strongly encourage you seek the advice of a specialized executive financial advisor and ensure you have a solid understanding of how your equity awards are written.
Now that you know what will happen to stock options when you quit, evaluate your holdings and negotiate the best new deal possible! For our next topic, I will discuss a topic that is especially important for executives on the move: What happens to your equity compensation if you leave your employer. The rules may change, so stay tuned to learn how to protect yourself! (For related reading, see: A Bigger Salary or Better Benefits?)
CR: https://www.investopedia.com/advisor-network/articles/011717/new-job-dont-forget-your-company-stock-options/
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