Archive Your Workplace Equity or Risk Losing It
“The large print giveth
and the small print taketh away.”
– Tom Waits
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ACTUAL CASE HISTORIES: Walter, EVP of Operations of a publicly held chemical products company, was approached by a Recruiter to assess his interest in a soon-to-be-available position as Chief Operating Officer of a larger competitor. In their third conversation, Walter was asked his present compensation, and what it would take for him to seriously consider a move. It took Walter only moments to come up with an “all-in” number.
Three last questions, though, were not so easy for Walter to answer: (i) Had he signed a “non-compete” agreement? (ii) How much would he need to be “made whole” for his likely loss of unvested stock and other equity? and (iii) How much resignation notice would he need to provide his employer? Walter was “pretty sure” of the answers to each, but no more certain than that. Simply put, he never paid that much attention to “all those details.”
A week later, the Recruiter called Walter to alert him that she needed answers right away, especially regarding start date. Understandably, Walter was very reluctant to approach Human Resources for these answers or documents.
Long story made short: Walter pursued the position, was offered it, and resigned his present position. Unfortunately, Walter’s not being attentive to “all those details” in his (i) Equity Compensation Plan (ii) Stock Award Agreements, and (iii) Confidentiality Agreement, tripped up his transition, and resulted in a 70% loss of his overall equity holdings.
LESSON TO LEARN: With 40 years’ experience counseling and representing employees, I’ve come to the certain conclusion that many, many millions of dollars of equity compensation are unnecessarily lost each year due to plain old inattention to details.
The “lesson to learn” is simple: receiving “equity” at work of any type – whether stock, restricted stock units, stock options or similar equity rewards – can be a great source of lifetime wealth. However, inattention to their “details” can result in needless loss of that potential wealth. No matter what its present or future worth, if you don’t pay strict attention to all of the “small print” that is almost there in the documents, your equity rights and holdings can be lost, denied, held back, become worthless, clawed back, involuntarily “repurchased” from you for pennies, reclaimed or otherwise taken back. Examples of potential loss to your equity holdings include their being:
- Forfeited if you do not provide a certain amount of resignation notice;
- Denied if your next job violates a non-solicitation or non-compete restriction;
- “Clawed Back” if you violate any number of contract or policy provisions;
- “Reverse Vested” due to a so-called “Right of Repurchase”;
- Became worthless if you fail to meet a deadline for exercising or purchasing;
- Cancelled if you transferred ownership in a way that is not permitted;
- Failed to apprise your family prior to your disability or passing;
- Taken back from you if you are terminated for alleged misconduct or other “cause”; or
- Taxed far too much if you missed a deadline for sending a necessary notice or making a certain election.
Said differently, it pays – big time – to carefully review, analyze, record, calendar and update what you are entitled to, keep track, and not lose, what you’ve worked so hard to earn.
WHAT YOU CAN DO: Consider these seven (7) thoughts:
1. Almost every Equity (or Equity-Type) Award you receive at work has attached to it a variety of terms, conditions, deadlines and other provisions that, if not honored, might result in its loss to you. For this reason, it is strongly suggested that you take time to “archive” (i) what you have, (ii) the “strings” attached to what you have (terms, conditions, restrictions, deadlines, obligations) and (iii) then take the necessary steps to avoid “tripping” over those “strings.” Otherwise, your inattention to these “details” could prove extremely costly to you.
2. Four recent workplace trends have increased the importance of your “archiving” your equity awards:
(i) the increased use of equity compensation as workplace reward,
(ii) greater use of equity compensation as a means to retain valuable employees,
(iii) greater complexity and variability in the structure of equity compensation, and
(iv) increased use of legal concepts and principles woven into Plans and Award Agreements.
3. If you are later discussing new employment elsewhere, you will likely be required to provide this information (and perhaps documentation) both promptly and accurately. As illustrated above in Walter’s case, it is often the case that the “important details” of your workplace equity will be needed in discussions with potential new employers. Not having it available without delay can cause significant loss to you, and even create problems on the new job, as it did in Walter’s case, above.
Additionally, going to Human Resources with an urgent request for these documents and this information can suggest to HR and others that you are contemplating leaving, and few employees who are seen as likely soon to depart receive additional equity grants, bonuses or promotions.
4. By “Archiving,” we mean this Seven Step process:
(i) Assembly of the documents that explain your Equity Compensation interests;
(ii) Review of your equity holdings (both vested and unvested), upcoming vesting dates, the equity award documents, and their various terms and conditions;
(iii) Analysis of the steps and measures you must take (or avoid taking) to prevent loss of your equity interests, holdings and opportunities;
(iv) Storage of the written materials (Plans, Award Agreements, and the like) for future reference;
(v) Calendaring the important steps to be taken and the deadlines for doing so;
(vi) Updating periodically the review and analysis of the critical documents; and
(vii) Ensuring the availability of this information and documentation for when that “lifetime opportunity” knocks on your door, or that “financial calamity” might otherwise result.
5. What’s the best time to start Archiving your workplace Equity? 10 years ago. What’s the second best time? Today. In the largest perspective, archiving your important workplace equity information and documentation is a part of financial planning and estate planning. It is akin to knowing where you have a copy of the deed to your home, your Will, and a list of your bank accounts.
It’s never too late to begin putting your Archival list together, and one thing is for sure: you don’t want to wait until it is too late to do so.
6. Ideally, Archiving Your Workplace Financial Awards should also include non-equity workplace financial matters such as (i) bonus awards, (ii) repayment obligations, (iii) reimbursement deadlines, and the like. There are several other workplace financial materials that should also be archived. They include (a) offer letter or employment agreement, (b) annual cash bonus plan, (c) repayment obligations for educational assistance, relocation assistance, sign-on bonuses, etc., (d) rights to “carried interests” and profit sharing, (e) required resignation notice, including “Garden Leave” provisions, and (f) non-competition and non-solicitation restrictions on your future employment freedom.
7. Our firm offers Equity Archive services as an adjunct to our law practice: For almost four decades we have negotiated clients’ equity compensation awards and related matters. In doing so we have become very familiar with the legal language, compensation programs and – perhaps of greatest relevance – identification, assessment and mitigation of risks to our clients and their interests.
If you are interested in finding out more about our Equity Archive service, give us a call.
In Summary . . .
Archiving the “details” of your Workplace Equity, that is the terms, conditions, restrictions, penalties, vesting, events of forfeiture and deadline regarding your company stock, restricted stock, stock options, and the like, is prudent, to say the least. It may prevent grave harm to your interests and wealth, and your career reputation, too. A careful review and analysis of your workplace equity awards should start as soon as possible. We offer this service an adjunct to our firm’s usual legal counsel and representation. It’s a new year, and a great time to begin this new good habit.
“Whether times are good or bad, happy or sad, let’s stay together.”
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SkloverWorkingWisdom™ emphasizes smart negotiating – and navigating – for yourself at work. Negotiation and navigation of work and career issues requires that you think “out of the box,” and build value and avoid risks at every point in your career. We strive to help you understand what is commonly before you – traps and pitfalls, included – and to avoid all likely bumps in the road. Maintaining a careful archive of your workplace equity interests is one way to do just that.
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*A note about our Actual Case Histories: In order to preserve client confidences, and protect client identities, we alter certain facts, including the name, age, gender, position, date, geographical location, and industry of our clients. The essential facts, the point illustrated and the lesson to be learned, remain actual.
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