Question: Hi, Alan. I am currently employed by a large tech company and I have received equity compensation throughout my tenure. Some of this equity has yet to vest.

I have recently been informed that my position is being eliminated and I have been encouraged to find a new position, either in or out of the company. I have identified a position in a different industry and, if I do not find another position in my company, I will likely take the position in the new company.

Should I approach my current employer and try to get my unvested options vested? Can you suggest a strategy to do this? Thanks.

Lori
Merrick, New York

 Answer: Dear Lori: Sorry to hear of your impending job elimination. Your positive attitude is good to see, and will surely help in your upcoming transition, whatever it may entail. I’m glad you’ve written in. Here are my best thoughts:

1. First, are you certain that you will lose your unvested options if you depart the company? I say this because I have found that many of my clients have wrongly presumed that unvested options are simply lost upon termination of employment. Whether or not you lose your unvested options at this time should be clearly set forth in your employer’s Stock Option Plan. Request a copy of that Plan from your Human Resources representative, and read it over carefully. Be aware that many companies change their Stock Option Plans periodically, and so you may have more than one Stock Option Plan applicable to your options that might require review.

2. My experience is that a great many “equity” plans provide for continued vesting so long as the employee is terminated without cause, and the employee does not compete directly or share confidential information. By “equity” I refer to stock, stock options and other securities of a company. Over the decades I have reviewed many, many employee participation equity plans, and have found many of them to provide for continued vesting of stock options where (a) the employee is terminated without cause, (b) the former employee does not go to work for a direct competitor, and (c) the former employee does not engage in any other misconduct, such as sharing or using the former employer’s confidential information. Some Plans, but only a few, provide for “accelerated” vesting in the event of a termination without cause. (By “accelerated” I mean all vesting takes place now, at one time, and not over an extended period of time.) Look for these things, especially, when you review your stock option plan(s).

While most stock option plans contain an awful lot of legal “mumbo-jumbo” language, I think you can probably review your employer’s Stock Option Plan by yourself looking for what happens upon a termination without cause, without having to pay an attorney to do so for you.

3. It is also likely that your employer has a Severance Plan – most large employers do – which might, on its own, provide for continued or accelerated vesting of your unvested stock options. At large employers, it is most common – indeed, almost universal – to provide some kind of severance to employees who are laid off, restructured or downsized due to no fault of their own. A severance agreement provides for (a) the employer to get certain advantages it seeks but does not legally deserve, including the employer’s waiver of claims, and an agreement to keep confidential matters secret, and for (b) the employee to get certain payments and/or benefits, as well, including continued salary and continued health insurance. You may find that your employer’s Severance Plan provides for continued or accelerated vesting of your stock options if you read the Severance Plan, or what is commonly called the Summary Plan Description, or “SPD” for short.

While most severance plans also contain an awful lot of legal “mumbo-jumbo” language, I think you can probably review your employer’s Severance Plan by yourself looking for what happens to your unvested options upon a termination without cause, without having to pay an attorney to do so for you.

4. If your Stock Option Plan provides for loss of unvested stock options upon termination, and your Severance Plan does not say differently, then you have nothing to lose, and everything to gain, by requesting vesting – either over time or accelerated now – of your unvested stock options. I believe strongly that a departing employee – and especially a departing employee who has been terminated without cause – is unwise, perhaps even foolish, not to request that unvested equity – whether stock, stock options, or other forms of equity – be vested immediately or over time. As I often say to clients who are reluctant to ask for vesting, “If you don’t want to request the vesting of those stock options, then simply have your employer send them to me.”

And as I also often say, “There is generally no downside to any request that incorporate the “Three Magic R’s,” that is, (a) is presented with Respectful, (b) is Reasonable in amount or degree of request, and (c) is accompanied by a solid and convincing Rationale.” So long as these three R’s are incorporated into your request, then I would not expect any kind of downside to making the request.

5. The best “Rationale” to accompany your request for vesting of unvested stock options upon termination without cause is that loss of what you earned in the past is simply “Punishment for No Crime.” By “punishment for no crime” I mean that you are having something taken away from you, that you earned, without any good reason. It seems so odd, and out of place, to hurt a departing employee in the “pocketbook” when he or she least deserves it and most needs it. Such a request can be made either before termination takes place, or during the process of your severance negotiations. It should not be directed to anyone in Human Resources, but instead to a senior executive who knows you, who can intervene on your behalf, if he or she is motivated by your request to do so.

6. If you have any valid and credible “claim” against your employer – just as examples, that you were chosen for position elimination because of your age, gender or race – then when you raise that in severance negotiation this is the “remedy” you might consider requesting as a resolution. In the previous section, above, I mentioned the “Punishment for No Crime” rationale, which is really an appeal for “fairness,” as well as a mention of “need.” While they are both good “rationales” for any request, a stronger rationale is “I have a legal claim; can we resolve by vesting, instead of heading to Court?” Is this threatening a lawsuit? Some would say so. I would not say so: I would say it is simply resolving all matters, including waiving claims, when ending a relationship, which is precisely what is supposed to happen in the severance process.

By the way, other “claims” you might raise at this time could be for non-payment of this past year’s bonus (either full year or partial year), or unfulfilled past promises to you or either raises or promotions, or both.

For more information about severance negotiating at time of termination, see our Blogsite Resource Center Section on Severance Negotiating.

Remember, though, that if you resign to take a different job for another employer before you are officially terminated then you will not be entitled to any severance whatsoever.

7. In case you hear “We can’t do that; the Plan does not allow it,” don’t forget the “Doctrine of Financial Equivalents.” “What the heck is that?” you might be asking. It is simply this: while the employer may be prevented from vesting your unvested stock options (at this time or in the future) by the terms of its Stock Option Plan, nothing in the world prevents your employer from paying you a sum of money that approximates the value of what you are now losing. That is, the “financial equivalent” of the lost “equity.” There is no rule against that, and is a rationale that often overcomes the “we cant do that” defense when raised by Human Resources representatives.

8. With these things in mind, I hope you will seriously consider making a request for your unvested options to be vested (immediately or over time), or that you be paid for the value of what you are losing. It’s hard enough to make a living, and even more difficult to attain a position and do good work such that you are awarded stock options. It would be a shame to now lose what you worked so hard to attain. This is the time to make this request, not years later when you will probably wish you did. I don’t really have a “vote” in this, but if I did I’d surely say “Go for it.”

If you would like to obtain a model letter to assist you in making a request that your unvested options be vested, simply [click here].

Lori, thanks for writing in. Good luck in relocating yourself in a position that provides support for you and your family, as well as purpose and meaning in your life. Have faith that you will, and, I am certain, that you will.

My best to you,
Al Sklover

P.S.: One of our most popular “Ideal Packages” of forms, letters and checklists is entitled “Ultimate Severance Package” consisting of four Model Letters/Memos for severance negotiation, as well as our 94-Point Severance Negotiation Checklist.” To obtain a complete set, just [ click here. ]

© 2012 Alan L. Sklover, All Rights Reserved.