Finance Friday with Venturi Wealth Management

 I am planning a transition to another tech firm in the next few months. How can I get a handle on the best way to approach my vested and unvested stock compensation (RSUs,ISO or NQSOs, etc…) in preparation for the move?

Whether or not you plan to leave a job, it is important to consider what happens to your stock compensation should you no longer work for your current employer.  In part 1 of this segment, we discuss ISO’s and NQSO’s and what you should do to prepare prior to departure.  

There are varying circumstances under which you might exit a company or position.  Some desirable like a planned retirement, sabbatical or opportunity at another company provide pre-planning opportunities.  There are also less than desirable circumstances such as being let go that may catch you by surprise.  No matter the reason, an exit from an employer is stressful and understanding your stock compensation needs to be timely and well thought out.   In most cases, employees have up to 10 years to exercise their options and capture the value, but when your employment ends, that all changes.  Depending on the reason your employment status changes from that of an employee to a former employee and what type(s) of stock compensation you have, the rules that govern will vary.  Reading two major documents is important: The Plan Document illustrates parameters for options under the plan and The Individual Option Grant Document illustrates your rights and limitations under the plan.

Employee stock options like ISO’s or NQSO’s are issued with an expiration date which is important because it lets you know the last day you can capture the value via an exercise.  Every company has its own rules illustrated in the plan document, but in general the expiration date is 10 years from the grant date.  Regardless of the expiration date or whether or not you are employed with the company, if you do not exercise your options and the expiration date comes and goes, your options will terminate and you will forfeit any value or ability to exercise the options.  

As your employment status changes so may your right to exercise your stock options.  Generally speaking, if you are terminating your employment, you will need to exercise your employee stock options at the expiration date or the new expiration period set in the plan document for a terminated employee, whichever is earlier.  You should also be aware that when you leave a company for any reason, unvested shares will remain unvested in almost all cases.  Essentially this means that the in-the-money value of your unvested employee stock options is forfeited which can have a materially negative impact to your long-term financial health.  If you are leaving your company voluntarily, you will generally have 3 months or 90 days from your termination date to exercise your vested options.  As always, check your plan document as this period can be shorter or longer depending on the company.  We also recommend working with your CPA to understand the potential differences in tax treatments and benefits between NQSO’s and ISO’s.

Part 2 of this segment will further examine what to expect from RSU’s and PSU’s in the event of a voluntary departure.