How Equity-Compensated Professionals Can Change Jobs Without Forfeiting Shares

WestStar’s financial advisors are highly experienced in helping equity-compensated professionals – or as we call them, “Aviators” – to maximize their compensation programs and master the intricacy that comes with being paid in complex ways. One trend we’ve seen is that Aviators at companies like Amazon, Apple, Boeing, Meta, Nike, Starbucks, and Oracle (to name just a few) frequently contemplate changing jobs.

A new job can offer the chance for growth by moving up the corporate ladder, taking on more responsibilities, or exploring different industries or sectors. There are as many reasons as there are people. Career growth, job satisfaction, company culture, and work-life balance are considerations ̶ something different might be a better fit in these important areas. Changes in personal circumstances, family obligations, or the desire for a different lifestyle can also prompt the need for a new job.

And, if all of those considerations and the job search itself weren’t stressful enough, deciding to make the change presents Aviators with additional challenges arising from their ownership of company stock or stock options.

Changing jobs can be simultaneously exciting and daunting – and it’s no surprise that in the midst of it all, Aviators find it difficult to manage the implications on their equity holdings.

The timeframe between a job offer and its acceptance, combined with so much excitement, makes overlooking a review of the terms and conditions of existing equity grants easy.  But that failure means Aviators can be left without a plan to mitigate against any potential forfeiture of their unvested equity. Understanding the policies and prospects of their new company in that same short period of time is a simultaneous challenge.

At WestStar, we understand that the temptation to freak out is rooted in complexity, a natural desire for control, and having so many plates spinning all at once. In our experience, these are some of the common challenges and impacts equity-compensated professionals face, and what we do to help solve them.

1. Vesting Periods: Equity compensation often comes with vesting schedules, which outline the time period an employee must remain with the company before gaining full ownership of the granted shares or options. If an employee changes jobs before completing the vesting period, they may forfeit a portion – or all – of their unvested equity.

What portion of unvested equity is forfeited if an employee changes jobs before completing the vesting period?

There is no standard rule that applies universally across all companies or plans: the portion of unvested equity that is forfeited depends on the specific terms outlined in the equity compensation plan or agreement.

Equity compensation plans have a vesting schedule that specifies the percentage of equity that becomes vested over time.  For example, a plan might have a four-year vesting schedule, with 25% vesting after the first year and the remaining 75% vesting monthly or quarterly over the remaining three years.

If an employee leaves before the vesting period is completed, they may forfeit the unvested portion of their equity. Some companies have “cliff” vesting, where no equity vests until a specific amount of time has passed. In this case, if an employee leaves before they’ve reached the cliff date, they may forfeit the entire unvested equity.

2. Timing and Tax Implications: Depending on the type of equity compensation – such as non-qualified stock options or restricted stock units (RSUs) – there can be tax implications associated with exercising or selling the equity. Employees may need to plan their job transition carefully to avoid triggering significant tax liabilities or missing out on the potential for favorable tax treatment.

3. Liquidity Constraints: For privately held companies or companies with restricted stock, liquidity can be a significant challenge. Even if the equity has vested, it may not be easily convertible into cash because of restrictions on selling or lack of a public market for the shares. This can create difficulties for employees who want to monetize their equity to fund a job transition or cover expenses.

4. Valuation and Risk: The value of equity compensation is tied to the performance and valuation of the company. When changing jobs, employees should carefully evaluate the financial health and growth prospects of the new company. The value of equity can be highly volatile, and there is always the risk of the stock losing value or becoming worthless, which may impact an employee’s overall compensation.

5. Negotiation and Replacement: Equity compensation is often a significant part of an employee’s total compensation package. When changing jobs, negotiating an equivalent or better equity package than their current one can be challenging. Employees need to understand the new company’s policies on equity grants and effectively communicate their expectations and prior experience.

6. Diversification: Holding a significant portion of wealth in a single stock or company can expose individuals to concentrated risk. Changing jobs may provide an opportunity to diversify the investment portfolio by selling or exercising equity and investing in other assets. However, liquidity constraints or tax considerations may limit the ability to diversify effectively.

WestStar’s Financial Advisors consult with Aviators, learn about their unique situation, and provide advice and practical assistance to navigate these challenges effectively. We also make it our business to provide behavioral guidance and emotional support to help clients change jobs, secure in the impact this decision can have on their future.

If you have questions about your specific circumstances, or want to make sure you’re equipped with the guidance and advice to pursue changing your job or company with real confidence and clarity, please get in touch. We welcome the opportunity to chat with you.

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We wish you every success in the future and hope to hear from you soon.

 Sam & Erik

Disclosure: “A diversified portfolio does not assure a profit or protect against loss in a declining market.”