What Happens to My Equity Comp When I Quit My Job?

Leaving a job comes with many questions, especially when it involves your equity compensation.

You might be wondering, “What happens to my restricted stock and stock options when I quit my job?”

Here’s what you can expect:

What to Expect with RSUs

When it comes to restricted stock units (RSUs), the key factor is whether your shares have vested.

If your RSUs have already vested before you leave, they are yours to keep.

You’ll own these shares outright and can sell them whenever you choose, subject to any company-imposed trading restrictions.

However, any unvested RSUs are typically forfeited when you resign. This means you lose any shares that haven’t reached the vesting milestone set by your company.

What to Expect with Options

For stock options, the situation is a bit more complex. If you have vested stock options, you usually have a limited window of time to exercise them after leaving the company.

This period is known as the post-termination exercise period and is often 90 days, but it can vary based on your company’s stock option plan and your specific grant agreement.

During this time, you can buy the shares at the exercise price. If you don’t exercise your options within this period, they expire and you lose the opportunity to purchase those shares.

Unvested stock options, like unvested RSUs, are generally forfeited when you leave your job. This means you no longer have the right to purchase the shares at the set price.

Tax Implications

The tax implications of exercising your stock options after leaving are also important to consider.

Exercising non-qualified stock options (NQSOs) will result in ordinary income tax on the difference between the exercise price and the fair market value of the stock at the time of exercise.

Incentive stock options (ISOs) may be subject to alternative minimum tax (AMT) if exercised, and holding the shares for the required period to qualify for favorable tax treatment becomes even more critical.

Other Considerations

It’s also worth noting that some companies have different policies for employees who leave due to retirement, disability, or death. In these cases, the vesting schedule might be accelerated, or the post-termination exercise period might be extended. Always check your specific plan documents and speak with your HR or benefits coordinator to understand your company’s policies.