Many people assume their unvested restricted stock is gone the day they resign. For senior leaders at pharmaceutical and technology companies, that unvested equity is often one of the more negotiable pieces of a new job offer.
In this short video, Matt Fatz, CFP®, of Thrive Wealth Management walks through what can happen to your company stock when you change jobs, and how executives can approach the conversation with a new employer.
Transcript
There’s a number in many job offer negotiations that often goes unaddressed. It’s the equity an employee leaves behind at their current company. If you’re a senior leader at a pharmaceutical or technology company, that number may be substantial due to years of unvested, restricted stock.
And it could be one of the most negotiable things on the table. Yet many people assume that stock is gone the day they leave. Hi, I’m Matt Fatz with Thrive Wealth Management.
Today I want to walk you through what can happen to your company’s stock when you leave jobs, ways executives can replace what they give up, and an important situation where the answer is a little bit different.
What Are Restricted Stock Units (RSUs)?
Let’s start with the basics. Restricted stock units or RSUs are company shares awarded to an employee and earned or vested over time.
What Happens to Vested RSUs When You Leave a Company?
Vested shares are generally yours to keep. They were delivered to you and you paid income taxes when they vested. Changing jobs doesn’t affect your ownership.
What Happens to Unvested RSUs When You Leave a Company?
Unvested shares are a different story. Under many plans, those are forfeited on your last day. In practice, though, many senior people moving to a new company are in a position to recover some or all of that value in their new offer.
Companies recruiting at an executive level are often prepared for this to come up. They know when they hire the director or vice president away from a competitor, that person is often walking away from real money. Covering some or all of it can be a normal cost of hiring senior talent.
Can You Negotiate Replacement RSUs With a New Employer?
Some may offer a signing bonus sized against what you’re forfeiting, often with a repayment provision if you leave within a certain window. Others might offer a replacement stock grant, often structured to approximate the shares you’re giving up over a similar time frame, and often it’s a combination of the two. It’s important to note you can’t negotiate a number you haven’t calculated.
Before that conversation, it’s a good idea to know how many units are still unvested, when each was scheduled to vest, and what they’re worth right now.
Cash Bonus vs. Replacement Stock Grant: What Should Executives Consider?
How the replacement is structured can matter as much as the size of it. A cash bonus and a stock grant of the same headline value tend to behave very differently.
The tax timing is different, the risk is different, and the strings attached to each one may be very different. A few details can change what a candidate might ask their new employer to cover.
How Does Your Vesting Date Affect Your RSUs When Changing Jobs?
The first is the next vesting date.
Some plans vest a portion each year, and some hold everything back until you hit a specific date. Those two structures may produce very different results.
Does Your Reason for Leaving Affect Your Unvested RSUs?
The second is the reason for leaving.
Some plans treat a voluntary resignation differently than a retirement, a disability, or a company acquisition. Certain plans include provisions that allow employees who meet an age and service threshold to keep vesting after they leave, and others don’t.
How Can Trading Windows Affect Executives Leaving a Company?
The third is the trading window.
If you’re an executive who can sell only during certain periods, or you have a preset trading plan in place, then timing your departure and timing a sale are two separate considerations.
Which Documents Determine What Happens to Your RSUs?
It’s also important to remember the document that governs all this is your plan agreement, not your original offer letter, and not the summary page in your benefits portal. Now, everything I’ve described assumes someone is choosing to leave.
What Happens to Unvested RSUs if You Are Laid Off?
When someone is laid off or their position is eliminated, unvested shares are generally forfeited under many common plans, and there’s sometimes very little room to negotiate them back.
What Should You Review Before Signing a Severance Agreement?
A few items to still consider reviewing with a financial professional before you sign anything. Your severance terms, how the agreement treats a vesting date that falls shortly after your separation, and whether any early retirement provision applies to you based on your age and years of service.
If one company holds your salary, your bonus, your unvested stock, and a large share of your retirement savings, a layoff often affects all four at the same time. That’s a reason to consider reviewing your concentration while you’re still employed, not after.
What Should You Consider After Negotiating a Replacement Stock Grant?
So where can this leave you? Whether you negotiated a replacement grant or absorbed a loss, you can often end up with a similar set of complications.
A new equity position, an updated tax year, and concentrated wealth that followed you to the new job. The shares you still hold from your old employer could be worth revisiting. Every day you keep them, you’re effectively choosing to own stock in a company you no longer work for.
How Can You Manage Concentrated Stock After Changing Jobs?
A structured schedule for selling down that position over time can turn a recurring judgment call into something that runs on a calendar. Planning this in advance also generally means the offer negotiation, your tax year, and your estate documents can be handled as one connected strategy, rather than three separate approaches guided by three different professionals. The ideal time to look at this is typically before the offer conversation, not after the paperwork has been signed.
Planning a Job Change With RSUs or Equity Compensation?
Are you thinking about a move in the next year or two? Are you already in discussions? We welcome the chance to talk through the numbers with you. Call us at 215-376-5530 or visit thrivewealth.com/contact.
This material is provided for informational and educational purposes only, should not be viewed as an exhaustive discussion of the topics presented, and should not be construed as individualized advice for any reader’s personal circumstances. For guidance on how these matters may impact your financial plan or investment portfolio, please contact your Thrive Wealth Management, LLC representative. While the information presented is believed to be factual and up to date, Thrive Wealth Management, LLC does not guarantee its accuracy and, due to various factors, including but not limited to changing laws and regulations, this information is subject to change. All expressions of opinion reflect the judgment of the authors as of the date of publication. Options for use of 529 assets vary by state, and, as such, certain of the options discussed herein may not be available for all clients. Thrive Wealth Management, LLC is not a law firm or an accounting firm, and no content contained herein should be construed as legal or accounting advice.
Please consult with the qualified professional(s) of your choosing for legal and accounting advice. Strategies used by Thrive Wealth Management, LLC and its representatives for personal purposes may not be appropriate for all clients, and similar benefits or outcomes may not be achieved for all clients in all cases.
Please visit https://thrivewealth.com/disclosure for additional information regarding the professional designations and credentials discussed. Professional designations and credentials do not guarantee success or any particular investment or financial outcome.
Past performance does not guarantee future results. All investing comes with risk, including risk of loss.
