Your salary may be only part of what you earn as an executive. Stock options, restricted stock units (RSUs) and performance shares can make up a large share of your pay. However, if your board terminates you for cause shortly before a major vesting date, you could lose unvested equity.
The reason for your departure matters because equity plans can treat a for-cause termination differently from a termination without cause or a resignation for good reason. Those differences can affect how much compensation you keep.
How your reason for leaving can affect equity
Some plans use “good leaver” and “bad leaver” labels to decide what happens to your equity. A favorable status may let certain awards vest or let you keep the right to exercise stock options. A for-cause termination, by contrast, may lead to the immediate loss of unvested awards.
If you dispute the reason for your termination, how the company labels your departure may determine whether you keep or lose a large amount of equity.
Your employment and equity documents may define what counts as cause. This can include misconduct, breach of duties or policy violations. If the wording is broad, disputes can arise over whether the stated reason fits that definition.
What to review before a major vesting date
Review your employment agreement, equity plan and award agreements for:
- Cause definitions: Identify conduct that can lead to loss of equity.
- Notice and time to respond: Check whether you get time to address a claimed problem.
- Vesting rules: See whether awards depend on continued service, performance or both.
- Separation terms: Compare what happens after different types of departure.
Minnesota generally follows at-will employment rules, but your agreements may still affect what happens to your equity when you leave.
Know what your separation could cost
A separation close to a vesting date can have major financial consequences. Knowing what your agreements require can help you understand your position before making decisions.
If the company says it is terminating you for cause and substantial equity is at risk, legal guidance can help you assess whether that reason fits your agreements. An early review can also clarify your options before you sign separation papers or give up rights under those agreements.