When an employee leaves a company, their options under an Employee Stock Ownership Plan (ESOP) will depend on the specific terms of the plan, as well as the reason for their departure.
If an employee quits their job voluntarily, they will typically lose any unvested options.
Vested options, on the other hand, can be exercised for a period of time after the employee’s departure, as determined by the plan. This exercise period is known as the “grace period” and can range from a few months to several years.
If an employee is terminated for cause, such as gross misconduct or violation of company policy, they may lose all vested and unvested options. On the other hand, if the employee is terminated without cause, they may be able to exercise their vested options for a period of time after their departure.
ESOPs are typically subject to vesting schedules, which determine when options become exercisable. For example, options may vest over a period of four years, with 25% vesting each year. In this case, if an employee quits after two years, they will only be able to exercise 50% of their options.
Another important consideration is the treatment of options upon a change in control of the company. A change in control can occur through a merger, acquisition, or sale of the company, and it can have a significant impact on an employee’s ESOP. In some cases, options may be cashed out at their fair market value upon a change in control, while in other cases, the options may be converted into options for the new company.
In summary, when an employee quits their job, their options under an ESOP will depend on the specific terms of the plan, as well as the reason for their departure. It is important for employees to understand the terms of their ESOP, including the vesting schedule, exercise period, and treatment of options upon a change in control.
It’s also worth noting that the tax implications of ESOPs can be complex, and employees should consult a tax professional before exercising their options.
Additionally, it’s a good idea for employees to keep track of the value of the company stock, so they can make informed decisions about when to exercise their options.