Roughly six months after leaving his job for a new opportunity, Mark opened his quarterly benefits statement and had, as he called it, an “Oh Sh$t” moment. With a sinking feeling in his gut, he realized the gravity of the situation as he stared at a zero-account balance, that had been $150,000 previously. In a flood of panic, he rifled through the pages trying to figure out how he could have lost everything.
So, what went wrong? Mark overlooked a critical feature of stock compensation: Changing expiration dates when employment status changes. What he didn’t realize was that when he left his former employer, the expiration dates of his vested stock awards (NQO’s, ISO’s, Etc.) would change to 90 days from separation. This new expiration date passed as he began his new job, and as a result the options expired worthless, wasting a substantial amount of wealth for him and his family.
What an expensive learning experience!
What should you do to avoid this situation?
- Be Proactive.
When considering leaving your employer, reach out to your advisor (who has executive compensation experience) to discuss how this will impact your benefits BEFORE you leave. - Know Your Plan.
Be aware of your vesting and expiration dates and know how those will change with separation. Some employers will allow scenarios where options will continue to vest and maintain normal expirations, while others will be quick to cancel. - Don’t Be Greedy.
Too many executives wait until the very last minute to exercise options, risking loss through wild market swings or personal errors. Don’t be greedy and wait too long. Ring the register and move on.
No one wants to be in this situation. This is why we preach the importance of having a trusted advisor, who specializes in your unique financial needs, and having open dialogue with them often. By communicating and planning proactively, you’ll have a much better opportunity for long-term success while dodging landmines.
If you'd like to discuss this further, feel free to schedule a complimentary 15-minute consultation call with one of our advisors. You can access our calendars from our website home page, just click on Connect With Us!
-Tim Golas
Partner, Spurstone