Equity Compensation

What Happens to Company Stock When You're Laid Off

Michael Kelly, CFA, CFP®

Layoffs are scary and with news of tech company layoffs coming from Microsoft, Spotify, Wayfair, Shopify, Twilio and others it's wise for employees exposed to tech industry layoffs to have a plan. For tech employees, company stock is often a significant part of your compensation and overall net worth. Understanding your equity compensation can even be an important part of how you negotiate your severance in a layoff. This article will share what you need to know to understand and create a plan for different types of equity compensation when you're laid off.

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What Happens to my Stock Options if I leave or get laid off?

Tech employees facing employment changes need to understand the implications for their Stock Options. Unexercised options may be forfeited, while some companies may have provisions for extended exercise periods or accelerated vesting under certain circumstances. It's crucial to be aware of company policies and plan accordingly. It’s important to remember that if your employer does offer accelerated vesting or alternate exercise terms that employees must update their tax plans and consider their income and expenses in light of these changes (especially if a job loss or change is looming).

You can also read our Guide to Employee Stock Options here for more information and resources on ISOs and NSOs

What Happens to my RSUs if I leave or get laid off?

Broadly speaking there are 3 scenarios that tech employees will encounter if they are laid off with RSUs:

  1. Equity from RSUs that have vested will always be yours
  2. RSUs that have not vested may be forfeited. This loss may be a point of negotiation as senior tech employees consider severance agreements. 
  3. In certain situations, your company may offer “accelerated vesting”. The terms will vary but this means you’d have the opportunity to receive some or all of the equity represented by your RSUs. This may avoid the loss of income but also means it’s time to update your income and tax plans.

You can also read our Guide to Restricted Stock Units (RSUs) here for more information and resources on RSUs

What Happens to my ESPP if I leave or get laid off?

As always, your plan document will give you the most specific information on what happens to your Employee Stock Purchase Plan (ESPP) if you leave but generally there are two possibilities if you are laid off:

  • Any money you’ve contributed to the plan but hasn’t been used to buy shares will be refunded to you. This money was already taxed and is always yours.
  • Any shares you’ve purchased are also yours to keep but if you sell them you will need to review your situation to determine what taxes you’ll owe. It’s possible you’ll need to transfer these shares from the plan your employer structured into an account you hold directly.

You can also read our Guide to Employee Stock Purchase Plans (ESPPs) here for more information and resources on ESPPs

We refer to planning for an event like a layoff as Strategic Planning. This is because it requires considering your needs now as well as your long term goals. It also involves multiple areas of your financial life like income, expenses, investments, and taxes. As you make your plans, even when you're facing big changes, try to consider your bigger picture and always work with a trusted professional when needed.

As financial planners who specialize in working with equity compensation, we have seen how important it is to have a professional on your team to coordinate how you build and preserve wealth so you can lower your stress, pay less in taxes, and focus on reaching your goals. Schedule an Intro Call to get a better understanding of how your equity compensation fits into your plan to build wealth.

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