Company Departure

Key things to consider, plan for, and maybe negotiate, when you leave an employer

Pre-Read: Key Questions This Article Answers

• Should I exercise my ISO/NSO stock options when leaving my employer? And what happens to my RSUs?

• What should I consider before leaving my employer?

• What can/should I potentially negotiable with my soon-to-be former employer?

You're Leaving Your Company: Now What?

When you leave a technology company, there are a handful of key decisions you likely need to make, as well as a number of planning items to consider. As with any material life decision you make, a mix of (1) smart planning in advance, (2) understanding you're positioning; resources; and wants, and (3) smart planning thereafter -> can all payoff handsomely.

Key Decision: Should You Exercise Your Options (If Applicable)?

When you leave an employer, the clock "starts" on how long you have until your vested but unexercised options expire. The most common timeframe is 90 days, though an increasing number of companies are now offering extensions (a PTEP) that may extend that considerably longer (e.g. 6 months, 3 years, 10 years).

The key decision you need to make is should you exercise your vested options or not? The pros/cons of exercising and associated key inputs have largely been covered in NSO Planning/Strategy; ISO Planning/Strategy; and Pre-IPO: Key Decisions, and we would encourage you to re-read those articles.

The new factor is that you have a limited amount of time to decide what (if anything) to do. Instead of "do nothing and keep vesting" -- a frequently pursued and appropriately strategy -- you now need to make a decision in a finite amount of time. If this is multiple years (via a PTEP), you can likely breathe easy. But if it's 90 days, it can be quite stressful. The 3 articles linked above should help guide you through the process.

Key Decision: Strategically Choosing WHEN To Leave (If Applicable)

A less commonly discussed, but also important decision when leaving a company, is when you choose to leave. If your departure was involuntary (e.g. a reduction in force), this unfortunately does not apply. But if you are voluntarily leaving, considering the items below can have a notable impact on your wealth:

• Is there a major option/RSU vesting date upcoming? Options and RSUs follow vesting schedules and dates, which can be relatively quick in succession (e.g. monthly) or spaced somewhat far apart (e.g. yearly). If you have a grant with a cliff and/or a grant with a significant vesting date approaching (e.g. quarterly; semi-annual; annual), timing your departure to ensure you achieve the vesting date can have a big impact.

• Timing your last date to bridge healthcare coverage. Most employer healthcare works such that (i) you're covered via your existing employer for the full month if you're employed as of the 1st of the month, and (ii) you're eligible for coverage at your new employer immediately (note: some some require you wait up to 90 days). If your new employer is an immediate eligibility firm, timing your departure so that you start at your new company prior to the end of the month should allow you to have coverage without needing to consider COBRA for a month. (e.g. give 2 weeks notice on 5th of the month; start at new employer on 19th of the month)

• Some stock comp tax strategies may have timing elements associated with them. More details are provided, below.

You May Be Able to Negotiate With Your Former Employer

A less commonly utilized strategy, but one which can have a large impact, is negotiating with your former employer. Many tech companies grow rapidly and don't have contingency plans for employees if they depart (especially those with critical knowledge). If you have a good relationship with your manager and/or leadership team, and believe that your departure would present challenges for the company, you may consider negotiating the terms of your departure with them. For example, at 30-40 Wealth we have helped clients consider and strategize:

• Compensation (cash; shares) in exchange for a longer notice period (e.g. 6 weeks vs 2). The most common negotiation tactic is to be compensated with additional cash or stock (in addition to your salary/existing grants) to stay for an additional few weeks to help with backfilling and knowledge transfer.

• Getting a multi-year option extension (PTEP) in exchange for a longer notice period (e.g. 6 weeks vs 2). If you have significant vested but unexercised options and your company does not have a PTEP in place, getting an extension on your options can have a huge amount of value for you, and "costs" the company relatively little. In exchange, the company would get more weeks to develop a backfilling and knowledge transfer plan re: your departure.

• Approving the private-market sale/transfer of your company stock in exchange for a longer notice period (e.g. 6 weeks vs 2). As noted in Pre-IPO: Financing/Exchanging/Selling, selling stock (or swapping into an exchange fund) of pre-IPO company on a private market exchange requires that your company approve stock transfers. If your company doesn't already generally approve of these, and your company is large enough that there would likely be demand for your shares, negotiating that they approve the transfer/exchange/sale of your shares in exchange for a longer notice period to backfill/knowledge transfer is also a valid strategy with a lot of benefits for you.

• Post-departure consulting agreement. Depending on who your new employer (if any) is, if working in a consulting capacity with your soon to be former employer is of interest to you, it's absolutely worth asking/discussing.

Tax Strategies to Consider Where Applicable

There are more than 50 tax strategies that may apply to stock-based compensation in various scenarios. For a complete list see (50+ tax strategies). But when it comes to leaving an employer, some strategies that are more likely to apply include:

If Your Options Do Not Have a PTEP/Extension and Will Expire in 90 Days:

• You may consider using an option financing company

If You Have ISOs, It Is Important to Understand:

• Exercise ISOs within 90 days after you leave a company

• Leaving an employer in 4Q may allow you to optimize for AMT

If Your Employer Is Publicly Traded and You Own Stock, You May Want to Consider:

• Tax loss harvesting

• Hedge your stock

• Hold stock for at least 1 year to achieve LTCG tax treatment

• Tax lot management

If You Anticipate Your Income Will Materially Change, You May Want to Consider:

• Maximize income tax deductions

• Manage your income tax bracket

• Maximize employer paid social security

If You Plan to Relocate After Leaving Your Employer, You May Want to Consider:

• Relocation to a lower taxation state

• Relocation to a higher taxation state

Other Items to Consider

In addition to the items noted above, there are a number of other financial/benefits/legal items that are important to consider when you leave an employer:

• Healthcare insurance. Make sure you understand when your coverage will end, and have a plan for coverage once it does (e.g. coverage at a new employer; joining your spouses plan; COBRA).

• Ensure you don't over contribute to a 401k plan. If you max out your 401k plan most years, you need to ensure that your total employee contributions for the year (old employer + new employer) don't exceed the IRS maximum for the year.

• Non-compete agreements. Non-compete agreements are not particularly common, and are generally not enforceable in some states (e.g. California), but they do exist. If you have concerns about this, you should review your employment agreement and potentially consult legal counsel.

• Changes in stock-compensation (positive or negative) when laid off. If you were affected by a reduction in force, make sure that you understand the impact it may have on your stock-based-compensation. We've encountered situations where it had both positive (e.g. option extensions/PTEP; cliffs on grants waived) and negative (ISOs automatically became NSOs) impacts.