Will the company hiring me buy out my unvested stock awards?

It is amazing how many times people have asked me this question about their unvested stock and expected a simple yes or no answer.

Think about it this way, if you were buying a car and found the perfect car at a good price only to be told it comes with a trailer (which you don’t need) that will add another $2000 to the price. Do you still go ahead and buy the car and trailer? Maybe, maybe not. If there are other similar cars for a similar price (without trailer) then you probably pass on the trailer package and get your 2nd or 3rd choice car unless the original choice drops the trailer package request.

If on the other hand the car you are have found is unique and the additional $2000 is well worth paying in order to get that car then you don’t hesitate and buy the package. Even better if having the ‘trailer’ means it is less likely you will lose the car you just purchased to anyone else in the future.

That is how it is with buyouts of stock (ESOs, RSUs and other LTIs). As a candidate it is always worth asking the question, often it may lead to a pleasant surprise. It can even be helpful to the hiring company as sometimes they may want to conform to strict internal salary ranges so having another way of paying you (through a buyout of stock) may help them to close the deal with you without breaking their pay structure.

Naturally the more senior the employee is the more likely a buyout will be included, I would also say that there is a higher likelihood of buyouts occurring in certain industries eg. Banking. In some industries companies may have policies in place where they will maybe buyout anything vesting in say the next 12 months but expect candidates to forfeit the awards with longer vesting time frames.

The best thing you can do as a candidate or as the hiring company is know what typical practices are in your industry and country and understand the full picture with an offer. To do this don’t just compare current and future package for that year but compare likely total income over multiple years (as awards would vest). Having this view will ensure you can have a reasonable conversation/negotiation about whether it is a fair offer or not.

It may be that you are getting a big salary increase to move and that upside every year easily covers the value of the restricted stock units you are forfeiting so why would they buy that out and why would you turn them down even without a buyout? However in some cases an attractive package in year 1 may not look so good in year 2 and 3 if you have forfeited some big stock awards which would have been vesting in those years and the new company is not replacing them. If performance shares or employee stock options are involved doing this multiyear comparison can be a little bit more complex but even more essential to do. This could even be an opportunity to negotiate swapping some awards with uncertain value for some more guaranteed form of compensation with the new company.

If you are entering a negotiation to move use our free valuation tool and/or contact our consultants at support@sharpevaluation.com  who can help ensure you maximize your chances of receiving a fair offer taking in to account the actual value of any long term incentives / stock awards you may have.

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