Life Events and Your Equity Plan

We all know that life happens, and not in the way we always have planned. Certainly our current times are full of life stressors and uncertainty in a way most of us did not foresee. When it comes to stock compensation, things don't always transpire like they are supposed to either. That's why our stock plans have provisions that cover scenarios such as death and disability. We know these events might occur in our scope of working as stock administration professionals; yet, are we ready to put our best foot forward if and when the time comes? In today's blog I'll highlight some best practices in administering some of these life event scenarios.

Death

It's not a pleasant topic and one we'd probably like to avoid discussing. But, sometimes we need to tackle the unpleasant, even if it's difficult. So what does happen when a stock plan participant passes away? Here are a few practices to minimize the pain of dispersing the stock plan grants/awards to the employee's estate:

Consider NOT Using Beneficiary Forms: There are some pitfalls in using beneficiary forms. One main one is that employees often forget they exist, and don't alter them to reflect their true intentions. In some cases, these forms were filled out years and decades before they were needed. By then, marriages, children and divorces occurred, altering the employee's preferences on handling his or her estate. Beneficiary forms can override next of kin estate laws, so if you are going to use these forms, be sure to come up with a mechanism to remind employees they exist.

In the event your organization is already using beneficiary forms for stock plans, consider this a gentle reminder to follow up and remind employees to keep their designations updated. Consider whether this is the best approach going forward. While the present may not be the best time to make dramatic changes to plans or policies, evaluating the company's approach to beneficiary forms is something to add to your eventual to-do list. 

Ensure Proper Time Frame to Exercise Stock Options: Navigating estate management can be time consuming and tricky. The last thing you want to have happen is a stock option expire unexercised because the estate couldn't establish itself and execute the exercise in time. If your plan allows less than 6 months to exercise vested stock options post death, this is more than likely too short of a time frame. Consider offering at least 6 months (12 months is even better) in order to ensure enough time for the estate to exercise.

Tip for today: Plan modifications may not be feasible at the present time. If your plan does have 6 months or less as a post-death exercise period, be prepared to communicate this time frame to next of kin promptly and encourage expediency in their efforts to put ducks in a row to complete the exercise. 

Disability

An employee goes out on disability leave - now what? Many companies take the approach of trying to stop vesting awards during long disability periods. While it may sound reasonable on paper, in reality it's tough to administer. First of all, how do you determine which type of disability results in paused vesting, and which does not? There are many types of short and long term disabilities. Second, how do you track the changes to vesting?

Remember, when an employee goes out on leave, most often you do not know the exact return date, and many times it changes. Having to stay on top of open leaves, tracking end dates and adjusting vesting can become a nightmare. Many companies have moved away from adjusting vesting for leaves of absences, including those related to disability.

Final Thoughts

Lastly, some events are more uncommon than others (death). If you lack a formal policy on these events, it's best to sit down with your internal business partners and develop a guidelines that will dictate how you will proceed. You'll also want to know up front what the company can and can't do to support these scenarios. 

Whatever the scenario, it's best to put some parameters in place up front. This will save hours of heartache and headaches for all involved.

- Jennifer