Negotiating an Option Extension/PTEP when LEAVING a company

Leaving a startup can put an employee in a challenging position with their stock options. Most commonly, companies provide employees with just 90 days to exercise vested options, requiring them to quickly find significant cash AND take on the risk of the investment -- or otherwise lose their vested equity (which could have significant value long-term).

This short timeframe can be a huge challenge, causing many to forfeit equity they've worked hard to earn. Collectively, employees abandon billions of dollars worth of stock options each year because they can’t afford to exercise in time or don't want to take the risk.

One possible solution = negotiating for an option extension (known as a Post-Termination Exercise Period or "PTEP"). A PTEP provides you with a longer time period before your options expire after you leave the company -- which can significantly reduce financial pressure.

The best time to negotiate for a PTEP is typically before you start working for a company. But the vast majority of individuals didn't do this.

Hence this article on negotiating for a PTEP when leaving a company. When negotiating, there are a handful of key challenges and considerations that the various strategies entail. But the value of the PTEP can make these worthwhile in some scenarios.

At 30-40 Wealth Partners we have helped many of our clients successfully navigate this dynamic and negotiate a PTEP. Here's how we guide clients through the process and key things they need to consider/decide.

STEP 1: Determine if you Even NEED an Option Extension

First rule of negotiating = know what you want/need. Many employees are unaware what their grant expiration rules and company policies even are. Thus, before you dive in to asking/negotiating for an extension, it's critical to evaluate if it's needed based on your situation:

• Your company’s existing policy may already offer generous terms (e.g. one company I worked for gave every employee option a 10 year extension!)

• You may have negotiated an extension when you joined (which to state the obvious, you should know)

• If you have already purchased most/all of your options, then a PTEP isn't valuable to you

• If your company's prospects are poor or deeply underwater financially, your options likely have little/no value and trying to negotiate for a PTEP may not be worth your time.

STEP 2: Strategies and Risks When Negotiating for a PTEP

In any negotiation, both sides need to get value to create a mutual win-win. When it comes to negotiating for a PTEP, your benefit is obvious (the PTEP). For the company -- the vast majority of the time the value is you agreeing to work for them for longer than a 2-week notice period, so they can better plan your exit, backfill, train, etc.

Strategy wise, there are 3-5 different approaches we've discussed with clients to utilize in a PTEP negotiation. The goal of each of them is the same: successfully get an option extension. But the risks vary materially.

Which is best for you really depends on your situation, including factors such as how strong your relationship with your boss(es) is, your firm culture, how critical you are to the company, job level (junior, mid-level, senior), and more.

There is no perfect way to map the above factors to the below strategies; it's really more of a personal judgement call and comfort with the risks and/or commitments each strategy entails.

That said, in our experience, most individuals tend to understand the above key inputs, risks, and one of the 3-5 strategies below tends to be the most attractive to them.

Option 1: Prior to starting your job search

In this scenario, you've decided you are leaving your job, but haven't yet gotten an offer (and possibly haven't started yet interviewing).

• PRO: This is the earliest timing for this conversation. As such, it gives your employer the most flexibility to make an "ask" that is meaningful to them in exchange for providing you with a PTEP (e.g. you commit to working another 3 months before leaving for a new employer in exchange for a 5-year PTEP on your vested options)

• RISK: This scenarios has significant job risk. You're having the conversation before you have anything lined up. If the firm knows you already plan to leave, they may opt to take proactive steps (e.g. you're fired instead, or become part of a RIF when you otherwise may not have been)

• FLAGS/REQUIREMENTS: This approach requires a LOT of trust in your employer and company + you have a critical role in the firm that you fulfill. You're telling them you plan to leave the company in the near future, which can create significant job risk (e.g. they opt to release you instead).

Option 2A: Once you have an offer (but no solidified start date)

In this scenario, a job offer has been extended to you, but you haven't yet locked down a start date (which you think has some flexibility to it). And you utilize that flexibility as part of your negotiation

• PRO: This strategy still has significant flexibility for your employer to make an "ask" that is meaningful to them in exchange for providing you with a PTEP. It likely will not be multiple months, but for a critical employee, having 6 weeks to plan for your departure vs. 2 can be a big help.

• PRO: This strategy has a lot less job risk, as you already have an offer in hand that you're (presumably) comfortable with.

• RISK: There is still job risk here. Once the company knows you plan to leave and have an offer in hand, they could just decide to exit you early (e.g. same day)

• FLAGS/REQUIREMENTS: This approach requires that you believe you timeline flexibility with your new employer. e.g. if you anticipate they want you to start ASAP, they may rescind the offer if you ask to start in 6-8 weeks.

Option 2B: Once you have an offer + intentionally set a start date 6-8 weeks out

This scenario is very similar to 2A above -- except you have locked down a start date 6-8 weeks into the future. This reduces your job risk (you don't have to ask for those extra weeks prior to start)

Option 2C: Once you have an offer + set a start date (but you're willing to ask to push back your start date)

This scenario is very similar to 2A above, with the critical difference that you've agreed with your new employer on a start date. Because of that, this strategy has more job risk (with NewCo), as you would need to ask NewCo to delay your start date (which could risk them rescinding the offer).

The NewCo job risk isn't preferred, so this strategy is rarely utilized. But its technically on the menu of choices, so we include it

Option 5: Accepted offer + set start date, but you're willing to consult part-time after you depart

In this scenario, a job offer has been extended to you, you've accepted, and set a start date. But....there is rarely a prohibition on you having a second job (for a limited period of time). As such, this strategy involves you offering to consult part-time for your former employer (e.g. give two weeks notice, but agree to work 10 hours a week for another 6 weeks to aid in the transition)

• PRO: This strategy provides material flexibility for your current employer to make an "ask" that is meaningful to them in exchange for providing you with a PTEP

• PRO: This strategy has very low job risk. You take you NewCo job, and give a typical 2 week notice.

• FLAGS/REQUIREMENTS: While uncommon, working multiple jobs is sometimes now allowed by an employer

• FLAGS/REQUIREMENTS: Stating the obvious, this strategy requires you work more hours in a week (e.g. 50 hours at NewCo + 10 hours at OldCo) for a period of time.

Other Key Items to Know or Consider

• ALWAYS get your PTEP in writing

• If you have ISOs, they WILL convert to NSOs after 90 days not working or the company. This is an IRS rule

• You need to position this as mutually beneficial. Asking for a PTEP and providing nothing (or little) in return is likely to be a successful approach

• The strategies above typically exchange (1) a PTEP, or (2) you working extra paid time. The benefit to the employer is the extra time to train/hire. I've never seen the extra time be provided for free (and in nearly all full-time employed cases, you will continue to vest your options as well)

• The above is a framework, but is not comprehensive. Every situation is unique, and other strategies may exist that could be more appropriate for your circumstances