Video included! What happens if I terminate my employment before an option grant is fully vested?
If your option was granted with a graded vesting schedule, you are allowed to exercise the vested portion of the option grant, but most commonly you forfeit the remainder. (For details on how treatment of unvested options can vary by the reason for termination, see a related FAQ.)
Example: You are granted options to buy 1,000 shares of your company's stock with a four-year graded vesting schedule (25% vesting per year). You leave the company two and a half years after grant. You are allowed to exercise 50% of your options. The rest will never become exercisable.
If an option is granted with cliff vesting, by which the options vest on an "all or nothing" basis depending on length of employment or performance goals, you forfeit the entire option if you leave before vesting. This means that even if the stock price goes up substantially from the time the option was granted, but you leave before vesting can occur, you do not realize the appreciated value of the stock. As explained by an article in Business Insider, the privately held company Pinterest does give terminated employees a way to extend the exercise period after they leave, but that type of plan feature is very rare.
Become familiar with the details of your vesting schedule to prevent losing grants that would have vested if you worked longer at your company. Check whether delaying your departure would allow a meaningful amount of your outstanding grants to vest.
Alert: You will not have the remaining option term to exercise your vested options after termination. Look at the post-termination exercise period in your stock plan documents, and know your official termination date, as this is essential for calculating your exercise deadline. This period can also vary according to the reason for termination (see a related FAQ). Companies (and courts) very strictly adhere to these rules, procedures, and deadlines.
For the treatment of unvested restricted stock in this situation, see the related FAQ.
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