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Great advice from The Lawyer Whisperer

February 4, 2018
Question

Is it Common for Employers To Buy Out a Candidate’s Unvested RSUs as part of their compensation/job offer?

answer
Julie Q. Brush

When a lawyer moves in house, s/he is often offered stock in the organization as part of an overall compensation package. Historically, the stock has been granted in the form of stock options (the right to buy a company’s stock at some future date at a price established now). But over the years, the nature of this grant has been shifting from a pure options grant to restricted stock units or “RSUs” (a company’s commitment to give the value of a specific number of its shares in the future for which payment is not typically required). This shift has enabled employers to be more competitive when trying to land the very best talent. The vast majority of public companies have fully migrated to RSUs, some offer a mix of RSUs and options and a much smaller number are still in the pure option grant category. Most of the private/emerging growth companies today remain in the options boat, but the tide is slowing starting to change here as well.

When a professional leaves an organization, it often means that s/he is leaving behind unvested stock. And those with RSUs tend to wince a bit harder at the thought of leaving that upside behind. Granted, those grants are still unvested, meaning that they are currently of no value to the candidate – but a greater number of candidates are increasingly considering this sacrifice of future value in their decision to depart. And as a result, a growing number are asking employers to bridge the gap.

So is it common for employers to acquiesce and buy out a candidate’s unvested RSUs as part of their compensation offer?

Generally speaking, it is not common for employers to “buy out” a candidate’s unvested RSUs at his/her current employer…because employers do not view these RSUs as anything to buy out. They are unvested and have not been earned. So there’s nothing in the here and now to give up. In addition, it is more than likely that the employer has offered the candidate its own stock grant as part of its offer, which serves to cover…to varying extents…the stock that is being left behind.

With this said, there are circumstances where a candidate’s RSU situation may influence an employer to sweeten their deal. Below are two primary examples:

  • If a candidate has a set of RSUs that are on the verge of vesting at her/his current company (i.e. in the next month or two).
  • If a candidate’s current RSU grant is substantial and the new offer is, overall, of significantly less value.

In these scenarios, employers may increase the base salary, offer a signing bonus or bump the stock grant (likely one or both of the latter two) in order to land the candidate and/or secure an earlier start date. If a vesting date is soon enough, some employers will push out a candidate’s start date until after the candidate’s vesting event has passed. This allows them to avoid the need to bridge any gap of money (vested RSUs) the candidate is leaving behind.

Some candidates will raise the issue of RSUs when negotiating an offer – often noting that they “are leaving a lot of money on the table by joining your company” because of their substantial stock grant. In these circumstances, I recommend that employers obtain as much information as possible so they are well informed before reacting. Asking the following questions will be helpful: Is the stock in options or RSUs? What are your next two vesting dates? What is the dollar amount that will be vested in each? In California and New York, where employers are now prohibited from asking candidates about their compensation, employers and their recruiters should review the law in order to determine which of these questions are permissible.

The legal profession continues to evolve and in the process, the war for talent intensifies. This gives sought-after candidates more leverage in the market where shrewd negotiations often result in sweeter deals. While employers are not yet buying out full RSU packages as a norm, a candidate’s current stock package can influence a negotiation in some circumstances. As 2018 unfolds, it will be interesting to see what the role the RSU will play in future compensation dynamics and how much of a part it will contribute to the larger trend that is pulling in house compensation higher.

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