Unvested Stock Options: Left Behind?

A
lawsuit by a former Fidelity Investments CFO raises the question of what
happens to unvested stock options in a layoff.

Alix
Stuart
- CFO.com | US

July 1, 2010

What would prompt a longtime, well-respected CFO to sue his former
employer after being let go?

In Mark Sullivan's case, it's unvested stock options.

In a complaint filed in June in a Massachusetts court, the former EVP
and division CFO for privately held Fidelity Investments contends that
the mutual-fund giant should be compensating him for 975 options that
vested a year after he was let go, and for another 2,900 that will vest
between the end of this year and 2012. The complaint doesn't specify
what the options are worth, and Sullivan is seeking "damages, to be
determined at trial," according to the document.

Sullivan's attorney did not respond to questions seeking an estimated
value for the options or the amount of any potential award. Sullivan,
now CFO at Boston-area software maker Aspen Technology, also declined to
comment through his attorney.

In general, employees who leave a company voluntarily or for
performance-related reasons have no hope of recovering the value of
unvested options. "If the objective is retention, allowing access to
them after they leave defeats the purpose," says Doug Friske, head of
Towers Watson's global executive compensation consulting practice.

However, there are few standard practices regarding the fate of
unvested options when an executive is laid off or otherwise let go for
reasons not considered "for cause," experts say.

Normally, the legal documents governing the options would not provide
for continued vesting or a cash-out of the unvested options, says
Andrew Graw, partner and head of employee benefits and executive
compensation for law firm Lowenstein Sandler, and an employee would
typically have another 90 days or so to exercise any options that had
already vested.

But employers have some discretion in the matter, so some may use the
unvested options as part of a general severance package, sometimes
accelerating vesting schedules or allowing for continued vesting during a
specified period, says Graw. They may also extend the length of time
during which a former employee can exercise vested options.

Employee lawsuits aimed at recovering the value of unvested options
generally have little chance of succeeding, regardless of the departure
circumstances, since the employer is under no obligation to offer it.
Sullivan may have a stronger case than most, though, since his lawsuit
claims that the stock-option plan documents in question "do not contain
any term that requires

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