Many companies, to incent employees to keep working, require that a portion of the employee's bonus, cash or equity, be deferred. Under the typical plan, the employee "vests" in the deferred compensation after he has worked for three years. If the employee leaves before the three years are up, he forfeits the unvested deferred compensation. What happens if the employee leaves after the deferred compensation has “vested”?
Whether the employee will receive his vested deferred compensation depends on the terms of the employer’s plan. If the termination was for “cause,” even vested deferred compensation may be forfeited. The employer’s plan may also provide for forfeiture in the event the employee competes with the employer in his new job.
Another unmarked hazard for employees is the employer’s plan that requires employees who receive stock options to exercise them during employment. If the employee quits or is fired without having exercised her options, she may lose them even though they were fully vested on her termination date.
The bottom line: an employee may need legal advice to understand and get maximum value out of his or her compensation plan.
