Well at least I still have my vested shares. Wait, what? (2024)

One of the attractions of working at a startup, whether it is bootstrapped or backed by private equity, is a chance to earn equity in something you are building.You might forgo salary or benefits based on this expectation of equity.This may be from stock options, or more likely now due to tax considerations, restricted stock units or RSUs.

Like stock options, RSUs vest over time, but unlike stock options, you don’t have to buy them. As soon as they vest, they are treated exactly the same as if you had bought your company’s shares in the open market. You can sell them and make money.

As soon as they vest...

Your job offer or employment agreement may include a vesting schedule.For example, you might have a grant of 1000 RSUs that vest 25% a year for 4 years.If, after 2 years, you leave the company for some reason, you will have 50% of those RSUs vested.Which means that you own those 500 RSUs.They are yours, the article says.

Unless they aren't.You would expect that the unvested portion is lost.That's why they have vesting schedules - to incentivize behaviors like staying with a company for a period of time.

But your job offer or employment agreement may include something else:a clawback provision.Meaning that your vested shares can be repurchased at a value that the company decides - like maybe $0.If you worked hard for those shares, they suddenly have no value, and are no longer yours.

Even worse, a company can terminate an employee before the vesting schedule is over, and then take back the RSUs.This seems unfair, perhaps unethical, but it is, unfortunately, perfectly legal.It happened at Skype, for example.

What can you do?

This means that it is important to very carefully read any offer that is made to you, which is of course always good advice.Look forany provision that would make any offered RSUs worth less, or worthless.Chances are it won't be called "clawback" in the offer.Look for a phrase like "repurchase rights."

You might be in a position to negotiate the agreement to remove the provision.Or you may want to turn the offer down.But what if you have already accepted it? You can still negotiate. Or perhaps you need to reevaluate your current position. So long as a clawback provision exists, any vesting schedule you might have for incentives could be a legal scam.You might think "well the people I work with are awesome they would never do that." But you have to ask, if not, why would they give themselves the option to do so?