Long Term Incentive Plans – What You Should Know When You Are Changing Jobs

Nov 13, 2011

Long Term Incentive Plans are often a deciding factor for executives when switching jobs. We will review a written offer of employment and advise senior executives on long term incentive plans.

As we discuss the offer, the executive sometimes tells us that one of the reasons he is taking the job is because he has been promised stock options, restrictive share units or performance share units each of which is called a long term incentive plan.

Much to our surprise the written offer of employment does not always mention a long term incentive plan of any kind.

So we suggest that a person in this situation obtain answers to the following questions before accepting the job:

1. Does a long term incentive plan currently exist? Sometimes there is simply a promise that such a plan(s) will be created. There is generally no way to enforce this kind of nebulous promise.

2. If a long term incentive plan does exist, have you been provided with a copy? If not, you should obtain a copy, review it, and make sure you understand your rights.

3. What are the terms of the long term incentive plan? How many options (or units) have been granted and at what price? When do the options vest? How long do the options last? You should know the answer to these questions.

4. What happens if you are terminated without just cause after performing admirably? Some long-term incentive plans contain draconian termination clauses which provide that options cannot vest or be exercised after the individual is terminated. Depending on your negotiating power there are ways to address this scenario before you accept a job.

For more information about other factors to consider when resigning, see here.

If participation in a long term incentive plan is a driving force behind a job change, and you want to talk with an employment lawyer with experience in this area contact us at  [email protected] or 1-888-640-1728 (toll free) or 647-633-9894 (within the GTA).

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