Accelerated Vesting Could Offset Uncertainty in a Merger

When company ownership is in play, all assumptions are on the table as to the company’s future and the executive’s own employment. Marcus wondered if his unvested Restricted Stock Units and Nonqualified Stock Options may provide an offsetting windfall for the long-tenured company executive.

Marcus took in the news he just learned from the chief financial officer. As company group chairman for a growing chemical company, Marcus, 55, learned the executive team is negotiating to sell the company in a stock-for-stock transaction to a large conglomerate. His job could be impacted as well as his equity compensation, particularly the unvested Nonqualified Stock Options (NQOs) and unvested Restricted Stock Units (RSUs).

While his drive and intellect have served him well since he joined the company straight out of college, Marcus partially credits his success to being a savvy delegator. He is keen to look for advice in areas where he needs technical counsel and he has turned to SFG for guidance on his equity compensation.

At SFG, we have observed a number of possible outcomes from an acquisition. The equity plan document may specify 1) accelerating full vesting upon an acquisition; 2) partial vesting with provision for additional vesting upon termination following an acquisition; or 3) a new vesting schedule.

After reading his company’s plan documents, we advised Marcus the vesting of his RSUs and NQOs will be accelerated in the acquisition. However as an insider, although he may be able to exercise his NQOs, he will be prohibited from selling his shares for a period and must continue meeting holding requirements of at least two times his base pay of $275,000.

Impact to Marcus of Accelerated Vesting on RSUs and NQOs:
Current stock price: $35



Grant Type


Grant Amount


Grant Date


Exercise Price


Vesting Date

Accelerated
Vesting
$ Value

     RSU

     14,300

     2/15/15

     N/A

     2/15/18

     $500,500

     NQO

     20,000

     2/15/15

     $10

     2/15/18

     $500,000

After vesting in his RSUs, where the company will withhold to cover for taxes, he expects to clear approximately $283,000 worth of shares. He would net a similar amount from NQOs, after withholding tax of 39.6% plus 3.8% Obamacare tax. While he has considered exercising NQOs, Marcus is inclined to hold off given the holding requirements and has considered whether to defer the additional tax event. Along with his other investments, he realizes he has the means to spend the second half of his life pursuing something more meaningful to him.

His career has been very rewarding financially, but Marcus hasn’t felt appreciated or valued the way he has felt from community work. In recent years, he has been drawn to community work; in particular, mentoring young men emerging from incarceration. Giving of himself and having a profound impact on the lives of these young men has been rewarding beyond his expectations. He may take this opportunity to step off the treadmill and spend the second half of his life helping to reform the lives of men emerging from the prison system.

Now he sees an opportunity to pursue that work further, fulfill his values and make a difference in the lives of young men. The next step is to move forward with a financial plan to maintain a comfortable lifestyle for his family as he moves into the new life he has in mind.

*The name, likeness and circumstances in this example are a fictional composite of facts from executives similar to actual SFG Clients.

Read more

Executive Compensation, Non-Qualified Deferred Compensation, Performance Stock Units, Restricted Stock Units, Retirement Planning, Stock Options

Let's Start a Conversation

We offer a complimentary “get acquainted" meeting to see if we can help you meet your financial goals.

Main Office


Georgetown Crossing Offices
3655 Route 202, Suite 140
Doylestown, PA 18902

Contact Us


Contact | Privacy Statement | Disclaimer
Advisory Services are offered through SFG INVESTMENT ADVISORS, INC., an SEC Registered Investment Advisor.
© 2019 by SFG Wealth Planning Services, inc. - All Rights Reserved.
Site by AdvisorFlex