If you’ve just been laid off, you probably have a dozen things running through your mind, from updating your résumé to figuring out health insurance and severance pay. But before you move on, there’s one area you can’t afford to ignore: your stock compensation.
For many tech employees, equity is a major part of total pay. It’s often unclear what happens to your RSUs or stock options after layoff. Some of that value might still be yours, but only if you act quickly.
Let’s walk through what happens to your equity and what steps to take in those critical weeks after you leave.
What Happens To RSUs When You Leave
If your company paid you partly in restricted stock units (RSUs), this part is fairly straightforward. If your RSUs have vested, they are yours to keep. Those shares belong to you even after termination. However, unvested RSUs are forfeited and go back into the company’s equity pool once your employment ends.
If your RSUs have vested but haven’t yet been settled or converted into actual shares, then check your grant documents. In most cases, they’ll still be issued, but some companies may pause settlements at termination.
If you’re in a pre-IPO startup that has double-trigger RSUs, you may have vested RSUs that don’t have a liquidity event to trigger the release of the RSUs. Even if you’re laid off, those vested RSUs are yours to keep, though they are illiquid and you can’t do anything with them. However, in the future, if there’s an IPO or liquidity event, you’ll be able to access your RSUs then.
Stock Options: The 90 Day Window
If you worked at a startup or pre-IPO company, you may have stock options instead of RSUs. These give you the right to buy shares at a set strike price. When you leave, you typically have a limited time window, often just 90 days, to decide whether to buy those shares or let them expire.
This is often referred to as the post-termination exercise period in your grant documents; it’s the first thing you should look out for.
Unvested options disappear once you’re laid off. Vested options remain yours, but only for the post-termination window. If you miss the deadline, your vested options are forfeited back to the company.
We see a lot of variations in the post-termination exercise period for stock options; some can last a few years, others for 7-10 years unless there’s an IPO. With an IPO, it then becomes 9 months post-IPO. These are all examples we’ve come across; in essence, what’s key is that this is one clause you need to pay close attention to.
Most importantly, even if you can hold on to your unexercised options for an extended time, note that after 90 days, Incentive Stock Options (ISOs) automatically convert to Non-qualified Stock Options (NSOs), which means losing favorable tax treatment.
Read more: ISO vs NSO: What Type of Stock Option Do You Have (And What Should You Do About It?)
Step 1: Confirm Your Post-Termination Exercise Period
Don’t assume you have 90 days. Instead, read your grant agreement and stock plan documents to find your exact exercise window.
If you’re unsure, ask HR or your company’s stock administrator to confirm in writing. You might also check your equity portal (e.g., Carta, Shareworks or E*TRADE) where the date is often listed.
If your window is short and you need more time, you can ask your former employer for an extension. It’s not common, but some startups are open to it, especially if you’ve been with them a while or if layoffs are widespread. Either way, it doesn’t hurt to ask.
Step 2: Calculate Your Exercise Cost
Next, you need to figure out what it would cost to buy your shares. You can do this by multiplying your number of vested options by the strike price.
For example:
If you have 1,000 vested options and your strike price is $1 per share, it will cost you $1,000 to exercise all of them.
But that’s just the start. You may also owe taxes when you exercise, depending on the type of options you hold and the current fair market value (FMV) of your shares.
- For ISOs, taxes depend on the Alternative Minimum Tax (AMT). You may be able to exercise some or all of your ISOs with little or no immediate tax due, but it depends on your income and the spread between strike price and FMV.
- For NSOs, taxes are owed at ordinary income rates on the spread (FMV minus strike price) at the time you exercise.
If your company’s valuation has grown significantly since you joined, that spread could be substantial. Knowing both your out-of-pocket cost and your potential tax bill helps you make a realistic plan.
Step 3: Decide How Many Shares To Exercise
Once you know your timeline and cost, ask yourself if you can afford it and whether it’s worth the risk.
Exercising all your options can be expensive. If you’re between jobs or unsure about the company’s future, you might decide to exercise only part of your vested shares.
This isn’t an all-or-nothing decision. In fact, many startup employees choose to partially exercise, keeping a portion of their shares for upside potential, without taking on too much risk.
It’s helpful to think along these lines:
- How much cash can you comfortably invest?
- How stable the company is, and whether it’s still growing.
- How long might you have to wait before any liquidity event (IPO or acquisition).
If you’d be stretching your finances or dipping into emergency savings just to exercise, that’s a red flag. Remember that it’s okay to pass or scale back.
Step 4: Evaluate The Risk And The Company’s Outlook
Once you’ve run the numbers, take a step back and think like an investor.
Ask yourself these questions:
- Do I believe the company will successfully exit? If so, when?
- Does leadership have a track record of building successful startups?
- How late did I join (seed, Series A, or post-Series C)?
- Where do employees like me sit in the “preference stack” i.e., the order of who gets paid first if the company exits or winds down?
In tough markets, many startups get acquired for less than their last funding round or fail entirely. That means employees who exercised shares might get little or nothing back. If you’re uncertain, discuss your situation with an advisor who can help you model different outcomes before writing that check.
Step 5: Make Your Move (Or Walk Away)
After you’ve done your evaluation, it’s time to make a decision. If you’re going to exercise, do it early enough to avoid last-minute issues with paperwork or payments. Keep clear records of when and how you exercised, and notify your CPA so they can account for it in your next tax filing.
If you decide not to exercise, accept it as a conscious, rational choice. Letting options expire can feel painful, but it’s better than locking up thousands of dollars in illiquid shares you can’t sell.
Get Advice For Your Situation
The post-layoff window is short, but it’s also your opportunity to make intentional choices about your equity. By acting quickly and running the numbers, you can avoid losing value or facing an unexpected tax bill later.
If you’re not sure which path to take, don’t go it alone. At KB Financial Advisors, we help tech professionals and startup employees make smart decisions about their RSUs, ISOs, and NSOs, especially during career transitions.
We’ll help you understand your deadlines, model your tax scenarios, and decide how much to exercise (if any), based on your financial goals and risk comfort.
Schedule a call with us today!
Even a single consultation can give you the clarity you need and the confidence to make the right decision.
