Managing Employee Stock Options When Employees Leave
When an employee leaves, how their stock options are handled depends on the terms of your Plan Rules (also called your Equity Incentive Plan or Plan). This article explains the key decisions and how to carry them out in Cake.
What your Plan Rules govern
Your Plan Rules contain the provisions that determine:
Whether departing employees are classified as good leavers or bad leavers: this affects entitlements
Buy-back provisions: your company's right (but not obligation) to repurchase vested shares from departing employees, at a price defined by leaver status
Post-termination exercise period (PTEP): the window after departure during which vested options can still be exercised (commonly 90 days)
Review your Plan Rules before taking action on departing employee options.
Handling unvested options
Unvested options are typically lapsed (cancelled) from the employee's termination date. See Cancel Employee Options (Lapse Options) for how to do this in Cake, or use the off-boarding flow which handles this automatically.
Handling vested options
Vested options belong to the employee and can typically be exercised within the PTEP. Options not exercised within the PTEP lapse automatically.
In Cake:
The PTEP can be set at the pool level (default for all grants) or overridden on individual grants
You can record an exercise on behalf of the employee at any point before the PTEP expires, see Exercise Stock Options for Employees
The recommended departure flow in Cake
Use the off-boarding feature to manage all equity in one place. It lets you set the departure date, apply lapse rules across all grants simultaneously, and send exercise reminders. See Off-board an Employee or Stakeholder.