What happens to my equity if I get laid off?

Counteroffer · Answers · severance Source: https://trycounteroffer.com/answers/what-happens-to-equity-at-layoff

Short answer: Vested equity is yours regardless of how you leave. Unvested equity typically forfeits at termination unless the severance agreement provides acceleration. Stock options have a post-termination exercise window (default 90 days) that you must use or lose. Senior leaders should negotiate 6-12 months of accelerated vesting and extended option exercise periods of 3-10 years. Equity treatment at layoff is one of the most negotiable and highest-dollar items in any severance package.

Vested vs unvested at layoff

The simple rule: vested equity is yours; unvested equity defaults to forfeiture unless the agreement provides otherwise.

Vested equity:

Vested shares (RSUs already converted to shares, restricted stock that has vested) remain yours
Vested options remain yours, subject to the post-termination exercise window
Any retirement plans (401k, profit sharing) keep their vested portion

Unvested equity:

Unvested RSUs typically cancel
Unvested options typically cancel
Unvested restricted stock typically reverts to the company at the original purchase price (often zero)
Performance shares typically cancel if performance period hasn't ended

This default treatment is harsh. Senior leaders with significant unvested equity at involuntary termination can lose six-figure or seven-figure amounts overnight. The severance agreement is your opportunity to negotiate against this default.

Stock option exercise windows

Vested stock options have a post-termination exercise window. The standard default is 90 days from termination. After the window expires, the options are forfeited.

For Incentive Stock Options (ISOs), the 90-day window is critical because options not exercised within 90 days lose their ISO status and convert to Non-Qualified Stock Options. This conversion changes the tax treatment significantly:

Before 90 days: Exercise can qualify for long-term capital gains treatment if held appropriately
After 90 days: Exercise produces ordinary income on the spread (FMV at exercise minus strike)

For private company options, the 90-day window can force a difficult choice: exercise (paying the strike price plus AMT liability without knowing when liquidity will be available) or forfeit (losing the option value entirely).

Negotiating an extended post-termination exercise period to 3-10 years is one of the highest-value asks in any severance negotiation for employees with significant option holdings.

RSU treatment

RSU treatment at layoff depends on the equity plan and the agreement:

Public company RSUs: Vested RSUs are already shares you own. Unvested RSUs typically cancel.
Private company RSUs: Often have double-trigger vesting (vest on both time AND a liquidity event). Unvested RSUs typically cancel at layoff. Already-vested-but-not-yet-paid RSUs (waiting for liquidity) may still vest if the liquidity event occurs.
Performance RSUs / PSUs: Treatment depends on whether the performance period has ended. Often pro-rated based on time served and projected achievement.

The severance agreement can override default plan treatment by providing accelerated vesting or modified treatment.

Accelerated vesting

The most valuable negotiation item for senior leaders is accelerated vesting. Common forms:

Time-based acceleration: A defined number of months of additional vesting beyond the actual separation date. Common: 6-12 months for VPs; 12-24 months for SVPs and C-suite.

Full acceleration: 100% of unvested equity vests immediately. Common for C-suite and founders. Rare for non-executive roles.

Vesting through next scheduled event: Acceleration through the next quarterly or annual vesting event. Modest but common for senior managers and directors.

Performance-based vesting (for PSUs): Pro-rated achievement at target through last day, paid at the normal payment date.

Acceleration is typically structured as a benefit triggered by termination without Cause or resignation for Good Reason, not by general layoff alone. The Cause and Good Reason definitions matter.

What to negotiate

When negotiating equity treatment at layoff:

Accelerated vesting: 6-12 months at minimum for director-level and above
Extended option exercise window: 3-10 years to preserve option value and avoid ISO conversion
RSU treatment if applicable: Vesting through liquidity event for private company double-trigger RSUs
PSU treatment: Pro-rated target achievement through last day
Equity grant date: Vesting calculations should use actual separation date, not announcement date
Right of First Refusal modifications: If the company has ROFR on private company shares, request modifications to allow sale to fund tax obligations from acceleration

For a Director with $200K of unvested equity at separation, even a modest 6-month acceleration is worth ~$25K. For a VP with $1M unvested, 12-month acceleration is worth ~$250K. These numbers can dwarf the cash severance.

What to do next

If you want a delivered analysis of your specific equity grants and what to negotiate at separation, we deliver one in 24 hours for $199. See Severance Review.

Sources

Standard equity plan documents from major law firms
IRC § 422 (ISO requirements including the 90-day post-termination exercise period)
Carta data on acceleration practice at venture-backed companies

Get your contract reviewed

If you want a delivered review of your specific document with cited authority and counter language, see https://trycounteroffer.com/severance.

Last updated: Sun May 31 2026 00:00:00 GMT+0000 (Coordinated Universal Time)

Counteroffer is a contract analysis service, not a law firm. This page is informational, not legal advice.