Can You Keep RSUs After Leaving a Company?

Many employees receive Restricted Stock Units (RSUs) as part of their compensation packages, creating a direct interest in their company’s future success. These units represent a promise from an employer to grant actual shares of company stock at a later date, provided certain conditions are met. A common question arises when considering a career change or departure: what happens to these valuable equity awards? Understanding the specifics of RSUs is important for individuals navigating their professional journeys.

Understanding RSU Vesting

Restricted Stock Units are not actual shares of stock when initially granted; they are a contractual right to receive shares in the future. The process by which an employee gains full ownership of these promised shares is known as vesting. Vesting signifies that the employee has fulfilled the conditions, typically time-based or performance-based, required to convert the RSUs into unrestricted company stock.

Until RSUs vest, they generally hold no tangible value and cannot be sold or transferred. This mechanism serves as an incentive for employees to remain with the company and contribute to its long-term growth, aligning employee interests with shareholder value.

Two common types of vesting schedules are widely used: cliff vesting and graded vesting. Cliff vesting requires an employee to complete a specific period of service, often one year, before any RSUs vest. Once this “cliff” is met, a significant portion or even all of the initial grant may vest at once. For example, a four-year grant with a one-year cliff means no shares vest for the first year, but after 12 months, a percentage, such as 25%, becomes fully owned.

In contrast, graded vesting releases shares gradually over time. This schedule typically involves a percentage of the RSUs vesting at regular intervals, such as annually or quarterly, over a specified number of years, commonly three to five years. An example would be 25% of the grant vesting each year over a four-year period.

Impact of Departure on Unvested RSUs

When an employee leaves a company, the fate of unvested Restricted Stock Units is a primary concern. The general rule is that unvested RSUs are typically forfeited immediately upon an employee’s departure, reverting to the company’s ownership. This forfeiture occurs because the conditions for ownership, primarily continued employment, have not been fully met.

The specific impact of departure on unvested RSUs can vary significantly depending on the type of separation. In cases of voluntary resignation, employees almost always forfeit any unvested RSUs. It is important to note that quitting even a few days before a scheduled vesting date can lead to the loss of a substantial amount of potential value.

For involuntary termination without cause, the outcome is more variable. While unvested RSUs are generally forfeited in this scenario as well, some company plans may include provisions for partial or accelerated vesting. This could involve a pro-rata portion of the unvested shares vesting based on the time worked, or in some instances, a full acceleration of vesting, particularly as a gesture of goodwill or as part of a severance agreement. However, this is not a universal practice and depends entirely on the specific terms outlined in the company’s equity plan.

Retirement often triggers more favorable treatment for unvested RSUs. Many plans include specific provisions that allow for continued vesting or even accelerated vesting of unvested RSUs for employees who meet certain retirement eligibility criteria, such as age and years of service. Similarly, in cases of an employee’s disability, plans frequently provide for accelerated vesting of unvested RSUs, or continued vesting, to support the individual. The definition of disability for these purposes is typically specified within the plan documents.

The most consistent exception to forfeiture occurs upon the death of an employee. In such circumstances, company plans almost universally provide for the immediate vesting of all unvested RSUs. Regardless of the type of departure, the definitive terms governing the treatment of unvested RSUs are always found within the individual RSU grant agreement and the company’s equity incentive plan documents.

What to Do With Vested RSUs After Leaving

Once Restricted Stock Units have vested, they become actual shares of company stock that are fully owned by the employee. The process of converting these vested units into shares, often referred to as settlement, typically involves the shares being deposited into a designated brokerage account. This usually happens automatically on or shortly after the vesting date. The shares are then yours to manage like any other investment.

Even after vesting, some companies might impose specific holding periods or trading restrictions, especially for certain employees or during blackout periods. Public company shares can generally be sold as soon as they are received, provided company trading policies are followed. For private company RSUs, access to liquidity, such as selling shares, might be contingent on a company liquidity event like an Initial Public Offering (IPO) or acquisition.

With vested shares now in your possession, you have two primary options: selling them or holding onto them. Selling the shares provides immediate cash liquidity, which can be used for personal financial goals, debt repayment, or diversification. This transaction typically occurs through the brokerage account where the shares were deposited, allowing you to place a sell order.

Alternatively, you can choose to hold the shares, maintaining an ownership stake in the company. This decision might be influenced by your belief in the company’s future growth or as part of a long-term investment strategy. Holding shares allows for potential appreciation in value over time, but also carries the risk of depreciation.

It is important to recognize that the vesting of RSUs is a taxable event. The fair market value of the shares on the vesting date is considered ordinary income to the employee, similar to wages or a cash bonus. This income is subject to federal, state, and payroll taxes, including Social Security and Medicare. Companies often use a “sell-to-cover” strategy, withholding a portion of the vested shares to cover these tax obligations before depositing the net shares into your account.

Consulting Your Grant Agreement and Plan Documents

While general information about Restricted Stock Units provides a useful framework, the definitive answers regarding your specific equity awards are found in your individual RSU grant agreement and the company’s overarching equity incentive plan documents. These documents are legally binding contracts that outline the precise terms, conditions, and exceptions governing your RSUs. They supersede any general policies or verbal understandings.

They detail specific rules for situations like retirement, disability, or involuntary termination, which can significantly impact whether unvested RSUs are forfeited or subject to accelerated vesting. Without consulting these specific agreements, you cannot fully understand your rights and potential entitlements.

You can typically find these crucial documents through your company’s Human Resources department, the online equity platform administered by a third-party provider (such as Fidelity, Schwab, or ETRADE), or an employee portal. It is advisable to obtain and review both the RSU grant notice and the full equity incentive plan document, as the grant notice often references the broader plan for detailed rules.

When reviewing these documents, pay close attention to sections labeled “Termination of Service,” “Vesting Schedule,” “Forfeiture,” “Retirement Provisions,” or “Change in Control”. These sections will clarify the conditions under which your RSUs may vest, accelerate, or be forfeited upon leaving the company.