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I am about to start a new job at a tech firm. The original offer includes base salary + ESOP (employee stock ownership plan) scheme. The contract I've signed so far is not concerned with the ESOP package (that has been mentioned only in the letter of intent). They explained that I will sign the ESOP package after starting.

Unfortunately, I failed to read the ESOP package terms carefully and I now found a term that states that If I resign voluntarily before x years (where x is a relatively big number of years after the cliff period - and it covers the whole vesting period), I lose all vested options. I was surprised to see that since in the offer letter (as well as during the recruiting calls) the compensation was expressed as an annual estimate (including base salary + ESOP) - without reading the second document carefully it is hard to imagine that you lose the vested shares. Normal tenure at the company is way below the x amount of years also.

I wonder, how can I now negotiate for better terms given that I haven't yet signed the ESOP package? Could I ask to update those terms upon good performance in the first year?

To add a bit more context; At the period of signing the contract, I had significant negotiation leverage that I didn't actually exercise, as I was getting competing offers that, in retrospect, had better terms in them.

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    You may want to reword this to downplay the "ESOP" part which few people are familiar with and because it's not really relevant. It's important to mention that your issue with the remuneration is it being conditioned on staying a (high) number of years but the rest of it won't affect answers.
    – Lilienthal ♦
    Apr 22, 2020 at 12:36
  • @Lilienthal at what point do you think I could negotiate for the number of years? What are the steps you think I can take now to make this easier for the future? I'll have a chat with the team this week to discuss this.
    – LetsPlayYahtzee
    Apr 22, 2020 at 13:45
  • It is usual to lose vested options unless you exercise them (buy them at the strike price) but then those are yours. Do you mean the terms say you can’t exercise or lose exercised options?
    – mxyzplk
    Apr 22, 2020 at 14:53
  • @mxyzplk-SEstopbeingevil this is not a public company - they are looking into an IPO in the next 5 years. The only exercise option is likely going to be an IPO, a 50% buyout seems very unlikely. So yes, if I have an exercise option before the x years, indeed I can get the value out of the vested options. For this, the terms state "you lose vested/unvested options"
    – LetsPlayYahtzee
    Apr 22, 2020 at 15:14
  • Right, you should be able to exercise them as soon as they vest. If you don’t (usually there’s a 30-90 day grace persons to do so when you exit) you lose them when you leave. That’s universal in my experience.
    – mxyzplk
    Apr 22, 2020 at 18:38

2 Answers 2

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I wonder, how can I now negotiate for better terms given that I haven't yet signed the ESOP package? Could I ask to update those terms upon good performance in the first year?

You can always ask. Unfortunately, unless you are willing to walk away from the job, you have no leverage. Even after the first year, signalling that you don't expect to be around for the duration of the vesting period might not be a wise move.

In my experience, terms like these aren't that unusual. Clearly they are designed as an incentive to stick around. Perhaps this company will bend their normal practices to keep you happy. In my experience, most companies will not.

Ask yourself - if you had fully understood what you read about the ESOP package terms, and assuming those terms weren't negotiable, would have have rejected this job offer?

If so, then you should now be willing to walk away from this job and turn to one of the competing offers. If not, then just accept that you are getting less than you hoped, but exactly what was offered.

In either case, chalk this up as a lesson learned regarding how carefully you must read all documents before making an important decision.

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  • In both cases I'll need to chalk this, and take this lesson (: It's hard to imagine that those terms would have been completely non-negotiable.
    – LetsPlayYahtzee
    Apr 22, 2020 at 12:26
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    @LetsPlayYahtzee everything is negotiable, but you likely lack the necessary leverage.
    – Tymoteusz Paul
    Apr 22, 2020 at 12:26
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    @LetsPlayYahtzee You could definitely raise that as a topic, just keep in mind that Joe's answer here is very accurate and this discussion itself can raise questions around commitment to stay.
    – Lilienthal ♦
    Apr 22, 2020 at 16:08
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    @Lilienthal I don't believe too much in the notion described here, and I don't have evidence suggesting this is common as Joe states. On the contrary, most reward schemes I've encountered tend to be more beneficial. I also believe that negotiating for compensation that is market-competitive is beneficial for both parties and doesn't show lack of motivation to stay. The opposite actually
    – LetsPlayYahtzee
    Apr 22, 2020 at 16:28
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    @LetsPlayYahtzee: I don´t think your leverage grows, the opposite is the case. The longer you work there, the more you are locked in by the fact that you would loose your options when you resign. OTOH stock may or may not be worse something, so if your base salary is not enough to keep you happy, you should maybe reconsider after all...
    – Daniel
    Apr 22, 2020 at 18:48
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"where x is a relatively big number of years after the cliff period - and it covers the whole vesting period), I lose all vested options"

That is a serious red flag as it essentially extends your cliff period and completely removes the vesting. What happens if they fire you?

And the fact that signing the ESOP was postponed looks like they wanted you not to look too closely into that contract.

Is it possible that there is a misunderstanding? Losing vested options because you leave is exactly the opposite of what normally happens and is very surprising. What is the meaning of the vesting period in that case?

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  • I think the ESOP contract will include the terms described in the docs they have shared - so I don't think that is a play - that said; I do want to look into the terms closely but if I find something weird I don't know how I can react. Losing the shares happens in case of voluntarily resigning. In case of being fired (I assume) you maintain them. In that case vesting period is there to decide how much you have in case of exit before the x years (my understanding).
    – LetsPlayYahtzee
    Apr 22, 2020 at 17:15
  • How likely is an exit in the closer future? "In case of being fired (I assume) you maintain them." such an asymmetry sounds strange. It would mean that you'd have to actively make them fire you to keep your shares.
    – FooTheBar
    Apr 22, 2020 at 17:17
  • I should word it differently. X years is the complete vesting period (not more). They also state that after the vesting period you are entitled to the full amount regardless of resigning or being fired. IPO is in the plans, but probably not sooner than 3-4 years from now
    – LetsPlayYahtzee
    Apr 22, 2020 at 17:56
  • So essentially your cliff is now X years.
    – FooTheBar
    Apr 22, 2020 at 18:07
  • Yep it looks like it :/
    – LetsPlayYahtzee
    Apr 22, 2020 at 18:12

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