Say No to Adjusting Vesting for Leaves
September 20, 2017
Members sometimes ask me whether it is common for companies to adjust equity grants when employees go out on leave. The short answer is no; according to the NASPP's surveys, this practice is rare.
I understand why this question comes up. Awards are earned by working and employees who are on leave aren't working, so it seems reasonable to adjust vesting in their awards. It might even feel unfair to employees who aren't on leave if vesting isn't adjusted for employees who are on leave. But there's more to this question than meets the eye. There are both practical and philosophical reasons to think twice about these adjustments. For today's blog entry, I have four reasons why you should not adjust vesting for leaves of absence.
1. You can't get the data. Let's face it, sometimes it's best to know your own limitations and this is one of those times. It's hard enough to get HR and payroll to forward timely reports of terminated employees, getting accurate updates as to leaves of absence is an uphill struggle. If you can't get the data, you aren't going to be able to enter the adjustments on a timely basis. This will inevitably result in transactions that later have to be unwound.
2. No one else does it. In most cases, over 90% of respondents to the NASPP/Deloitte Consulting 2016 Domestic Stock Plan Design Survey report that they do not adjust options or awards for leaves of absence. We ask about statutory leaves and nonstatutory leaves (both paid and unpaid) separately for options and awards. In all but one situation, less than 10% of respondents adjust vesting for a leave. The one exception is vesting in awards (restricted stock and units) for an unpaid leave, but even there, 86% of respondents don't adjust vesting.
3. It's a hot mess globally. If your stock plan is multinational, you have to worry about compliance with the laws in all countries where stock plan participants are located. At the Philadelphia chapter half-day meeting, Brian Wydajewski of Baker McKenzie presented on the challenges of implementing a global leave policy. He noted that many countries are more protective of employee rights than the United States and this includes restricting the adjustments that can be made to their compensation and benefits while on leave. I can think of more productive ways to spend your time than trying keep track of all these laws.
4. Women are more likely to be impacted than men. Probably the most common leave of absence is maternity leave. Thus, tolling or adjusting vesting during leaves is likely to apply to more women than men and arguably penalizes women for being caretakers. This policy also discourages men from taking paternity leave, further encouraging women to take on more childcare responsibilities than their partners.