The tech sector has not had an easy time so far this year when it comes to redundancies. In the tech industry, hundreds of tech companies have together offboarded more than 200,000 employees in 2023, according to one tracker.
It goes without saying that companies need to deal with layoffs sensitively. If redundancies are badly handled, there can be many negative ripple effects, including damage to the engagement and motivation of the remaining team members.
HMRC figures suggest that the number of UK equity schemes increased by 6% in 2021. So with more companies now offering equity to employees, equity is another consideration for HR and people teams to bear in mind when navigating layoffs. So how should companies approach offboarding people who own shares and options in the business?
Employee equity during the offboarding process
It’s important to remember that there is still very little standardisation across companies when it comes to employee equity: every business handles its equity plan slightly differently. But there are general guidelines that most companies follow to a greater or lesser extent when it comes to people’s shares and share options.
Each employee departing the company is deemed either a ‘good leaver’ or a ‘bad leaver’. ‘Good leavers’ keep hold of the vested portion of their equity stakes when they leave, while ‘bad leavers’ lose all rights to their shares and options. Usually, employees that are made redundant are treated as ‘good leavers’, as their exit is through no fault of their own.
Then, employees leaving the business should be given the opportunity to exercise their share options and turn them into shares. The duration of the ‘exercise window’ – the period of time when employees need to decide whether or not to convert their share options into shares – is an important consideration for companies.
Generally, the longer the exercise window is open for ex-employees, the better: it’s fair to try and give people time to weigh up a complex financial decision amid what can be a stressful and emotional process.
Many companies operate exercise windows that last 90 days or even as few as 30 days. In our view this kind of timeframe does not give former employees enough space to consider their options. At Ledgy for example we offer an exercise window of 10 years.
Employees who have been with the company for a long time may have already turned some or all of their share options into shares. In these cases, it is likely that ex-employees who own shares would sell their shares back to the company at a predetermined price.
However, in certain circumstances these employees may choose to hold on to their shares or forfeit their equity altogether. HR and people teams that can offer a range of different routes to former employees help people feel like they retain some autonomy over the process, and avoid potential complaints of unfairness down the line.
Lastly, companies should consider vesting acceleration for ‘good leavers’. It’s becoming more common for companies to accelerate vesting for employees who have passed their probation but who have not yet reached their ‘cliff’, when they start to earn rights over their share options. Additionally, if employees are approaching a quarterly vesting milestone, accelerating vesting to the same duration as the severance period demonstrates a desire to give affected employees fair treatment where possible.
Automating the offboarding process
Layoffs are undoubtedly concerning and stressful for affected team members, but they can also place a significant administrative burden on HR, people, operations, and legal teams.
Equity plans are often very complex when redundancies are concerned. For instance, many companies going through layoffs have to terminate each share option grant manually, then operate many separate conversations with different employees explaining the process and what is needed of each team member.
Of course, dealing with people in a human way will always be vital. The good news is that custom equity software can now automate different phases of the offboarding process, giving HR and people teams the time and space to be empathetic and personal in their conversations with former employees. Offboarding automation flows allow companies to offboard multiple stakeholders at a time, taking into account the different grants awarded to each employee and factoring in different vesting schedules and accelerations.
Negotiating layoffs efficiently and delicately
Offboarding is just as important as onboarding when it comes to demonstrating a company’s culture and respect for its employees. When companies have an efficient and proactive offboarding process in place, employees feel more secure and better informed about the choices they have with regard to their equity stakes.
Seeing team members leave is never easy, but nor should offboarding processes slow teams down. By automating the equity-related process that might come when offboarding team members, companies can confidently offer employees equity without worrying about the administrative tasks they will face if an employee leaves the company.
Equity schemes don’t need to present an intimidating administrative burden, even when redundancies are on the table.
