7.2.5: Note on Recall of Unvested Equity

Premium Content
This section of the Encyclopedia of Private Equity is premium content and only available to accounts which have a subscription. If you have an account that has access to this section, please login now.

Register For The Encyclopedia of Private Equity
Encyclopedia of Private Equity & Venture Capital (Monthly Recurring Subscription) Cost: $59.00
Single User - One Year of Complete Access (Best Value) Cost: $495.00

Abstract

Often the most potent penalty imposed on a footloose employee is the recapture of nonvested equity, either options or cheap stock. If the draftsman employed by the company has kept the main chance in view, he will recall that the object of an employment agreement is multifaceted: to stimulate the employee's current performance and to keep out of his head visions of sugar plums dangled by competing firms. If valuable equity can be recaptured at a penalty price when the employee quits,[1] the term "golden handcuff" becomes apt. It is awkward to provide that the employee who terminates before his promised time has to pay a cash penalty back to the company; he usually does not have the resources to spare and it is more trouble than it is worth to the company to chase him for some sort of cash "cough-up," even though the injury to the investors...