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COVID-19 and Your Company’s Equity Plan - Termination & Furlough Impacts

Part 3: Termination & Furlough Impacts

We’ve reached the final chapter in our three-part series about COVID-19 implications for equity plans, and we’re covering one of the most difficult economic aspects of the COVID-19 pandemic. 

The outbreak has forced many organizations to operate with reduced staff, with some concluding that employee layoffs are necessary. Others are considering or implementing salary reductions and furlough programs. Among the many business, brand, and emotional implications of these steps, companies must also consider the impact of terminations and furloughs on employee plans and policies, including equity plans and incentive compensation plans.

Shearman & Sterling’s compensation expert Gillian Emmett Moldowan reviewed some key considerations in our April 8 webinar for companies considering staff terminations.  Here we cover a few of her key points. You might also review Sherman & Sterling’s memorandum on the topic here for the broader implications of staff reductions beyond equity plans.  

Here are three equity plan-related factors to consider in your decision-making:

  1. Equity and other incentive compensation plans, as well as severance plans and employment agreements that may make contractual commitments with respect to equity and incentive awards, should be reviewed to determine how they will be treated in connection with different types of terminations, salary reductions, and furloughs
  2. You may experience a surge in accelerated vesting upon involuntary terminations or terminations without cause, which could have significant accounting and plan management consequences.
  3. Employers should review their equity plans to determine whether any furlough would be treated as a termination of employment. If a furlough is considered a termination of employment, awards will be treated in accordance with the termination provisions of the plan or award agreement. 

For any action you consider related to staff reductions, equity plans or incentive compensation, be sure to consult with your legal, tax and accounting advisors. Or reach out to a Certent administrative services team member now.

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