Bonus, RSUs and stock options in a settlement agreement

If you work in the higher income bracket, your remuneration often consists of more than just salary. Think of a bonus, RSUs or stock options. In a settlement agreement (vaststellingsovereenkomst, or VSO), this is often precisely where the greatest financial interest lies. And the settlement agreement usually does not address it automatically.

Your bonus: what are you still entitled to?

A bonus is the best-known form of additional remuneration. There are many variants: a sales bonus, a target bonus, a company bonus or a performance bonus. In the higher income bracket, a bonus can amount to six to twelve months' salary. These are therefore substantial sums.

The question is: what happens to your bonus if you leave mid-year?

Many bonus schemes provide that you must be employed at the time of payment in order to be entitled to your bonus. Payment usually takes place three to six months after the end of the financial year. If you leave earlier, your bonus may therefore lapse entirely. Even if you worked most of the year and met your targets.

The settlement agreement should therefore record:

• which bonus you will receive for the current year, for example pro rata;
• which bonus you will still receive for the previous year, if it has not yet been paid;
• the amount or percentage involved, and when it will be paid.

What are RSUs and stock options?

RSUs (Restricted Stock Units) are a commitment by your employer that you will receive shares in the company at a later date, without having to pay for them. You only actually acquire the shares once they have vested: on a predetermined date, and usually only if you are still employed at that time.

Stock options give you the right to purchase shares at a later date at a predetermined price. If the value of the share has since risen above that price, this yields a profit. Options also often vest only after a certain period.

The principle is the same for both: the longer your employment continues, the more RSUs or options vest for you. The termination date in your settlement agreement can therefore be worth a great deal of money.

Note: the plan rules determine what happens

What happens to your shares or options when you leave is usually not set out in your employment contract. It is set out in the rules of the share plan, the plan rules. The shares are often issued through a foundation for the administration of shares (stichting administratiekantoor, or STAK) or by a foreign parent company. That is a different party from your employer.

Those rules usually cannot be amended in the settlement agreement. And they vary widely. For example:

• you must have been employed for at least five years;
• you must remain employed for a certain period after the grant;
• on departure, all your unvested shares or options lapse;
• if you leave before a certain date, everything lapses.

Always read the plan rules carefully before you sign.

Good leaver or bad leaver?

Almost every share plan distinguishes between a good leaver and a bad leaver. That distinction is often decisive for what you retain.

• A bad leaver is generally someone who resigns, who has acted culpably, or whose dismissal is attributable to them. A bad leaver often loses all of their rights.
• A good leaver is usually someone whose employment contract is terminated by the employer. A good leaver often retains (part of) their rights.

In a settlement agreement, the initiative lies with your employer. Always record in the settlement agreement that you will be treated as a good leaver. The employer or the STAK often also has some discretion to designate someone as a good leaver, even if the rules do not automatically do so.

What if you do lose rights?

Sometimes it is not possible to retain your shares or options, or to have their value paid out. For example, because the plan rules do not permit it. In that case, it is important to negotiate compensation for what you lose, such as a higher severance payment.

After all, you are leaving earlier than planned, at your employer's initiative. It is reasonable that you do not bear the cost of shares or options you would otherwise have received.

Also consider:

• the exercise period. With options, you often have only limited time after leaving, for example 90 days, to exercise them.
• the tax consequences. In the Netherlands, RSUs are usually taxed on vesting, and options on exercise. Have this calculated before you sign.