Q: "What happens to the shares of stock allocated to an employee in a company with an ESOP (employee stock option plan) when the employee leaves the company?"
A: The short answer: "It depends on your company plan and the vesting schedule."
A vesting schedule determines the amount of time (usually in years) over which an employee becomes fully vested in the shares allocated to his or her account. In our company, an employee is 25% vested after being a participant in the plan for two years, 50% vested after being a participant in the plan for three years, 75% vested after four years and 100% vested after five years. The company stock is not "co-owned," but rather "held in trust" for the employee, so the departing employee cannot "take it with them". When the employee leaves or is terminated, the stock is sold back to the plan or to the company at the current share value, with the proceeds (cash) given to the employee. In our company, the time frame for this transaction can be up to six years after the employee leaves the company or when they become 65 years of age. Again, this is how we designed our plan to meet our needs. Another company may choose to take a different approach.
-- Iris Harrell is CEO and president of Harrell Remodeling (www.harrell-remodeling.com), which she founded in 1985. Harrell Remodeling is an award-winning design/build company with nearly 50 employees and $11 million in revenues. Iris has received many awards and is also a popular speaker at industry events, where she encourages other remodeling contractors to hire women for non-traditional jobs.
Read Iris' other contributions or ask her a question.