Stock option agreements are typically structured according to a vesting schedule, meaning that you aren’t allowed to exercise your options until you’ve been with the company for a specified period of time. If you leave before that time, a vesting formula is used to calculate what percentage of your stock options you are entitled to exercise. “Accelerated vesting” refers to vesting that occurs at a faster rate than the initial vesting schedule.
Many stock option agreements allow for accelerated vesting as a reward to employees for contributing to a “success event,” such as the sale of the company. For instance, if your stock options are scheduled to vest after you’ve been with the company for four years, but a large corporation comes in after two years and buys the company, your options could be accelerated. When your stock option agreement stipulates that the acceleration takes place automatically when a success event occurs, it’s called a “trigger.” However, some stock option agreements make acceleration discretionary, meaning the board of directors can decide who will have their vesting accelerated.
A single trigger means that vesting accelerates at the time of a single success event, such as the company being sold or merged with another company. A single trigger provision in a stock option agreement can state that vesting will accelerate for some or all of the employee’s stock options when the trigger occurs.
A double trigger means that two events are required to accelerate vesting. Usually the first trigger is the sale of the company and the second trigger is the subsequent termination of the employee without cause. For example, after the acquisition, the buyer of the company terminates the employee due to redundancy or to reduce acquisition costs. The sale of the company would trigger a partial acceleration and the employee’s termination would trigger another partial acceleration. It is much more common to see a double trigger clause in a stock option agreement because it both rewards and protects founders and employees in the event of an acquisition or merger.
Partial or Full Acceleration
Acceleration doesn’t necessarily mean that all of your options become vested. Full acceleration means that your 100 percent of your stock options immediately vest at the time of the trigger. However, acceleration clauses can stipulate that acceleration occurs only for a specific portion of your options. For instance, a success event could trigger a one-year acceleration so that instead of having two of four years vested, you would have three years vested at the end of the acquisition with one year still to go. Another form of partial acceleration is a provision that a certain percentage of your options fully vest at the time of the trigger. For instance, 25 percent of your options could fully vest at the time of the trigger while the remaining options would not be accelerated. This gives the employee an incentive to stick around after an acquisition.
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