Vested Equity Clawback

Extracted Attributes

• Mechanism

  Company can force employees to sell shares back (repurchase rights) or forfeit shares/options.

• Definition

  A contractual provision allowing a company to reclaim previously granted vested equity from employees.

• Common Triggers

  Employee departure, termination, violation of IP agreements, non-competes, 'bad boy' clauses, or failure to meet performance targets.

• Application Context

  Startup equity agreements, employment agreements, stock grant agreements, and stock plans.

• Distinction from Forfeiture

  Clawbacks cover compensation already paid out, whereas forfeiture provisions apply to unvested or unearned compensation.

Timeline

• Management buyouts (MBOs), a business practice where clawbacks are relevant, became a noted phenomenon, originating in the US and spreading to the UK and rest of Europe. (Source: Wikipedia)

  1980s

• Gained prominence due to its use by OpenAI to silence departing employees amidst internal turmoil, including the mass resignation of its Super Alignment team. (Source: User Summary, Related Documents)

  Recent

Management buyout

A management buyout (MBO) is a form of acquisition in which a company's existing managers acquire a large part, or all, of the company, whether from a parent company or individual. Management- and/or leveraged buyouts became noted phenomena of 1980s business economics. These so-called MBOs originated in the US, spreading first to the UK and then throughout the rest of Europe. The venture capital industry has played a crucial role in the development of buyouts in Europe, especially in smaller deals in the UK, the Netherlands, and France.

Web Search Results

• Clawback Clause, Forfeiture Term & Repurchase Right Issues

  Everyone loves a gold rush story about startup hires making millions on startup equity. But not all startup equity is created equal. If a startup adds a repurchase rights for vested shares (a.k.a. a clawback clause or clawback provision) to its agreements, individuals may lose the value of their vested equity because a company can force them to sell their shares back to the company in certain situations, such as if they leave their jobs or are fired prior to IPO or acquisition. Other examples [...] of a clawback clause are forfeiture (rather than repurchase) of vested shares or options at termination of employment or for violation of IP agreements or non-competes. [...] But for startups with a clawback clause, individuals earn shares they don’t really own. In the case of repurchase rights for vested shares, the company can purchase the shares upon certain events, most commonly after the individual leaves or is terminated by the company. If the individual is still at the company at the time of an IPO or acquisition, they get the full value of the shares. If not, the company can buy back the shares at a discounted price, called the “fair market value” of the

• Clawbacks: Demystifying the Event Study - Equity Methods

  1. Determine the vesting subject to clawback.Be pragmatic and focus on what you need to see. If your company didn’t have any awards vested based on prior TSR awards, for example, you needn’t go through this exercise at all. Similarly, if your company had a return 30% above its nearest peer, the restatement’s impact may not have been enough to trigger a clawback. By analyzing the subject award vesting and the potential clawbacks based on moves in the stock price, you should be able to quickly [...] Four Clover had a performance equity award that vested in the amount of its return, with a minimum vesting of 50% for a return of -50% and maximum of 200% if the stock price more than doubled. Given their return was in the linear performance range, any percentage loss would result in an equal loss in vesting of the target percentage of shares. Image 10: Equity Methods - Figure 1 - Vesting Subject to Clawback Figure 1: Vesting Subject to Clawback at Four Clover Corporation [...] The company filed its annual report with a small-r restatement covering the prior three periods, in which they announce EPS of $0.01 below street expectations. (Note that as part of this disclosure, the third quarter should have exceeded EPS estimates by only $0.01.) 1. Determine the vesting subject to clawback CEC looks at the clawback impact of various price returns on its relative TSR award: Image 6: Equity Methods - Table 1 - Vesting Subject to Clawback

• Vesting Schedules: What is vesting and how does it work - Ledgy

  Reverse vesting occurs when shares devest at the same pace they originally vested if an employee were to leave the company. As a concept this is attractive for businesses, as they can essentially claw back vested shares from past employees over time. However, for employees, the prospect of losing equity once they leave the business is not attractive. For example, if an employee works for three years at the company before departing, without a trigger event that leads to a payout all of their

• What Happens to Vested Stock & Equity When You Leave - Carta

  If you were granted stock options and have already exercised some or all of those vested options before your departure, you already own those shares—your company usually can’t claim or repurchase them when you leave. However, you may want to check your grant to be sure. For example, if your equity grant contains a clawback provision or language around “company repurchase rights,” “redemption,” or “forfeiture,” your company may have the option to forcibly buy back shares from you.

• How does a clawback work to take away gains from my equity ...

  Some experts apply the term quasi-clawback to this type of provision that cancels amounts not yet earned, vested, recognized as income, or paid out. The company will also try to prevent you from selling any shares that you hold. Enforceability [...] A clawback provision can appear in your employment agreement, stock grant agreement, or stock plan. If it is triggered, you must surrender to the company any gains from option exercises or restricted stock vesting, or any type of bonus or incentive compensation, within a certain period. The clawback may be triggered if you leave to work for a direct competitor or if you engage in other detrimental activity that violates "bad boy" clauses, such as the disclosure of company secrets, the [...] The company can also require you to forfeit outstanding equity grants and long-term performance awards (see examples at Wells Fargo and Goldman Sachs). As explained by a commentary from Meridian Compensation Partners, forfeiture provisions apply to compensation not yet vested or earned, while clawback policies cover compensation already paid out in some form. If you have not yet exercised your options, the company will stop you from exercising, cancel all unexercised options, and take away