<aside> 🧑‍🚒 This guide is meant to provide generalized advice. It should not be substituted for advice from legal counsel. There may be many different factors relevant to your company’s situation that may not be accounted for.

I encourage you to use this guide as a starting point. But there are a lot of great resources (linked here) to explore.

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First off, what exactly is a PTEP?

PTEP is shorthand for Post Termination Exercise Period. This is the amount of time post departure in which an option holder (for our purposes here, an employee) has to exercise their vested options before they expire.

Traditionally, PTEPs were set at 90 days (three months). This means that an employee must exercise some or all of their vested options within this period. Otherwise, those options are forfeited.

Why should companies utilize an extended PTEP?

Simply put, exercising options comes with two major issues:

• The cash required to exercise the options themselves.
• The added potential tax consequences associated with exercising.

When an employee separates employment, it’s never an ‘easy’ situation. They either involuntarily separated employment (which means sudden lack of stability, which may or may not include severance) or that they left voluntarily (which means that they may either not have another immediate income stream or they are ‘getting settled’ in a new job). Utilizing an extended PTEP resolves the major pain points that happen when conditions change.

Further, an extended PTEP is a significant lever you can use for both recruitment and retention purposes.

• For candidates, especially those who have run into PTEP issues before, they will see that you are introducing employee-friendly components to your offering.
• For current employees, depending on how the extended PTEP is defined, you can use this as a tool for incentivizing tenure. (Ex. the extended PTEP eligibility begins after X years tenure or is derived as a function of tenure).

In short, an extended PTEP provides the employee with optionality: they can decide when is right for them to exercise without the artificial constraint of 90 days.

What are the downsides of an extended PTEP?

• It means more options are outstanding for an extended period of time.
  • Ie. instead of those options returning to the pool after 90 days, you now have them ‘on the books’ for significantly longer, which may place artificial pressure to top up the pool.
• It means added complexity in communications to employees.
• 90 days post employment, the tax treatment of the options will change from ISO to NSO. This is something you need to diligently manage.

There may be other complications associated with introducing an extended PTEP. Consult with your corporate counsel for holistic guidance based on your company’s situation.

Making the Case

The audience that most needs to be convinced of introducing an extended PTEP is your Board.