Bonus, shares and options

In short. Read the plan rules and award letters before you agree a leaving date or a reason. Many awards lapse on resignation or dismissal for cause but survive a redundancy or an agreed exit. Agree the treatment of each award in the exit agreement itself, and narrow any malus and clawback that could still reach you after you leave.

The plan rules decide

Your contract usually says no more than that you may take part in a scheme. The plan rules decide what you receive, when, and what happens when you leave. They are often written by a parent company, under another country's law, and they usually give the board or a remuneration committee wide discretion.

Look for:

• leaver provisions: who counts as a good leaver or a bad leaver, and what each keeps;
• vesting: dates, performance conditions, and whether awards vest in full, pro rata or not at all on leaving;
• "active employment" tests: many plans pay only those still employed, and not under notice, on a set date;
• discretion: who decides, and on what grounds;
• change of control: what happens on a sale or merger;
• governing law: a foreign-law plan may need advice from that country too.

In practice. Many executives have never read their plan rules, and the employer's first draft of an exit agreement often says least about them. Ask for the current rules and every award letter at the start.

Good leaver and bad leaver

A typical plan treats death, ill health, redundancy, retirement and the sale of your business as good leaver cases, and any other case the board chooses. Those who resign, and those dismissed for cause, are usually bad leavers. Good leavers usually keep some or all of their unvested awards, often reduced for time; bad leavers usually lose them. In a private company, a bad leaver may also have to sell vested shares back at cost.

In practice. The board's discretion is the usual route. An agreed exit, in place of a resignation or a dismissal, lets the employer treat you as a good leaver without straining the plan. Ask for that decision in writing, by the body the plan gives discretion to, with the number of awards you keep and when they vest.

Bonus and deferred pay

A bonus for the current year may be contractual, discretionary or somewhere in between. Check what the scheme promises, whether a payment date falls inside your notice, and whether garden leave or pay in lieu takes you outside it.

In practice. A leaving date a few weeks earlier or later can decide a whole year's bonus or a vesting tranche. Set the date with the plan calendar in front of you. See notice and exit terms.

Malus and clawback

Malus reduces or cancels an award before it is paid or vests; clawback recovers pay already received. Both are usually triggered by misconduct, a material error in the figures, a serious risk failure or a regulatory breach. In banks and investment firms, EU remuneration rules require them for staff whose work affects the firm's risk, and other employers increasingly adopt them.

In practice. An exit is when these terms are most likely to be used. Ask the employer to confirm that it knows of no event that would trigger them, to tie the triggers to defined events, and to give you notice and a chance to respond if a trigger is alleged later. A regulated firm may be unable to waive terms the rules require, so the negotiation then turns to the facts it confirms when you leave.

Where it goes wrong

• resigning before the plan treatment has been agreed;
• an exit agreement that leaves award treatment to the plan administrator after signing;
• a leaving date that falls just before a vesting or bonus date;
• a broad release that gives up a bonus already earned;
• clawback periods that run for years, with no confirmation from the employer at exit.