Latest / The Internal Move Podcast with Fexingo: Lateral Roles, Internal Transfers, and Staying at Your Company / How an Internal Transfer Can Protect Your Stock Options
Transcript
- Lucas: There's this assumption that when you move internally, your compensation package just follows you. And for base salary, that's often true. But equity is a different animal entirely. Luna: Totally. I've seen people lose a significant chunk of their unvested options because they didn't realize the transfer triggered a new grant structure. Lucas: Right. And it's not just about losing unvested shares. There's a specific scenario that caught my attention recently. A senior engineer at a fintech company — let's call it a late-stage private company — she moved from the payments infrastructure team to a new product line. She had been there three years, had a solid chunk of vested incentive stock options, or ISOs. Luna: ISOs have that preferential tax treatment if you hold them long enough. Lucas: Exactly. But here's the catch: her transfer paperwork included a clause that required her to exercise all vested ISOs within 90 days of the transfer date, or she'd forfeit them. That's not uncommon. Some companies treat an internal transfer as a separation of employment for equity purposes. Luna: Wait — so she had to come up with the cash to exercise those options in 90 days? For a private company with no liquidity event? Lucas: Yes. And the exercise cost was substantial. She had about 15,000 vested options at a strike price of $12 per share. The fair market value was around $45. So to exercise, she needed $180,000 in cash. And if she couldn't, she'd lose the spread — about $495,000 in pre-tax value. Luna: That's brutal. And it's not like she could sell the shares to cover the cost since it's private. Lucas: Exactly. She ended up negotiating a six-month extension on the exercise window, which gave her time to do an early exercise of some options and sell on a secondary market. But not everyone knows you can even ask for that. Luna: So what's the first thing someone should check before accepting an internal transfer if they have equity? Lucas: First, ask your stock plan administrator — not your recruiter, not your new manager — for a complete breakdown of how the transfer will affect each equity grant. Specifically, ask whether the company treats an internal transfer as a 'termination of employment' for any of your grants. If they do, you'll trigger a post-termination exercise period, usually 90 days. Luna: And that's especially dangerous for ISOs. Lucas: Right. Because if you don't exercise within that window, the ISOs revert to non-qualified stock options, or NSOs, which have less favorable tax treatment. And if you let them lapse entirely, they're gone. Luna: Second thing — check whether your new role is classified as a different cost center. If the new team's budget is separate, they might have to re-grant equity from a different pool, and that could reset your vesting clock. Lucas: That's a huge one. I've seen people assume their original vesting schedule continues, only to discover the new grant has a new one-year cliff. So year four of your original four-year grant might actually restart at zero. Luna: And that ties into something we've touched on before: the importance of getting everything in writing. But specifically for equity, you want a letter from the company confirming that all existing grants will continue on their original vesting schedules and that no acceleration or forfeiture will occur. Lucas: Yes. And if the company refuses to put that in writing, that's a red flag. One more thing: if you have a large number of underwater options — strike price above current FMV — an internal transfer might actually be a good time to renegotiate. Some companies will allow a repricing or a new grant with a lower strike when you move. Luna: That's an advanced move, but worth asking if you've got options that are deeply out of the money. Lucas: It's a conversation that requires nuance. And speaking of conversations that require nuance — if you're finding value in these deep dives, we want you to know that this show is entirely listener-supported. No ads, no sponsors. Just you, us, and the topic. Luna: Yeah, and it's because of listeners like you that we can keep digging into these specific scenarios. If you've ever gotten a tip or a strategy from this show that helped you in your career, you can support us at buymeacoffee dot com slash fexingo. Lucas: Every contribution goes straight into production and research. And it keeps the show independent. So thank you to everyone who's already chipped in. Now, back to equity protection. Luna: So you mentioned three steps. We've got the stock plan admin conversation, the written confirmation, and the repricing ask. Is there a fourth? Lucas: I'd say a fourth is understanding the tax implications before you exercise. If you exercise ISOs and then hold the shares, you might trigger alternative minimum tax. That's a whole separate landmine. So talk to a tax advisor before you write that big check. Luna: And if you're at a company that offers an early exercise program, that can help you start the capital gains clock earlier. But again, it's a cash outlay. Lucas: Right. The key takeaway is that equity is not a passive part of your compensation. When you move internally, it requires active management. Assume nothing, verify everything. Luna: And that engineer we started with — she managed to keep her options, but only because she dug into the fine print. Most people don't. Lucas: Exactly. So next time you're considering an internal move, add 'equity audit' to your prep list. It could save you hundreds of thousands of dollars. Luna: Great advice. That's it for this episode of The Internal Move. We'll be back next week with another angle.