Navigating Incentive Plan Pay-outs Amidst Layoffs

Navigating Incentive Plan Pay-outs Amidst Layoffs

As the world economy continues to struggle, some of tech’s most influential names, like Google, Microsoft and Amazon, have opted for drastic measures – laying off employees in an effort to cushion their financial losses. Layoffs represent an unfortunate reality of the business world, with many companies forced to downsize and make drastic decisions concerning their workforce.

It is no surprise that these changes primarily impact those close to ground level – leaving thousands feeling a significant blow from this decision. Regardless of company-specific factors and motivations behind each layoff wave, it is undeniable that employee morale has been shaken on many levels across the globe.

Laying off employees can present serious financial aftermaths for all parties involved. But the emotional toll is often overlooked, as workers find themselves struggling to manage their finances with very little warning.

Through such difficult times, it is crucial that employees understand their entitlements regarding any existing incentives or outstanding share plans as this can represent a substantial source of additional funds.

What should terminated employees know about their incentive plans?

First things first, they should ascertain if there are any pay-outs due from awards that have already vested and are available to be” cashed in” so they don’t miss out on what is rightfully theirs. They certainly wouldn’t want to sacrifice the rewards due to them.

Employees may realise the full value of their awards if they have met the necessary suspensive conditions which is usually remaining employed for the term of the award. For those whose awards are vested, the terms outlined by their award letter will detail whether they are due shares, cash or some combination of the two.

When determining compensation for recently departed employees, if awards have not yet been fully vested, the employment condition is not considered to have been met, and the right to any portion of a share or cash entitlement will be tied to the employee’s reason for leaving.

Does the reason for termination impact the pay-out of an award?

Generally, yes. Although rules will vary from company to company, different rules usually apply to plan participants who resign or are dismissed than those that exit due to retrenchment, retirement, or other “no-fault” causes. For example, a retrenchment may trigger an early vesting which may entitle the leaver to part of, or in some cases, all of the benefits of the award. On the other hand, a participant that chooses to leave or is dismissed generally doesn’t obtain any right to pre-vesting pay-outs.

When leaving a job before the completion of an incentive plan, terminated employees should familiarise themselves with any rules regarding pre-vesting departure. These policies are often provided at the outset and can help ensure that hard work is rewarded even if continued employment isn’t possible.

What else should terminated employees be aware of?

Understanding one’s tax obligations is crucial, especially when receiving awards. It is important to be aware of the specific taxes that apply since they may vary depending on factors such as the type of award received and local tax laws. As a general rule, income resulting from incentives is taxable when paid out, but this can differ from one plan to another. Taxes to be considered include income tax on incentive plan payoffs and capital gains tax resulting from any increase in the value of shares owned. For participants who are subject to rules in multiple jurisdictions, tax calculations can be complicated. Due to the complexity and variation of tax regulations, it is recommended that employees seek advice from their employer companies regarding their potential tax liabilities.

How can employer companies assist?

Keeping employees fully informed on their incentive awards is essential for any successful business trying to retain its staff. Employers should provide clear communication about entitlements and utilise tools such as specialised software to aid their workforce in understanding payoffs, taxes and more. Effective company communication is crucial in any situation, but it becomes even more critical during layoffs, and clear and transparent communication from management can help alleviate some of the stresses.

How can employees have more control during layoffs?

Unexpected job loss can be emotionally devastating but taking hold of the facts and emphasising areas where one has personal control is essential. Although it won’t lessen these painful times, having peace of mind that all feasible measures have been taken to secure benefits will provide an invaluable cushion when looking towards an unpredictable future.

How does ShareForce assist?

ShareForce is a powerful platform that can help employees manage their share plans. With ShareForce, employees can track their awards’ vesting and exercise options, view their pay-out history, and stay updated on any changes to their plans. By using ShareForce’s countless communication functionalities, employees and administrators alike can ensure that they are fully informed and prepared for any eventuality.

To view a demo of the ShareForce Incentive Plan management tool, fill in the form below or visit


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