It may seem obvious that when an employee moves from full-time to part-time status, his or her salary changes to a part-time amount as well. The impact to equity compensation, however, isn’t so obvious.

Philosophical Differences

A company’s stock plan philosophy should be a pivotal component of all decisions around equity compensation to provide a cohesive stock plans program. Employees who get a consistent message regarding their equity compensation are more likely to understand and value it. When it comes to full-time employees changing to a part-time status, consider how equity compensation is promoted to employees. Is it a reward for past performance, part of compensation, or incentive for future performance? Also consider what outcomes the company is looking for (and, no, you don’t need to pick just one). It could be that the company wants to create an employee ownership environment, improve retention, align employees with shareholder interests, reduce cash salaries; whatever the desired outcomes are, the policy around part-time employee grants should be in alignment with that goal.

Weighing the Options

Most companies are not in a position where modifying vesting because of a move to part-time status makes sense. First, consider the consequences to the company for continuing vesting. It’s unlikely that enough employees will choose to go part-time holding enough unvested to create a material negative impact. Also, it’s possible to limit the impact from part-time employees by considering part-time employees ineligible for new grants. There are also minimal advantages to having a move to part-time status impact grant vesting; again because there shouldn’t be a huge number of employees making that move.

Then, take a good look at what the costs could be to cancelling grants or suspending vesting because of a move to part-time status. There’s the issue of employee morale. If grants are impacted by a move to part-time, it could feel punitive to the employee, especially if grants are promoted to employees as a reward for past services. Most likely, if an employee is eligible for equity compensation and is approved to move to part-time status, then the company truly wants to retain that employee keep him or her engaged in the success of the company. There’s also the issue of tracking and administering vesting changes, which can be time-consuming and involve a high level of manual adjustments in the stock plan administration database. With any manual data changes comes additional risk of error.

Managing Your Policy

If your company already has a policy in place to cancel, suspend, or modify grants due to a move to part-time status, it may be worth a thorough review. It’s good to understand why the policy is in place and examine if it still aligns with corporate and equity compensation philosophy. If it does, or you company is just not ready to make a change, here are some ways to make that policy successful.

First, work with your legal team to make sure that it is very clear which circumstances will be impacted. Like leaves of absence, there may be situations in the U.S., and especially internationally, where a move to part time either can’t impact vesting or where it is a grey area that could expose the company to risk if existing grants are impacted. Then, get your HR and IT involved to solidify how changes in status are tracked in the HRIS database and communicated to stock plan management. If there are situations where vesting won’t be impacted, it’s important that those employees are easily identified. Also, meet with your service provider to fully understand your policy can best be managed in the stock plan administration software. As with other areas of stock plan management, don’t assume that the process currently in place is the most efficient and effective one.

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-Rachel