{"id":1559,"date":"2019-10-25T00:00:00","date_gmt":"2019-10-25T00:00:00","guid":{"rendered":"http:\/\/www-staging.carta.com\/sg\/blog\/pte-90-day-window\/"},"modified":"2021-03-05T06:57:14","modified_gmt":"2021-03-05T06:57:14","slug":"pte-90-day-window","status":"publish","type":"post","link":"https:\/\/www-staging.carta.com\/sg\/blog\/pte-90-day-window\/","title":{"rendered":"Why you only have 90 days to exercise your options when you leave a startup-and why that’s changing"},"content":{"rendered":"\r\n

Imagine spending four years at a startup, getting offered your dream job at another company, and not being able to afford your vested stock options<\/a>. Typically, employees only have 90 days to make a decision and hand over the money to buy their options when they leave a job. If you can’t pull together that much cash that quickly (and plan for the tax impact of the exercise<\/a>), you’re out of luck. All those vested options representing years of labor simply disappear-and go back into the option pool for additional employees.\u00a0<\/p>\r\n\r\n\r\n\r\n

Over the past 20 years, the standard post-termination exercise (PTE) window and high cost of exercising have made these “golden handcuffs\u201d a common scenario. Forcing employees to exercise options within a 90 day window after leaving a company-or lose them-favors people who are already wealthy and can afford to shell out thousands of dollars for an asset they may be locked up from selling for years.\u00a0<\/p>\r\n\r\n\r\n\r\n

We dug into where the 90-day window came from and how companies are rethinking their policy. Organizations that adjust their policy signal that care about employees as shareholders-and it can help them attract and retain talent in a highly competitive market.<\/p>\r\n\r\n\r\n\r\n

What is a PTE window and where did the 90-day PTE windows come from?<\/h2>\r\n\r\n\r\n\r\n

A PTE window is the period during which a person who is leaving a company can buy shares at the strike price outlined in their compensation package. For most employees, this means that if you want to leave (or are asked to leave) a private company, you have 90 days to exercise<\/a> (i.e. pay for) your vested stock options. If you can’t afford to exercise your options (and plan for the tax impact of the exercise, including setting aside funds to address the resulting tax liability), or are unable to sell them on a secondary market (some companies restrict this), you may have to sacrifice your equity.\u00a0<\/p>\r\n\r\n\r\n\r\n

The vast majority of startups use the same 90-day PTE window-it’s basically become the de facto option. For all terminated option grants on Carta’s platform, 91.4% have PTE windows of 90 days or less<\/strong>.1<\/sup> <\/p>\r\n\r\n\r\n\r\n

A 90-day PTE window is a boilerplate solution based on IRS regulations. The IRS disqualifies employee options as incentive stock options (ISOs)<\/a>, which qualify for special tax treatment, 90 days after employment ends. For an employee to have the flexibility to exercise their stock options beyond 90 days, the company needs to convert each departing employee’s ISO grant to a non-qualified stock option (NSO)<\/a> grant, which requires the employee to pay taxes both when they buy their shares and also when they sell them.<\/p>\r\n\r\n\r\n\r\n

How startups are rethinking the 90-day window<\/h2>\r\n\r\n\r\n\r\n

Companies are recognizing the 90-day PTE window can be unfair to employees. They understand that it may keep employees at the company who no longer want to be there but are collecting the cash needed to exercise their options-or worse, that it may mean employees can’t cash in when a company is successful, despite their contribution.<\/p>\r\n\r\n\r\n\r\n

As companies recognize this burden, some are taking the lead-Pinterest, Coinbase, Buffer, and Asana have longer PTE windows to more closely reflect their company cultures and give employees more flexibility.\u00a0<\/p>\r\n\r\n\r\n\r\n