{"id":5654,"date":"2020-04-13T00:00:00","date_gmt":"2020-04-13T00:00:00","guid":{"rendered":"http:\/\/www-staging.carta.com\/sg\/blog\/extend-pte-window\/"},"modified":"2021-03-05T06:55:32","modified_gmt":"2021-03-05T06:55:32","slug":"extend-pte-window","status":"publish","type":"post","link":"https:\/\/www-staging.carta.com\/sg\/blog\/extend-pte-window\/","title":{"rendered":"How to extend your PTE window"},"content":{"rendered":"\r\n<p>Even before COVID-19, we\u2019ve been long advocating for longer post-termination exercise (PTE) windows\u2014the amount of time employees have to exercise stock options after leaving a company. The popular <a href=\"\/blog\/pte-90-day-window\/\">90-day period<\/a> just isn\u2019t fair to employees who don\u2019t have the money to buy their stock before the window closes. At Carta, our PTE window <a href=\"https:\/\/www-staging.carta.com\/sg\/blog\/pte-vesting\/\">matches the time<\/a> that the departing employee has vested in the option grant, and we urge other companies to rethink their own window in our <a href=\"\/blog\/employee-shareholder-bill-of-rights\/\">Shareholder Bill of Rights<\/a>.\u00a0<\/p>\r\n\r\n\r\n\r\n<p>Now, with <a href=\"https:\/\/www.nytimes.com\/interactive\/2020\/03\/26\/upshot\/coronavirus-millions-unemployment-claims.html\" target=\"_blank\" rel=\"noreferrer noopener\">unemployment skyrocketing<\/a>, it\u2019s more important than ever to try to help laid-off employees who have been faithfully working for you for years.<\/p>\r\n\r\n\r\n\r\n<p>Here\u2019s what you need to know before extending your PTE window and how to do it:<\/p>\r\n\r\n\r\n\r\n<h2>Why you should consider extending your PTE window<\/h2>\r\n\r\n\r\n\r\n<p>Extending your exercise window isn\u2019t just good for your employees\u2014it can also help your company. The percentage of employees with extended PTE has <a href=\"https:\/\/www-staging.carta.com\/sg\/blog\/state-employee-exercise-2020\/\">more than doubled<\/a> (from 5% to 11%) over the past four years. Here are some of the reasons we have seen companies making this change:<\/p>\r\n\r\n\r\n\r\n<ul>\r\n<li><strong>It\u2019s fairer. <\/strong>Stock options are meant to reward the people that have helped build your company by allowing them to participate in the increased value. Asking employees to exercise stock options immediately after leaving the company isn&#8217;t the right way to treat them for their years of hard work\u2014they shouldn\u2019t have to miss out on the upside of equity because of short-term liquidity issues. The typical 90-day exercise window favors the wealthy, or those who can afford to purchase their options whenever they want. Extended exercise windows allow more employees to participate.<\/li>\r\n<li><strong>It&#8217;s good for recruiting. <\/strong>Longer PTE windows will set your company apart from those who only give their employees 90 days. In fact, there are lists employees can reference that applaud <a href=\"https:\/\/github.com\/holman\/extended-exercise-windows\" target=\"_blank\" rel=\"noreferrer noopener\">companies with extended exercise windows<\/a>.<\/li>\r\n<li><strong>It\u2019s good for company culture.<\/strong> As <a href=\"https:\/\/twitter.com\/dhaber\/status\/1240019949961318400\" target=\"_blank\" rel=\"noreferrer noopener\">David Haber<\/a>, former founder and CEO of Bond Street, puts it, \u201cCareers are long. People don\u2019t forget when you do the right thing (but didn\u2019t have to).\u201d<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<h2>What to keep in mind before extending your PTE window<\/h2>\r\n\r\n\r\n\r\n<p>Extending your PTE window has other consequences. There are a number of considerations you should take into account before lengthening your exercise window:<\/p>\r\n\r\n\r\n\r\n<h3>Extending your PTE window could trigger tender rules<\/h3>\r\n\r\n\r\n\r\n<p>If you want to modify more than six grants, you may need to run a non-monetary tender offer. This means you need to provide certain documentation and disclosures. Plus, you have to keep the offer open for at least 20 business days, so you may not be able to move as quickly as you\u2019d like.<\/p>\r\n\r\n\r\n\r\n<div id=\"footable_parent_7011\"\n         class=\" footable_parent ninja_table_wrapper loading_ninja_table wp_table_data_press_parent semantic_ui \">\n                <table data-ninja_table_instance=\"ninja_table_instance_0\" data-footable_id=\"7011\" data-filter-delay=\"1000\" aria-label=\"extending-pte.csv\"            id=\"footable_7011\"\n           data-unique_identifier=\"ninja_table_unique_id_97090141_7011\"\n           class=\" foo-table ninja_footable foo_table_7011 ninja_table_unique_id_97090141_7011 ui table  nt_type_legacy_table selectable striped vertical_centered  footable-paging-right ninjatable_hide_header_row ninja_table_search_disabled ninja_table_pro\">\n                <colgroup>\n                            <col class=\"ninja_column_0 \">\n                    <\/colgroup>\n        <thead>\n<tr class=\"footable-header\">\n                        <th scope=\"col\"  class=\"ninja_column_0 ninja_clmn_nm_extendingpte \">Extending PTE<\/th><\/tr>\n<\/thead>\n<tbody>\n\n        <tr data-row_id=\"214\" class=\"ninja_table_row_0 nt_row_id_214\">\n            <td><span style=\"font-weight: 400; color: #000000;\">Note: Right now, a number of companies are <\/span><span style=\"color: #0000ff;\"><a href=\"https:\/\/medium.com\/@awayhq\/a-message-from-our-founders-7ec2f4389004\" target=\"_blank\" rel=\"noopener\" style=\"color: #0000ff;\"><span style=\"font-weight: 400;\">amending PTE windows<\/span><\/a><\/span><span style=\"font-weight: 400; color: #000000;\"> via individual separation agreements. We recommend you consult with counsel on your company\u2019s PTE amendment process.<\/span><\/td>        <\/tr>\n    <\/tbody><!--ninja_tobody_rendering_done-->\n    <\/table>\n                    <style type=\"text\/css\" id='ninja_table_custom_css_7011'>\n                        #footable_7011  {\n        font-family: inherit;\n        font-size: 14px;\n    }\n\n                <\/style>\n                \n    \n    \n<\/div>\n\r\n\r\n\r\n\r\n<p>&nbsp;<\/p>\r\n\r\n\r\n\r\n<h3>It\u2019ll likely increase dilution<\/h3>\r\n\r\n\r\n\r\n<p>When you have a longer exercise window, it takes longer for unexercised options to return to your option pool, and usually employees end up exercising more options under these programs. As a result, you\u2019ll need more shares in your plan.<\/p>\r\n\r\n\r\n\r\n<h3>It could have accounting implications<\/h3>\r\n\r\n\r\n\r\n<p>Extending a grant\u2019s PTE period can potentially trigger modification accounting under <a href=\"\/blog\/what-is-asc-718\/\">ASC 718<\/a>. This may or may not result in additional stock compensation expenses.<\/p>\r\n\r\n\r\n\r\n<h3>It may not always help every employee<\/h3>\r\n\r\n\r\n\r\n<p>While an extended PTE window is inherently a good thing, changing existing grants could end up negatively impacting employees.<br \/><br \/>For example, amending already-issued grants could trigger NSO treatment. If a stock option was issued as an <a href=\"\/blog\/what-are-incentive-stock-options\/\">incentive stock option<\/a> (ISO), modifying the PTE period would result in the option losing its ISO status if it is in-the-money on the day you modify the grant\u2014even if the employee exercises within 90 days after leaving. This means those employees will have to pay taxes when they exercise their options. Also, amending grants could subject your employees to higher tax obligations because of the <a href=\"\/blog\/what-is-the-100k-iso-limit\/\">$100K rule<\/a>.<\/p>\r\n\r\n\r\n\r\n<p>These may sound like serious drawbacks, but keep in mind you don\u2019t have to extend every employee\u2019s PTE period\u2014we believe you should give them the choice to opt-in. Also, employees often don\u2019t benefit from ISO treatment as much as you\u2019d think\u2014in order for them to receive favorable tax treatment, the employee must meet the <a href=\"http:\/\/www-staging.carta.com\/blog\/equity-101-exercising-and-taxes\/#holdingperiod\">holding period<\/a>. Plus, employees with ISOs may have to worry about <a href=\"\/blog\/what-is-alternative-minimum-tax-amt\/\">AMT<\/a>.<\/p>\r\n\r\n\r\n\r\n<p>In the end, employees may prefer the ability to hold off on exercising (while they gather the appropriate funds and\/or see if the stock is even worth purchasing) over favorable tax treatment.<\/p>\r\n\r\n\r\n\r\n<h2>How to extend your PTE window<\/h2>\r\n\r\n\r\n\r\n<p>Carta makes it easier to extend PTE windows. Here are the steps you should take:<\/p>\r\n\r\n\r\n\r\n<ol>\r\n<li><strong>Talk to your counsel. <\/strong>They can make sure you get the appropriate documents and disclosures to employees, follow regulations like the $100K rule and getting approval from your board and stockholders (if your plan requires it), and figure out the best method to modify grants. If you need recommendations for good counsel, <a href=\"mailto:partnersales@carta.com\" target=\"_blank\" rel=\"noreferrer noopener\">contact us<\/a> and we\u2019d be happy to help.\u00a0<\/li>\r\n<li><strong>Decide the details. <\/strong>How long do you want your new PTE window to be? Who do you want to offer longer windows to? (Everyone who has vested options? Everyone who\u2019s worked for you for a certain amount of time? Do you want to only lengthen the period in <a href=\"https:\/\/support.carta.com\/s\/article\/setup-an-equity-plan\" target=\"_blank\" rel=\"noopener noreferrer\">new equity plans<\/a>? Or also offer this to those with already-issued grants?)<\/li>\r\n<li><strong>Get board approval. <\/strong>It may help to <a href=\"https:\/\/mixpanel.com\/blog\/2017\/03\/14\/employee-equity\/\" target=\"_blank\" rel=\"noreferrer noopener\">show your board why extending your exercise window is a good idea<\/a>. Once they agree, you can use our <a href=\"\/board-management\/\">board management software<\/a> to get approvals electronically without leaving our platform. Simply draft your board consent language and hit send.<\/li>\r\n<li><a href=\"http:\/\/www-staging.carta.com\/blog\/category\/employee-resource-center\/\"><strong>Educate your employees.<\/strong><\/a> Walk them through the pros and cons of keeping their original grant vs. accepting a new grant with a longer PTE period, and give them the choice.<\/li>\r\n<li><strong>Open the modification period.<\/strong> Work with your counsel to determine the best approach, and ask whether tender offer rules may apply.<\/li>\r\n<li><strong>Update your issued grants.<\/strong> With Carta, you can <a href=\"https:\/\/support.carta.com\/s\/article\/updating-pte-periods\" target=\"_blank\" rel=\"noopener noreferrer\">edit up to 50 grants at a time<\/a>, and our <a href=\"https:\/\/support.carta.com\/s\/article\/contact-us\" target=\"_blank\" rel=\"noopener noreferrer\">support team is always here to help<\/a>.<strong>\u00a0<\/strong><\/li>\r\n<\/ol>\r\n\r\n\r\n\r\n<figure class=\"wp-block-image\"><img src=\"https:\/\/lh3.googleusercontent.com\/gco4uo4V8v-oUXcrIiylnXv4TQbn4nbKByjUhq8g0D2yDaKwsXEazSzKogZB2-PJlE3Xub5u9JwKDssu_4wGTSfdHXu7EZKxNzVu_gziQD80hWGixADv7GIS77ZpjABS1nT1bgXd\" alt=\"editing PTE window on Carta\" title=\"\"><\/figure>\r\n\r\n\r\n\r\n<p><em>Special thanks to Reed McBride for contributing to this story.<\/em><\/p>\r\n\r\n\r\n<hr class=\"wp-block-separator\" \/>\r\n\r\n\r\n<p class=\"has-small-font-size\">DISCLOSURE: This post contains general information only and eShares, Inc. dba Carta, Inc. (\u201cCarta\u201d) is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services.\u00a0 This post is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests. Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor.\u00a0 This post is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein.<\/p>\r\n\r\n\r\n\r\n<p class=\"has-small-font-size\">This post contains links to articles or other information that may be contained on third-party websites.\u00a0 The inclusion of any hyperlink is not and does not imply any endorsement, approval, investigation, or verification by Carta, and Carta does not endorse or accept responsibility for the content, or the use, of such third-party websites. Carta assumes no liability for any inaccuracies, errors or omissions in or from any data or other information provided on such third-party websites.<\/p>\r\n","protected":false},"excerpt":{"rendered":"<p>With unemployment skyrocketing, it\u2019s more important than ever to try to help laid-off employees who have been faithfully working for you for years. Here\u2019s what you need to know before extending your PTE window and how to do it.<\/p>\n","protected":false},"author":105,"featured_media":5655,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[19],"tags":[259,60,83,260,105,99,133,134],"acf":[],"_links":{"self":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/posts\/5654"}],"collection":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/users\/105"}],"replies":[{"embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/comments?post=5654"}],"version-history":[{"count":0,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/posts\/5654\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/media\/5655"}],"wp:attachment":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/media?parent=5654"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/categories?post=5654"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/tags?post=5654"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}