Good leaver and bad leaver

What they are

Good leaver and bad leaver are labels in the plan rules of a share, option or bonus scheme. They decide what happens to your unvested awards, and sometimes to shares you already hold, when you leave.

Who is usually a good leaver

The plan defines it, but a typical list is: death, ill health or disability, redundancy, retirement, the sale of the company or business you work for, and any other case where the board decides you should be treated as one.

Who is usually a bad leaver

Anyone who is not a good leaver. In practice that means those who resign, and those dismissed for cause. Some plans add anyone who joins a competitor within a set period.

What the label decides

• Good leavers usually keep some or all of their unvested awards, often reduced pro rata for time and still subject to performance conditions.
• Bad leavers usually lose unvested awards outright. In a private company, a bad leaver may also have to sell vested shares back at their cost or nominal value rather than market value.

The difference can be the largest number in the exit.

How it is negotiated

The board’s discretion is the usual route. An agreed exit, in place of a resignation or a dismissal, lets the employer treat you as a good leaver without strain on the plan. Ask for:

• confirmation of good leaver status, in writing, by the body the plan gives discretion to;
• how many awards you keep, and on what timetable they vest;
• that performance conditions are tested fairly and not reset;
• what happens if the business is sold before your awards vest.

If you are about to join a business, these terms are worth reading before you sign. See incoming executive review.