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Our option plan gives the Compensation Committee the discretion to accelerate vesting when employees terminate with unvested options. The Committee has done this on a number of occasions. Any problems?
Absolutely. Accelerating vesting will likely result in a charge to earnings in each case, and if there is a regular practice of accelerating vesting, all options granted under the plan may be subjected to variable plan accounting treatment. Moreover, a pattern or practice of accelerating vesting may be deemed to create an ERISA severance pay plan, giving employees terminating under certain circumstances an enforceable right to accelerated vesting.
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