Have you ever bought a cool new car only to spend the next few weeks noticing how many other people drive the same car? You give them the “nod” as you pass on the streets in acknowledgement of their obvious good decision. It doesn’t take long to feel like there are far more people smart enough to be driving the same car as you after your purchase than prior. What’s going on here?
Last month I did a presentation with two other professionals covering the topic of how equity Continue reading →
We are giving some employees fully vested options in lieu of cash comp for their bonuses. However, since they won’t have cash to pay a massive tax bill, we want to make sure that the option grant is a non-taxable event. Possible?
Stock options are a truly amazing form of compensation. I am going to assume that your employees are in the US. I am also going to assume they are in a state that generally follows the IRS tax code (unlike, let’s say, Pennsylvania).
Stock Options generally only result in income to the holder once they are exercised AND vested. This means that when you give your employees fully vested stock options they will not have an income or tax event until they exercise them. Most people will not exercise them right away. But if they do…
Another important point. The income at the tim of exercise is equal to the difference between the grant/exercise price and the value of the stock on the day exercised. This means if you give someone a stock option with an exercise price of $1.00 per share and the stock on the day they exercise is worth $1.00 on the day they exercise they have no ordinary income, since there is no difference.
Lastly you can also give people stock options that allow exercises even when they are not vested. This ensures the options retain some “stickiness” and give the option holder some interesting tax planning potential
A while back I wrote a post titled “It’s the Little Things” where I discussed how seemingly minor details may completely change the perception of something great. Well, I went back to that resort, this time with my wife, and was reminded that the opposite can also be true. In a world of tight compensation budgets and limited flexibility it is good to remember that exceeding expectations by just a bit can make an enormous impression.
I once again attended a compensation event at a beautiful resort in Southern California (why can’t all of our events be at coastal resorts?). I Continue reading →
On October 7, 2013 the NASDAQ OMX filed a petition with the SEC requesting they require ISS, Glass Lewis and similar investor advisory firms to open up about their models, methods and potential conflicts of interest. As the influence (and revenue) of these firms has grown, there has been increasing concern about the opacity of how they make their recommendations. It’s a bit ironic that the people who most passionately holler for executive compensation disclosure are firms with little or no disclosure of their Continue reading →
Many smaller companies have both limited time and expertise to spend on their compensation programs. Faced with immediate needs many companies find themselves halfway down a road before planning out where they are going. In an ideal environment, these companies would pull over to the side of the road, get their bearings and start over. But, we all know that usually isn’t possible, so let’s talk about driving in reverse.
“After acquiring (a very successful) company I worked for, the acquiring corporation granted me, as one of very few key employees, a number of restricted stock units with 8-year cliff vesting schedule. In other words I have to stay full 8 years before any of it is vested and there are no pro-rata provisions if I’m terminated before. That is, the company can fire me after 7.5 years of service for any reason and I would lose 100% of my grant. Is this a common practice in large corporations? Is it acceptable or even legal?”
I haven’t personally seen a cliff vest longer than 7 years on an award at anything other than a family-owned company in more than 25 years. 8 years is a long time. If it is tied to specific warranties offered by the company at the time of the transaction it Continue reading →
On August 27, 2013, there was an article in the Wall Street Journal titled “Last Gasp for Stock Options?” The writer, Emily Chasan, starts the article with this sentence: “Stock options are on the verge of extinction.” Since Emily just came out and said it, I won’t bury the lead either.
Stock options will not die any time soon.
The use of stock options has trended downward for many years. At their peak, stock options were the Continue reading →
Even before the knowledge worker era, incentive programs have been a great way for companies to attract and reward proven performers. Logically, pay for performance is a good way to motivate, drive and encourage employees to stay engaged. However, these programs lose their effectiveness if the business fails to differentiate employees according to their performance contribution to the company.