Ever been offered company stock at a set gross value instead of # shares at a fixed price?

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durazno
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Ever been offered company stock at a set gross value instead of # shares at a fixed price?

Post by durazno » Tue Jan 23, 2018 9:21 am

I'm evaluating a job offer which includes stock. The company is public. The business is offering $50,000 worth of stock on a 4-year vesting schedule (ie. at end of year 1 I can purchase $12,500 in stock, at end of year 2 I can purchase a second block of $12,500, etc.). The company told me the share price of the stock is based on a calculation of the 30-day avg of the share price.

Has anyone had a similar stock option? Does this mean that after each year, I receive a guaranteed stock holding of $12,500, as long as the company's stock doesn't reach $0? And so, if I wanted to, I could choose to sell the stock immediately after each vesting period for $12,500? Or, I could hold it and sell later?

Would I have to pay for the shares or are they just given to me? The HR rep told me it's equivalent to being given $12,500 per year, so it sounds like I wouldn't have to buy them. But this seems almost too good to be true.

And the stock in terms of share price at vesting would be based on their 30-day avg formula, not the actual share price on the day I exercise the shares?

I've been offered stock before at private companies and it was always based on a fixed share price and # shares (ie. 10,000 shares at .40 per share, 4 year vesting). This program is quite different, though.

AlohaJoe
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Re: Ever been offered company stock at a set gross value instead of # shares at a fixed price?

Post by AlohaJoe » Tue Jan 23, 2018 9:36 am

Isn't this how every RSU program works?

TOJ
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Re: Ever been offered company stock at a set gross value instead of # shares at a fixed price?

Post by TOJ » Tue Jan 23, 2018 10:01 am

AlohaJoe wrote:
Tue Jan 23, 2018 9:36 am
Isn't this how every RSU program works?
I think the difference here is that this HR person is claiming that the OP will get $12,500 of stock every year, regardless of share price. Which is a better deal than a standard RSU program. Unless the price of the stock goes up, then it's worse.

The RSU programs I'm accustomed to would give you $50k of stock up front in a restricted account, but the yearly distributions are a fixed number of shares (in this case, 25% of the number of shares). So if the price goes down to $40k immediately, you're only getting $10k each year.

OP: You should be aware that those yearly distributions will be taxed as if they were a bonus. In most cases, assume nearly a third doesn't reach your personal brokerage account. They may have an option where you pay the taxes with cash on hand and get all the shares. The only people who can answer all your questions are the company itself. There may be a chance that the HR person is not technically savvy with these things, which is very common even among recipients of RSUs, in my experience.

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durazno
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Re: Ever been offered company stock at a set gross value instead of # shares at a fixed price?

Post by durazno » Tue Jan 23, 2018 10:41 am

TOJ wrote:
Tue Jan 23, 2018 10:01 am
AlohaJoe wrote:
Tue Jan 23, 2018 9:36 am
Isn't this how every RSU program works?
I think the difference here is that this HR person is claiming that the OP will get $12,500 of stock every year, regardless of share price. Which is a better deal than a standard RSU program. Unless the price of the stock goes up, then it's worse.

The RSU programs I'm accustomed to would give you $50k of stock up front in a restricted account, but the yearly distributions are a fixed number of shares (in this case, 25% of the number of shares). So if the price goes down to $40k immediately, you're only getting $10k each year.

OP: You should be aware that those yearly distributions will be taxed as if they were a bonus. In most cases, assume nearly a third doesn't reach your personal brokerage account. They may have an option where you pay the taxes with cash on hand and get all the shares. The only people who can answer all your questions are the company itself. There may be a chance that the HR person is not technically savvy with these things, which is very common even among recipients of RSUs, in my experience.
Right, I asked HR some questions and they didn't know the details. I didn't want to force them down a rabbit hole. I'm going to take the job regardless, really excited about it. Sounds like regardless of how the stock moves, I would in fact receive $12,500 per year. If I were to sell immediately after each vesting period, I think (?) I'd pay marginal income tax on the $12,500. I can't find anything online about stock programs like this one, strange.

-OP

lucky_tech_guy
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Re: Ever been offered company stock at a set gross value instead of # shares at a fixed price?

Post by lucky_tech_guy » Tue Jan 23, 2018 10:50 am

I think you got mixed up when communicating with HR. This is probably what they meant.

You get a $50k grant. The number of shares you receive will be determined on the day you started by taking the 30 day average. Those shares will vest over 4 years.

Say the stock is worth $20/share. When hired you'll get 2,500 shares that vest in 4 years. Each year you'll receive 625 shares.

Few weird things: stock options vs rsu for a public company. It's a little weird to vest annually instead of monthly/quarterly.

If this isn't the way it's done than you're just looking at a very confusing cash bonus.

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Re: Ever been offered company stock at a set gross value instead of # shares at a fixed price?

Post by Jack FFR1846 » Tue Jan 23, 2018 11:01 am

Your explanation of what they are offering you is confusing. I've experienced 3 different plans and you've described something that with a tweek could be any of them. Here's what I've had:

Stock Option: A number of shares of stock are "struck", and granted to you on a vesting schedule. The strike price is typically the ending price on a particular day. So perhaps you start working today and the options strike on March 1. Typically everyone in the company with options has the strike date match (which prevents funny business.....supposedly). Once vested, you get to buy the stock at the strike price and can sell immediately. In some cases, companies say you have to hold the stock for some amount of time before sale or have blackout periods. Typically, options must be exercised (you buy them) within 10 years of the strike (or vesting).

RSU: Restricted Stock Options: These are granted, vested and struck in a similar way. But this is a no cash grant. Once vested, the number of shares are given to you.

Employee Stock Purchase Program: In a typical system, you put in a percentage of pay over a 6 month period. The stock is bought at the end of the period, often at a discount from the lowest of the beginning or ending price in the period. Some (what I have) will have a price that "sticks" for a time period. Mine is 2 years. At the end of the period, you're buying whatever your money will buy.

In any of these scenarios, be very, very careful if there is a required holding period. Stocks dropping can turn a benefit into a cost and a tax nightmare. There have been threads here where people talk about a 1 year holding period. I've worked in companies where the stock price 1 year after purchase has dropped to 25% of where it was when I bought it. I'd skip any plan requiring me to hold it.
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Ethelred
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Re: Ever been offered company stock at a set gross value instead of # shares at a fixed price?

Post by Ethelred » Tue Jan 23, 2018 11:30 am

lucky_tech_guy wrote:
Tue Jan 23, 2018 10:50 am
Few weird things: stock options vs rsu for a public company. It's a little weird to vest annually instead of monthly/quarterly.
Why do you think that? My wife and I work for two different megacorps. Mine awards both stock options and RSU's (stock), and my wife's awards stock only. Both vest annually, and I've never heard anyone claim this is unusual.

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Re: Ever been offered company stock at a set gross value instead of # shares at a fixed price?

Post by EddyB » Tue Jan 23, 2018 11:39 am

Ethelred wrote:
Tue Jan 23, 2018 11:30 am
lucky_tech_guy wrote:
Tue Jan 23, 2018 10:50 am
Few weird things: stock options vs rsu for a public company. It's a little weird to vest annually instead of monthly/quarterly.
Why do you think that? My wife and I work for two different megacorps. Mine awards both stock options and RSU's (stock), and my wife's awards stock only. Both vest annually, and I've never heard anyone claim this is unusual.
I couldn’t point to a data set, but I see at least scores of companies’ vesting practices every year, and neither of those versions is uncommon in my experience.

dcabler
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Re: Ever been offered company stock at a set gross value instead of # shares at a fixed price?

Post by dcabler » Tue Jan 23, 2018 11:39 am

Ethelred wrote:
Tue Jan 23, 2018 11:30 am
lucky_tech_guy wrote:
Tue Jan 23, 2018 10:50 am
Few weird things: stock options vs rsu for a public company. It's a little weird to vest annually instead of monthly/quarterly.
Why do you think that? My wife and I work for two different megacorps. Mine awards both stock options and RSU's (stock), and my wife's awards stock only. Both vest annually, and I've never heard anyone claim this is unusual.
Same here - every company I've worked for either had them vest annually, typically in a linear fashion over 3 or 4 years. One company had a 3 year cliff vesting instead.

Current company I joined last summer set the total starting value at $X with the number of shares that represented to be determined by a board meeting that was to happen +/- my start date. A month later, I got the notice for the number of shares that dollar amount represented and on which day's closing price it was set. After that, the value will be whatever the price is when I sell shares. So far, up quite a bit since my start date. :sharebeer

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Re: Ever been offered company stock at a set gross value instead of # shares at a fixed price?

Post by Hyperborea » Tue Jan 23, 2018 11:57 am

dcabler wrote:
Tue Jan 23, 2018 11:39 am
Ethelred wrote:
Tue Jan 23, 2018 11:30 am
lucky_tech_guy wrote:
Tue Jan 23, 2018 10:50 am
Few weird things: stock options vs rsu for a public company. It's a little weird to vest annually instead of monthly/quarterly.
Why do you think that? My wife and I work for two different megacorps. Mine awards both stock options and RSU's (stock), and my wife's awards stock only. Both vest annually, and I've never heard anyone claim this is unusual.
Same here - every company I've worked for either had them vest annually, typically in a linear fashion over 3 or 4 years. One company had a 3 year cliff vesting instead.

Current company I joined last summer set the total starting value at $X with the number of shares that represented to be determined by a board meeting that was to happen +/- my start date. A month later, I got the notice for the number of shares that dollar amount represented and on which day's closing price it was set. After that, the value will be whatever the price is when I sell shares. So far, up quite a bit since my start date. :sharebeer
It probably depends on the company, the industry, and how many shares are involved. At the last company I worked for the sign-on shares had a 1 year cliff for the initial amount and then depending on the number of shares you got them quarterly or monthly. Follow on re-up shares were solely monthly or quarterly. Monthly or quarterly depended on how many shares you were getting per year - if the amount of shares was low then it was only quarterly. The reason for the more frequent distribution is to avoid having such cliff dates which employees will often use a point to leave.

The OP may want to ask about re-up of the shares over time - maybe more during the first four years and especially after the first four years.
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