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Posts Tagged ‘equity compensation’

Employee Stock Purchase Plans – Learning the Basics


Will your ESPP help you reel in some cash?

Will your ESPP help you reel in some cash?

Employee stock purchase plans and all that may be associated with them are tough topics to fully comprehend, and while each company may have their own individual plans and procedures, the core concepts remain traditionally the same. The most frequently asked questions arise when an employee is faced with participating in an employee stock purchase plan for the very first time. To help ensure that you have an understanding of the choices, we have compiled a list of common questions and answers with the help of Fidelity.com, covering all the core concepts associated with these plans. Read the rest of this entry »

Rule 10b5-1: What Is It? Why Do I Care?

Do you understand your 10b-5 trading plan?

Rule 10b-5 was set forth by the SEC under the Securities Exchange Act of 1934 to allow insiders of a publicly traded corporation, like executives and board members, to have their own trading plan and invest in their own stock without any liability and avoid any charges of insider trading.

The qualifications for rule 10b-5 include that the individual must not be aware of any material non-public information, and the purchase must be made during an open window.  The rule 10b-5 trading plan also states that there should be detailed information of future plans to purchase or sell shares made by the individual at a time when the person has no knowledge of insider information. Furthermore, the individual must have documentation that shows all sales or purchases that were made in accordance with the preset trading plan. And of course, the plan must be adopted in good faith.  Read the rest of this entry »

Employee Stock Options

What exactly is an ISO?

Employee stock options, as explained last week, are stock options that are offered to employees from their employer. Businesses often grant employees a share of the company’s stock. While the different stock options they give may seem confusing, we are here to ensure that the process is as clear and simple as possible. Today, we will talk about one kind of employee stock option called an incentive stock option.

What is an incentive stock option? Let us define it…

Incentive Stock Option: An incentive stock option, or ISO for short, is a stock option that is only available to employees. This exclusiveness comes with both pros and cons. This option will not affect your income tax if the shares are held for at least two years from the grant date and one year from the date of exercise.

What are the grant date and exercise date?

The grant date is the date that the company grants an employee the shares of the incentive stock. The exercise date is the date that the employee exercises their ability to purchase the shares of the incentive stock.

What if I do not wish to hold the stock for the two year time period?

If an employee who purchases the incentive stock seeks to sell the stock back before the two year period is over, then any gain on the incentive stock is taxed as regular income. The tax gain must be reported on an employee’s W2 form.

What if I sell the stock after the two year mark?

Taxes are due in the year that the sale takes place. If the incentive stock is held for over a calendar year, the employee must record the value of stock on the original exercise date. This value should be reflected in an employee’s AMT (alternative minimum tax) calculation.

We hope this was helpful in deciding if an incentive stock option is best for you. Keep in mind that there are a multitude of other employee stock options. Do not hesitate to contact us with any questions you may have. If you or anyone else you know is hoping to learn more about an incentive stock option, or employee stock options plan, then we urge you to contact Stock Connections, today.

Stock Connections specializes in working with San Francisco Bay Area companies that are involved in mergers & acquisitions, are raising capital, or creating stock option or other equity plans. We help start-up, private and public firms become – and remain – SEC-compliant. Stock Connections’ services are designed to help both start-ups and established firms comply with SEC and other regulations in their equity compensation programs. If you or anyone you know is looking to get involved with any of the above, we encourage you to contact us today.

Photo Credit: FaceMePLS

Increase in Tax Rates – How They Could Affect Stock Compensation

Image Credit: Alan Cleaver

The current tax rates are set to expire at the end of this year, and unless they are extended it could affect your restricted stock/Restricted Stock Units (RSU) vesting, any option exercise or even Employee Stock Purchase Plans (ESPP).  However, it is important to keep in mind that the future possible changes in tax rates are not the only factor that could affect your stock compensation. Even a little increase in your company’s stock price can affect you.  Below are five different tax rates to keep in mind.

  • The Social Security rates could increase. Workers might have to pay 6.2%, up considerably from the current 4.2%. Keep in mind that these taxes apply to the yearly wage cap that is $110,100.
  • Under the new Affordable Health Care Act, Medicare tax rates will rise for high-income payers to 2.35% from the current 1.45%. Also, all capital gains will have a new Medicare surtax of 3.8% upon stock sales.
  • The capital gains rate that applies (currently 15%) could increase to 20%.
  • The dividend tax rate may rise all the way to 43.4% from 15%. This tax rate would apply to any of the dividends you have received on company stock.

Unless you have completely decided and planned on exercising your stock options very soon, increases in tax rates are not the only reason to take action.  You should be planning around your individual situation with taxes. It all depends on what your projections look like for potential increases in the stock price, the possible increase in taxes and how much time you have available to make a decision or exercise your options.

If you need help planning you taxes or have any questions regarding the tax rate and how it will affect your stock compensations give us a call. Stock Connections can help.

Equity Compensations: Four Plans Every Employee Should Know

4 Types of Equity Plans

Equity plans are popular among employers.

Equity Compensation has been very popular among employers in the Silicon Valley for many years. These plans provide innovative options for employers to motivate their employees and assist in creating a positive work environment.  Stock options and financial incentives are attributes that job hunters look for when searching for a quality workplace, but with various plans and options in existence it can be overwhelming to try and understand all the options that an employer can offer their team members.

There are four common types of equity compensation plans:

Restricted Stock Unit: A restricted stock unit involves a company giving employees a designated amount of shares at no cost. These shares eventually become vested after a pre-determined amount of time and what this means is that ownership does not occur until the shares are fully vested. This plan is often merit based and is a form of deferred equity compensation used to promote loyalty among employees as well as to retain quality and skilled team members.

Restricted Stock Award: A restricted stock award is very similar to the restricted stock unit. In this case, a company grants a determined amount of shares also at no cost but instead of ownership occurring after a vesting period it occurs at the time of the grant. Typically, the shares are released to the employee over a three to four year vesting period and the purpose is to monitor employee performance as well as to encourage future quality of work. 

Employee Stock Purchase Plan: An employee stock purchase plan usually involves a voluntary salary deduction of up to 15% of an employee’s salary to be deducted from each paycheck; the funds are  placed in a non-interest bearing account. The money deducted during a pre-determined amount of time is used to purchase company shares at a discount from the fair market price. This plan allows the use of an employee’s own money to purchase shares with low risk.

Employee Stock Option: An employee stock option is a tactic used by companies to motivate short-term goals among their employees. A number of shares are reserved for employee purchase and are vested over time, allowing growth and company value to build. It encourages employees to behave in ways that boost the company’s stock value.

All of these plans have tax implications for both the employee as well as the company and must be reported in an accurate and timely fashion to various tax authorities.

Equity compensation plans can be difficult to understand and while the four basic plans have been introduced in this post, it is best to seek professional advice if you are considering implementing a plan or if you have questions concerning your own plan. Here at Stock Connections we specialize in equity compensation plans and we encourage you to contact us with your questions. We are happy to help. 

Photo Credit: khrawlings

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