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Annotated diagram of Schedule DTax errors can be costly! Don't draw unwanted attention from the IRS. Our Tax Center explains and illustrates the tax rules for sales of company stock, W-2s, withholding, estimated taxes, AMT, and more.


Basics: Grants


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  Articles   FAQs  

How Does Your Company's Stock Plan Compare? (Part 1)

Kate Victory
UPDATES! How typical are your equity awards? Stock plan surveys let you compare the terms of your grants with the common practices of many companies. Part 1 focuses on types of equity award, reasons for making grants, vesting schedules, and option exercises.

How Does Your Company's Stock Plan Compare? (Part 2) This is premium content

Kate Victory
UPDATES! How typical are your grants of stock options or restricted stock/RSUs? Stock plan surveys let you compare the terms of your grants with the common practices of many companies. Part 2 focuses on grant guidelines, option expiration, job termination, and corporate changes of control.

Restricted Stock Units Made Simple (Part 1): Understanding The Core Concepts

Matt Simon
Restricted stock units (RSUs) have become the most popular alternative to stock options. While RSUs share many of the same issues as restricted stock, there are differences, and it is important to understand the basics of RSUs in their own right.

Stock Option Terms: What You Can Expect This is premium content

Richard Friedman
UPDATES! Get a sense of what you should, and should not, expect in the terms of your stock option grant. A major survey of companies looks at trends in vesting schedules, post-termination exercise rules, and other plan features.

Your Stock Grants May Come With Strings Attached This is premium content

Bruce Brumberg
UPDATES! The days of pocketing stock grant gains, leaving the company, and moving to a direct competitor may be over. Your company may put noncompete forfeiture provisions in your equity awards.

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FAQ Table of Contents:


Process

What is the process of granting equity awards?

Stock grants, such as options or restricted stock, are typically determined by the group or person that sets cash compensation levels and bonuses at your company. The full board, compensation committee, or authorized officer of the company then...

UPDATES! How have the stock-market volatility and economic fluctuations of recent years changed corporate stock grant practices?

Changes in executive compensation and equity pay practices stemming from the downturn of 2008 and 2009 were extensive. Experts at consulting and research firms have been busily analyzing corporate stock plan practices since then, and their survey results show...

How much are my options worth at grant? This is premium content

Stock options often cannot be exercised until they are vested, and then they are profitable only after...

How does a private company decide on the size of a stock grant? Any data on grant sizes? This is premium content

Unlike public companies or large private companies that may have grant guidelines, most private companies determine the grant size by a combination of factors. Surveys show that...

What does it mean when someone says that employee stock options have both face (or intrinsic) value and time value? How do these concepts apply to financial planning? This is premium content

The value of an option consists of two elements: time premium and intrinsic value. Intrinsic value is the difference...

How is my stock grant's exercise price set? This is premium content

The full board of directors, the compensation committee, or an executive with expressly delegated authority...

How is fair market value (FMV) determined for setting my exercise price? What are common company practices? This is premium content

In most cases, your exercise price for stock options is...

Does the IRS have any rules on setting exercise prices? This is premium content

Only for ISOs directly, though even NQSO exercise prices need to follow the rules on nonqualified deferred compensation to avoid becoming discounted stock options. ISOs must be granted at a price which is at least equal to the...

What is the standard stock option term? Do options ever expire? This is premium content

You want to know the term of your grant to prevent valuable stock options from expiring. Most options are granted with a 10-year term, but some have a shorter life, such as...

If my restricted stock vests on a holiday or a weekend, is its value based on the stock price on the day before or the day after the vesting date? This is premium content

Usually, if the vesting date falls on a non-business day...

If my stock options are scheduled to expire on a holiday or a weekend, is the last possible exercise date before or after then? This is premium content

You need to check your stock plan's provisions and the procedures/practices followed by your company or any outside stock plan administration firm. Usually...

UPDATES! What is a stock grant agreement? Do I need to accept it?

A stock grant agreement is a form your company uses to grant you an equity award. Grant agreements can be in the form of...

What does a stock grant agreement look like, and what terms does it cover? Where can I find samples? This is premium content

Depending on the type of equity award, a stock grant agreement can have one or several pages setting forth a range of terms for you to review, including...

UPDATES! What guidelines do employers use to determine how many stock options or restricted shares to grant? This is premium content

Though this varies from industry to industry and among peer companies, most companies use a combination of...

What is the difference between variable and fixed stock option grant guidelines? This is premium content

With variable grant guidelines, your company determines grant size according to a target dollar value rather than...

How will I know which type of option I have been granted? This is premium content

Look at your grant agreement...

Is it better to be granted nonqualified stock options (NQSOs) or incentive stock options (ISOs)?

First, you may be eligible to receive only NQSOs, so read the FAQs on the requirements of ISOs...

Can I receive grants in more than one year? This is premium content

Yes. While almost all companies make awards to eligible new employees...

Will I be granted stock options and/or restricted stock automatically every year? This is premium content

Companies tend to grant options at hire and only periodically thereafter to reward performance...

My company granted me stock options and restricted stock under its 2008 plan. Why wasn't my grant under a plan of the current year? This is premium content

Some companies have more than one stock plan. When a company offers just one omnibus plan...

What is a "stock split"? This is premium content

A stock split occurs when a company wants to lower its share price to permit more investors to be able to...

What is "dilution"? This is premium content

Dilution refers to the effect of stock compensation on the other shareholders of a company. Each time an option is granted...

How does a stock split affect my stock option grants? This is premium content

Most stock option plans automatically adjust your options for the stock split. Your number of options will be...

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Rules

Do I pay any taxes when stock options are granted to me? This is premium content

In the United States and in most countries stock options are not taxed at grant. The Internal Revenue Code...

Do you have a chart that compares the tax treatment of stock options, restricted stock, RSUs, and ESPPs? This is premium content

The useful chart below gives the types of taxes, and when they are triggered, for various forms of equity compensation granted in the United States...

Must an employer grant stock options or restricted stock to all employees?

No. Companies are not required to have broad-based, company-wide stock grants, although they cannot discriminate in deciding who is eligible. Employers have extraordinary...

Are there any limitations on my company's discretion in granting stock options and/or restricted stock? This is premium content

Almost none, assuming the legal and other technical formalities are followed in creating...

Are stock options or restricted stock ever granted to part-time and hourly employees?

Many companies have broad-based stock plans that extend to the lowest-level employees, including hourly and part-time workers...

What is a "prospectus"? This is premium content

For a public company to issue stock options properly under federal securities laws, it must furnish each participant in its stock option plan with a "prospectus"...

Can the exercise price of outstanding stock options ever be raised or lowered? Can the options be repriced? This is premium content

Generally, the exercise price cannot be raised without your written consent...

How are the dates of stock grants set, and when are grants made? This is premium content

Amid concerns about the backdating and springloading of stock options, companies have tightened their procedures for approving stock grants and their timing. After grants are properly approved, companies are now...

Can I have the exercise price of a new stock option grant lowered or backdated? What is the controversy over backdating? This is premium content

Backdating has become a dangerous practice for companies, and courts have imposed prison sentences on corporate executives found guilty of backdating violations. Previously, in some new-hire situations your company might have been more flexible. Now companies try...

Can stock options be granted outside a formal stock plan?

Nonqualified stock options (but not incentive stock options) can be granted without a formal plan...

Can I be granted both incentive stock options and nonqualified stock options? This is premium content

Yes, as long as your company's stock-option plan permits both to be granted. The decision to do so belongs to your company...

Can my employer revoke a grant of stock options? This is premium content

No, except in very limited circumstances. For example, if you obtained your job by fraudulent means, your grant could be revoked...

When I am still working at my company, can it rescind, cancel, or reduce the size of my grant before vesting instead of firing me?

Not unilaterally. Although no law specifically addresses this question, courts have examined...

Can stock options be granted to union employees? This is premium content

Yes. Traditionally, however, union representatives have abjured equity compensation and profit-sharing for...

Are stock options ever granted to temporary employees? This is premium content

Rarely. Temporary employees are usually not employed long enough at a company to vest in stock options...

I work for a "professional employer organization." Can stock options be granted to me? This is premium content

Yes. Many startup companies cannot give their employees the benefits and human-resource assistance that are provided by large employers...

After a grant of stock options, am I treated as a shareholder?

You do not become a shareholder until you...

Can a grant of stock options be an insider-trading violation? This is premium content

Generally, no violation occurs if you receive a grant of stock options when you know secret stock-price-moving information about your company. However, the SEC has focused severely in recent years on...

In personal bankruptcy, can stock options be attached by creditors? This is premium content

It is unresolved whether in-the-money stock options that the bankrupt individual holds (1) constitute assets of the bankrupt party that are reachable by the creditors or (2) are...

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Job Events

What is the likelihood of receiving a new-hire or periodic stock grant? Any survey data or common practices? This is premium content

The likelihood depends mainly on your position, its salary grade, and/or your company's industry. Surveys of common practices among companies show that...

Are stock option and restricted stock grants negotiable? What terms are negotiable at hire? This is premium content

In most instances, stock grants are subject to the same types of practical limitations as negotiations for your cash compensation. For example, an employer may...

How many options have been granted to others in my company? This is premium content

Usually companies keep this information private...

How do I know whether I am being granted my fair share of stock options? Are grant guidelines available publicly so that I can compare my grant to others in my and different industries? This is premium content

Unless you are a senior executive of a public company who can compare grants at peer companies by looking at their proxy statements, or unless your company is willing to open its option records to you, you may never know whether you and your co-workers have been treated equally...

What should I do if I feel that I have been granted too few options? This is premium content

If you are convinced that you have been treated unfairly...

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Advanced

How common are premium, indexed, and performance-based stock options? This is premium content

Performance-based stock options, while uncommon, are granted more frequently to CEOs and senior executives, particuarly in a new hire situation, than to other types of executives or employees. In these types of grants, the exercise price is...

What are common criteria for receiving stock options outside the US? This is premium content

In its 2008 study of stock plans in many countries, the National Association of Stock Plan Professionals surveyed...

Why is dilution important to me? How do stock grants affect it? This is premium content

Dilution affects both publicly traded and privately held companies, and additional issues arise for private companies...

How common are noncompete provisions in stock grants? What activities can trigger a noncompete provision? This is premium content

They occur at many companies...

Why do companies do reverse stock splits, and how do they affect stock options? This is premium content

Reverse stock splits are an effort by a company to reduce the number of shares...

What is a "reload" or "restoration" option? How common are they in stock plans? This is premium content

This is a special feature included in a stock option at the time of grant. It provides for...

What approaches do companies apply to underwater stock options? This is premium content

The number of companies, and their employees, with underwater stock options has substantially increased, especially since the historic drop of the stock markets in October 2008. Various surveys and corporate examples show that...

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