Bruce Brumberg
A growing number of companies are making stock grants that base your profit on more than just your continued employment or an increase in stock price. As companies take a "portfolio approach" to stock compensation, you may be granted performance shares, which you receive only upon the achievement of specified goals. In Part 1 of this series, learn about the basics of performance share grants.
Bruce Brumberg
To maximize the value of a performance share grant, you need to understand its structure more than you do with standard time-vested restricted stock or stock options. Also consider expiration and the impact of job termination.
Bruce Brumberg
With performance shares, your payoff depends on more than just your continued employment or an increase in the company's stock price: your company sets a goal that must be reached. After this goal has been met and you have received the shares, what are the tax consequences, both at that point and later when you sell them? Plus, what would happen if your company were acquired before the end of the cycle?
W.E.B. Bantling
Many companies have turned away from stock options and begun to make outright stock grants that must vest before the shares can be issued. For employees, these grants have added a new layer of complexity to their equity compensation. This article presents six questions I get all the time from clients who have received restricted stock, restricted stock units, or performance shares.
Bruce Brumberg
myStockOptions.com
This PowerPoint presentation (in PDF) explains both fundamentals and quirks in the taxation of performance share grants, including potential IRS penalties and fines when certain rules are not followed. It also gives recommendations on what to explain to employees about performance share plans so that they understand them. Premium Members may request the source PowerPoint to use at their companies or with clients.
Don Durfee
CFO Magazine
Companies may now consider alternatives to grants of time-vested restricted stock, such as performance shares and units. Tying stock awards to performance goals raises new complexities beyond just pleasing shareholders.
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Companies use various names for the different types of performance-based awards. Generally, this website uses "performance shares" as an umbrella term covering all grants in which the vesting or payout of company shares is contingent on meeting predetermined goals. There are, however, three small differences among the various grant types...
Restricted stock shares are issued up front at grant, but you do not own them outright and cannot sell or transfer the shares until the time-based restrictions lapse. With standard restricted stock units the situation is basically similar, while with performance shares your company sets goals that must be met, such as...
Performance shares result in ordinary income to you. This occurs when the grant vests after specified targets are reached and shares are either delivered or paid out to you. Depending on the structure of the grant, this may occur in the year after the end of the performance period...
You need to complete Form 8949 and Schedule D for the year when you sold your stock and file them with your Form 1040 federal income-tax return. You do this even if...
Often you do not receive the shares right at the end of the performance period. Usually, your company will need...
Stock-based performance plans have targets that, when reached by the end of the measurement period, trigger vesting or payout according to the structure of the plan. Various surveys show that the most common metrics are...
Some companies accelerate the vesting schedule of restricted stock or RSUs if...
Not for standard time-vested restricted stock. These grants do not have a term, as stock options do. The vesting of restricted stock depends on...
Performance shares do not result in any taxable income to you at grant. You do have ordinary income when the grant vests after specified targets are reached and shares (or cash) are then either delivered or paid out to you. Depending on the structure of the grant...
Dividend rights are not mandatory. When a company pays dividends on outstanding shares of stock, it can also...
Delaying the delivery of RSU shares (and thus ordinary income taxes) at vesting depends on whether your company has a provision for this in its stock plan. The deferral needs to be structured correctly, as otherwise it can lead to tax penalties. Deferral is not...
For a change in control (e.g., a merger or acquisition), the performance period for measuring whether goal(s) are reached is cut short. Commonly, performance share plans...
The outcomes can vary and depend on your plan's design. If you leave your company to take another job before the end of the performance cycle, you usually lose all right to receive the grant. Surveys show that in these situations...
A summary of data in surveys from major consulting and research firms shows that...
Consulting firms have studied the use of stock compensation in both developed and emerging economies. Stock options remain popular, but interest is growing in restricted stock/RSUs and performance shares. Among surveyed countries...
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...
Not in the way stock options can. Restricted stock is worth the full market value of the stock when it vests (or, with restricted stock units, when shares are delivered). It does not matter if...
In these grants the exercise price is equal to the fair market price on the grant date, but the grant vests only when certain targets, such as...
Within two business days of any grant, you file Form 4 electronically under the SEC's Section 16 rules. However, while the filing rules for these grants are similar, there are some important differences that depend on the performance goals used...
This depends on what triggers vesting. Section 162(m) of the tax code limits your company's deduction to $1 million unless a senior officer's compensation over this amount meets the performance-based exception. Stock grants are structured to meet this by...
With stock grants of normal size, you face no tax impact beyond the standard tax treatment. ISOs may be converted to NQSOs should any acceleration of vesting cause...
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Tax 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.
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Performance Shares: The Basics (Part 1) 
