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Restricted Stock: Performance Shares


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Performance Shares: The Basics (Part 1) This is premium content

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.

Performance Shares: Grant Structure, Expiration, And Job Events (Part 2) This is premium content

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.

Performance Shares: Taxation And M&A (Part 3) This is premium content

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?

Stockbrokers' Secrets (Part 8): What I Tell My Clients About Their Restricted Stock And Performance Shares This is premium content

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.

Performance Shares: Taxes & Communications

Bruce Brumberg
myStockOptions.com
This PowerPoint presentation (in PDF) explains both fundamentals and quirks in the taxation of performance share grants.

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What are the top 10 questions I should ask about my company's performance share plan?

You should know the answers to the following questions. Understanding the topics involved will help you make the most of your performance share grant and prevent costly mistakes...

Does this website's content on performance shares also apply to performance share units or performance-vesting RSUs?

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...

What is the difference between restricted stock and performance shares or units? This is premium content

Shares of restricted stock 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...

How is my performance share grant taxed, and how are taxes withheld? This is premium content

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...

W-2 diagram! What will my W-2 show after the vesting of performance shares? This is premium content

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...

Form 8949 and Sch. D diagrams! How do I report a sale of performance shares or PSUs on my federal income-tax return? This is premium content

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...

How soon after the end of the performance period do I receive the shares? This is premium content

Often you do not receive the shares right at the end of the performance period. Usually, your company will need...

What types of company goals are most commonly set for performance shares and units? What do surveys show about the performance metrics and periods that companies use? This is premium content

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...

Is the original vesting schedule ever accelerated by reaching performance milestones or special goals? This is premium content

Some companies accelerate the vesting schedule of restricted stock or RSUs if...

Does a grant of restricted stock or performance shares have an expiration date, as stock options do? This is premium content

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...

Do I get dividends with performance share awards? How are they taxed? This is premium content

Dividend rights are not mandatory. When a company pays dividends on outstanding shares of stock, it can also...

With restricted stock units and performance shares, can I defer the delivery of the shares at vesting? How is this taxed? This is premium content

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...

What would happen to my performance shares in an acquisition of my company? This is premium content

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...

What would happen to my performance share grant if I were to lose my job, retire, become disabled, or die? This is premium content

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...

What do surveys and examples reveal about the effects of expensing, stock market trends, and other developments on equity compensation? This is premium content

A summary of data in surveys from major consulting and research firms shows that...

How common are stock options, restricted stock, performance shares, and ESPPs outside the US? Do surveys show trends? This is premium content

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...

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...

Can restricted stock and performance shares go underwater? This is premium content

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...

UPDATES! Can my stock option grant be designed to vest only when certain performance targets are reached? This is premium content

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...

I am a senior executive. When and how do I make my Form 4 filing for restricted stock, restricted stock units, and performance shares? This is premium content

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...

Will my company be able to take a tax deduction for the value of my restricted stock, restricted stock units, performance shares, or stock options if my compensation already exceeds $1 million? This is premium content

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...

Does the accelerated vesting of my stock options, restricted stock, and/or performance shares in a change of control or termination have any tax impact on me, such as for ISOs and golden parachute payments? This is premium content

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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