Restricted Stock › Performance Shares

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?

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.

This PowerPoint presentation (in PDF) explains both fundamentals and quirks in the taxation of performance share grants. myStockOptions Pro members may request permission to use it for company employees or financial-planning clients.

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...

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

When you have a performance award and leave the company for a standard reason (e.g. going to work for another company, being laid off) before the end of the performance cycle, you usually lose all rights to receive the grant, even if...

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...

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...

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 of your stock sale and file them with your IRS Form 1040 tax return. You do this even if...

A post-vest holding period is a specified length of time after you receive shares from an equity grant during which the company requires you to...

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...

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

The ability to delay 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...

Stock plans can be global, and in some countries they are more popular than they are in the United States. Consulting firms and other groups have conducted surveys about the use of stock compensation in both developed and emerging economies...

These unusual types of stock options, which are tied to company performance more closely than plain-vanilla options, are typically granted to...

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...

Section 162(m) of the tax code limits a public company's deduction for each "covered employee" in the year of income recognition to $1 million. In 2018, the Tax Cuts & Jobs Act (TCJA) eliminated...

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...

For restricted stock with vesting based on the length of time you are employed (i.e. time vesting as opposed to performance vesting), your company...