The NASPP Blog

I see a lot of articles providing advice to employees on stock compensation, much of which focus on things like knowing what type of award you have and how it is taxed. While this information is important, I feel like it doesn’t really get to the heart of the matter or address employee’s most pressing questions concerning their stock compensation. So today I have my top six things your employees need to know about their stock compensation.

1. Just because your option/award is vested, doesn’t mean you should sell.

Likewise, employees shouldn’t hold an option just because it isn’t expiring soon. Employees should primarily base decisions to exercise stock options and sell option or award shares on investment-related considerations: the percentage the shares represent of their net worth, their tolerance for risk and the level of risk involved in holding the option/award/shares, and how they plan to use the gains.

2. Just because you work here, doesn’t mean the stock will always increase in value.

When deciding to hold an option/award/stock, employees should ask themselves if they are prepared to accept a situation where the stock loses all its appreciated value and becomes worthless. Of course, employees should also ask themselves if they are okay with losing out on future appreciation if they sell now.

3. Tax considerations shouldn’t drive investment decisions.

While it is important to know the tax treatment (see #4), ultimately, this is an investment and the primary drivers of decisions regarding options/awards/stock should be grounded in sound investment strategies (see #1).

4. Taxation of stock compensation is tricky–be careful, be very, very careful.

Wash sales, AMT for ISOs, ill-advised Section 83(b) elections, and losses on ESPP disqualifying dispositions are just a few of the potentially disastrous tax traps that abound in stock compensation (and, starting in 2011, add Form 1099-B cost-basis reporting to this list).

5. Know what you have, when you’ll have it, how long you’ll have it for, and what you have to do to secure it.

Employees should make sure they know their grant type, vesting requirements, termination and expiration conditions, transaction procedures, and other key grant terms to ensure they don’t inadvertently lose out on any benefits.

6. Don’t believe everything you read on the internet!

Employees should be especially wary of the stuff they read in anonymous discussion forums (and should never look to these forums for answers to their own questions). Some of the misinformation out there on stock compensation is downright horrifying.

You might want to review your educational materials to make sure they address these topics (especially #6). For information on stock compensation that is always accurate and is easy for employees to understand, check out mystockoptions.com and “Consider Your Options” by Fairmark Press.

The 18th Annual NASPP Conference
Hear some great ideas for educating employees at the session “Effective Electronic Education and Communication” at the 18th Annual NASPP Conference, from September 20-23 in Chicago. Register for the Conference today.

NASPP New Member Referral Program Extended!
Due to overwhelming demand, we have extended the NASPP New Member Referral Program to September 3. But don’t wait–we won’t be able to extend the deadline again. Use our sample email today to get started on your referrals today, so you have plenty of time to qualify.

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 

• Register for the 18th Annual NASPP Conference. 
• Refer new members to the NASPP so you qualify for the August raffle and Conference discount available through our New Member Referral Program.
• Complete the Compliance-O-Meter quiz on Resourcefulness.
• Take the “Question of the Week” challenge.
• Renew your NASPP membership for 2010 (if you aren’t an NASPP member, join today).
• Don’t miss your local NASPP chapter meetings in Austin and the Carolinas.

– Barbara