Due to the current situation, my employer is offering the opportunity to exchange a percentage of my salary for company stocks (not options, actual stocks), fully vested in 1 year at the lowest price between today’s value and the stock value in 1 year. The price I’m being offered is half the price paid during the serie F funding a few years ago, and revenue drastically increased since then, and it is fair to assume by looking at competitors/industry that I could easily see over 300% on the stocks I will own.
One key point is that we’re not public yet (IPO was supposed to be this FY), but might be in the near future. If not, then acquisition could be an option, but risk of the company failing seems really low given the industry and demand for our technology.
In any case, after that one year, my salary will be back at current levels (or higher if any raise in the meantime).
Lastly, if during the year I leave the company (by choice or forced), the money I deferred as part of this program will be refunded to me in cash.
What do you guys think? Too risky or enough safety mechanisms for this to be a calculated decision with high potential upside?
May be you forgot to disclose the most important part of information: what is the fiscal consequence of the choice getting the shares. If you have the choice this means you can live without that extra money today. If getting the shares will make lighter you tax bill then it is a sweet deal.
Indeed, it would reduce my taxes nicely this year and the next, but I’m assuming it would be negated by the taxes I would pay when selling the shares, right?
The taxation is a tricky subject. Taxation at grant? Taxation at exercise?
The STFA published several circulars on the taxation of shares and options for employees. Taxation will depend of multiple factors. It may depend as well of any tax ruling you company may have with the tax authorities.
Here below in French but also available in German.
Before accepting and as suggested by @bamboo make sure to understand all the tax implications.
Thanks @Guillaume_GVA for the documents.
I’ve just received an offer from my employer to convert up to 10% of my salary into shares of my (public US) company. The offer includes shares bought with a 15% discount from the lowest price between beginning and end (not the values in-between) of a 6 month period. To me this looks like free money. Worst case scenario, if I sell just after receiving them, I’m up 15%. It would take some days to sell the positions probably so that’s another risk unless i short them but it looks too good to be true. Could I be missing something?
You’re probably not allowed to short them if you still work for them at the time.
Do I understand correctly that they would give you 10% of your salary in shares, at the end of a 6 months period, with a conversion rate of min price share of begin and end of the 6 months - 15%.
The risk seems really low if so, only downside I can think of is opportunity cost (due to deferred comp).
But I really don’t get what the company gain, unless they have huge cashflow problems they hope to solve in 6 months? Sounds like this is an offer to increase salary by 1.5% in exchange for deferring the comp. If the company is slightly distressed, might be a better offer for them than whatever loan they could get.
Although I’m not yet part of it (but I plan to participate), my company offers the possibility to buy their shares with 15% discount. But as far as I know, if I sell before keeping them for 3 years, I would pay additional taxes on this discount, as it will be calculated as my additional income (I’m not 100% sure if my understanding is correct).
Taxes usually decrease with longer vesting periods - 3/5/10 years - something along the lines of 16/25/44%.
This is e.g. in comparison with receiving bonus as cash vs. shares.
But anything longer than the obligatory 3 years (which they are with my company) is more or less pointless in terms of tax savings vs. (CAGR) opportunity cost.
I’ll talk to my manager next week to double check.
I didn’t know that I couldn’t short my company. I’m not really planning to do it though, I’ll probably take the risk for few days.On the other side I don’t know if shorting some shares that you own in another broker would really not be allowed.
It looks like my company is doing it regularly. I don’t know why they are doing it exactly, maybe they believe that they can return more than that in the same period.
The nice thing is that the increase is minimum 1.5%, with the whole upside if the shares go up in 6 months…
There is no restriction, you can sell them as soon as you get them. I’ll try to understand if it makes sense to hold them a bit longer to save on taxes. Worst case scenario I’m increasing my gross salary and bit less my net salary.
Can anybody share some insights on the taxation rate when selling those stocks down the line? I’ve been reading those laws shared by @Guillaume_GVA but struggling to get clarity on this.
My company (the same?) has the same deal and it’s a no-brainer: you get 15% guaranteed. I can sell the shares the same I receive them and tax-wise, I get taxed also on the gain made (but if I were to keep the shares and they would go up then, not on that gain).
Do you know why they do that instead of simply giving RSU?
@baldur @paul @Giff do you know the implications in terms of unemployment in case of contract termination?
What I mean by that is that if for instance you’re reducing your income by X%, does that means you’ll get 70% of X% of your salary?
In my case, I can trade up to 25% of my salary for the next year in shares. If I get fired or leave the company during that year, they’ll give me back the 25% in cash as part of my last paycheck. I’m just wondering if my unemployment benefit will include that amount or if they’ll consider this a severance package and exclude it from my average income, hence only paying 70% of the 75%.
Unfortunately I have no idea, but it’s a very good question…
I am not sure I understand the question, but I am pretty sure if I get fire RAV will consider my official cash salary as starting point. I am just lending the company 10% of it for 6 months and they give it back to me in stocks, with interests.