The ability to own a piece of the company you work for—in the form of restricted stock or stock  option awards—used to be reserved mostly for a company’s top executives. Now employees at many levels receive these “equity awards” as a way to boost compensation, reward good work and build company loyalty. These are typically stock option awards or shares of restricted stock in your employer’s company.

Sixty-five percent of companies say stock plan programs motivate employees to support the success of the company. Yet almost half tell us that educating employees about stock plan features and benefits is their greatest challenge.*

To help these companies and their employees, earlier this year, Charles Schwab introduced its Equity Award Consultation Team, a service that offers information and personal assistance to both executives and employees of firms that are clients of Schwab Stock Plan Services.

The members of this team are experienced on the ins and outs of equity awards. When I asked them for their top five most useful tips for employees who want to get the most from their awards, here’s what they had to say.

1. Don’t overlook your awards just because they were provided to you at no-cost. Unlike your bonus check which can be immediately cashed and put towards savings or a family vacation, stock option awards and restricted stock may not be liquid (ie, able to be used as cash) at the time they are awarded. Sometimes, there is a tendency to forget about them, since these types of rewards may take years to “vest,” or become available to sell.

2. Get educated. Equity awards can be foreign territory, even for experienced investors. If you work with a financial professional (broker, financial planner, accountant), be sure to discuss your awards with that person.  In general, you may need to take your education into your own hands. Ask your employer for information about your equity awards. You’ll want to understand concepts like “vesting” and “expiration dates,” for example. Gain an understanding of how stock option awards work, how they are valued and how and when you can take full advantage of them. 

3. Treat your options like the investment they are. It’s wise to be proactive and plan ahead regarding how your equity compensation fits into your overall investment strategy. If you work with a broker or financial advisor, be sure your options are included in your overall planning.  Be aware of how much of your investment holdings (including 401k, stock purchase plans, and equity awards) are concentrated in your company’s stock in the form of options.

4. Understand the tax ramifications. Equity award transactions often require specific tax treatment.  Because of this complexity, it’s a good idea to work with a tax advisor before you exercise or sell anything. 

5. Time can work for or against you.  Unlike a normal investment, options have an expiration date.  Without a plan in place, time can slip away, and you might be forced to exercise your option awards at a less than ideal time. 

If you are fortunate enough to work at a publicly-held firm that provides equity awards to employees, reward yourself by making sure you understand how to make the most of them. They are a bit more complicated to manage than an extra day off, but their potential to grow makes them worth the effort.
 

Information provided by the Equity Award Consultation Team is not intended to be a substitute for specific individualized tax or legal advice. Where specific advice is necessary or appropriate, please consult a qualified tax or legal advisor.

Schwab Stock Plan Services provides equity compensation plan services and other financial services to corporations and executives through Charles Schwab & Co., Inc.

* Charles Schwab “Taking Stock” survey, 2009

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