PSUs and Insider Rules Confound Executive in New Role

PSUs and Insider Rules Confound Executive in New RoleValeria “Val”, 43, a rising sales leader* for a west coast IT company, was named president last year. She’s been a high company performer for years and is no stranger to noncash awards. Her new role calls for new equity compensation and insider filing responsibilities. Val was granted Performance Stock Units (PSUs) with complex features and performance targets.  With this PSU grant, she’ll have Insider status and needs to learn about compliance with SEC Insider rules. She must now file Forms 3, 4, 5, and obtain approval prior to any sale as she will gain pre-clearance and follow other rules that are new to her.

Known for driving revenue growth, Val moves fast and is very much in demand. In fact, she has been offered a 20%-higher offer to her six-figure salary if she moves to a similar role for a private IT company nearby.  While the offer is attractive – so much so that it is distracting her at the moment -- she wants to approach it analytically.  Val does not have a firm grasp on the value of what she’d leave behind in equity awards. That’s in part due to the complexity of the performance targets.

What is she incented to do? Even though she expects to reach performance targets, nothing is certain.

She has been granted 9,000 PSUs in which vesting target is  predicated on three performance elements, each worth one-third of the shares:

  • Absolute shareholder return – if stock price increases x% over three years, the PSUs vest
  • Relative shareholder return – if stock price increases x% relative to other IT companies, the PSUs vest
  • Profitability target – if her division meets its revenue or profitability targets, the PSUs vest

Given the trajectory of her division, she expects to reach 150% of profitability target; and since her division is a big part of company performance, she believes this will translate to an overall 130% vesting of her grants when relative and absolute performance elements are considered.
She needs help to quantify the impact of her equity compensation over three years. At that time, she plans to buy a second home in Deer Valley. What would she give up over three years if she moves for the higher salary? And, if all works out at her current company as she believes it will, how large a balloon payment could she make when the value of the PSUs are realized?

She’s been referred to SFG to find:

  • A safe place to evaluate her compensation and job options
  • Ongoing monitoring of her equity compensation, assistance with SEC filing guidance, dates and triggers
  • Comprehensive planning to optimize her corporate and other financial assets

In consultation with SFG, Val was able to review a range of three-year outcomes for her PSU awards if she stays, which substantially exceed the 20% salary increase offered by the private company. She also has a fresh perspective on her equity compensation and an advisor to help her optimize her equity awards.  

*The name, likeness, and circumstances in this example are a fictional composite of facts from executives similar to actual SFG Clients.

Chuck Steege is President of SFG Wealth Planning Services, Inc., SFG Investment Advisors, Inc. (SFG), a fee-only financial planning firm. Founded in 1993, SFG is dedicated to assisting senior executives and their employees with their complex stock-based compensation and planning challenges.

Tagged: executive compensation, sfg wealth planning services, performance shares, performance awards, executive compensation issues, certent, steege, insider
Posted In: Executive Compensation, Performance Shares, Performance Stock Units, Planning