Frequently Asked Questions

There is no taxable event when performance shares are granted. A taxable event occurs once you meet a performance metric and shares are delivered. This often occurs after the board meets to certify the attainment of said goal. At that time, the value of the delivered shares is taxed as ordinary income subject to Social Security and Medicare tax.

A performance award is generally issued with a target number of shares, an achievement timeline, its metric(s), and a minimum and maximum award. Minimum/maximum awards are typically based on how effectively you meet your metrics, such as whether you reach 0%, 50%, 100%, 150%, or 200% of your target within the designated timeline.

For example, a simple illustration may look like this:

• Target Shares: 5,000
• Timeline: 3 Years
• Performance Metric: Net Revenue
• Payout Thresholds
  • Minimum: 0% of Target
  • Target: 100%
  • Maximum: 200% of Target

There can be variations on every offer, so always read the fine print which is most likely to be found in your grant agreement and notice than in the stock plan itself.

Performance Stock Awards (PSAs or PSUs), are meant to reward executives based on their contributions to a company’s objectives and overall progress measurably and harmoniously. The more deliberately a company can structure its executives’ performance share metrics, the better it can align executive incentives with its particular values and vision. If the executives rise to the occasion, the business should thrive along with its share price, and everyone should win: shareholders, executives, the company, and its clients.

Thus, while typical RSUs and stock options can contribute to a company’s success, a well-designed PSA program can potentially drive success and efforts in a way other forms of equity cannot.