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Does your company offer employee stock ownership or option programs? More and more companies do, especially in emerging technology and medical sectors.
Such programs allow companies, particularly those with tight budgets and significant start-up costs, to recruit top-tier talent with modest compensation but the promise of future gains. Or, in the case of established outfits, these employee stock programs reward workers with a share in the company’s success without adding to immediate labor costs.
But sometimes such employee stock benefit programs get overlooked. In the case of new hires, it may be that the offering was lost in the often hectic onboarding process. Or there might be a waiting period before qualifying for a stock ownership benefit program. Or perhaps the program was added to a company’s benefit offerings well after an employee joined.
Regardless, if your company offers stock benefits, it may be wise to take a close look.
There are different stock programs that vary from employer to employer, including:
- Stock Options
- Restricted Stock Units (RSUs)
- Employee Stock Purchase Plans (ESPPs)
- Employee Stock Ownership Plans (ESOPs)
Your Human Resources (HR) department will typically provide a benefits manual that dives into each of their stock offerings, but these tend to be long and difficult to understand. So, what can you do? (Related: A financial checklist for your first job)
Here are four easy steps to get started:
Know the basics
While full understanding of advanced employer stock programs isn’t necessary to get started, it is advisable to know at least the basics and the differences between types:
- Stock Options: The opportunity to purchase shares of employer stock at a predetermined price.
- Restricted Stock Units (RSU): Shares of employer stock awarded as part of compensation.
- Employee Stock Purchase Plan (ESPP): Offers discounts of up to 15 percent on the purchase price of the employer’s stock.
- Employee Stock Ownership Plan (ESOP): A way for employees to acquire ownership of shares in their employer’s company while participating in potential growth and tax advantages.
Lean on HR
HR is there to help. Don’t hold back from asking questions or sharing your concerns. Often, one can feel uncomfortable asking for assistance but consider that most of your coworkers may be in the same situation. If not offered yet, ask your HR department if they could provide some employee financial wellness workshops focused on the company’s stock plan.
Talk with your financial professional
With many employer stock programs requiring knowledge in both tax law and investments to effectively navigate, stock programs can be complicated even for financial professionals. The best way to help your financial professional or accountant is to ensure that they have copies of all your benefits paperwork. (Learn more: How a financial professional adds value)
There may be a lot of fine print to go over, which the accountant can use to help anticipate your tax filing for the year and your financial professional can use to help manage risk and diversification.
Think about your values and goals
Shares of your employer's stock fit into your financial big picture; you just need to figure out how.
While inattentively acquiring and selling shares of employer stock may work for you, it is not a cohesive plan. It’s important to understand the basics and to collaborate with your financial professional before investing. Otherwise, you may find yourself in a situation where your portfolio is not efficiently managed to meet your goals and is not reflective of your values. (Related: Investing basics)
Conclusion
Working at a tech or pharma company is as busy as it is exciting, so many of these companies are happy to incentivize employees with stock benefits. Employer stock benefits meet at the crossroads of financial goal planning and tax efficiency — two subjects many of us aren’t passionate about. But with the trend of employers rolling out financial literacy programs, the future is promising.
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