Lunchtime Links: Your employer may soon sell some of your deferred stock to pay your tax
The FSA has got a new guidance note out on deferred remuneration. This clarifies the fact that the already-vested portion of stock bonuses (considered as part of cash compensation under the EU bonus rules) has to be held for at least six months.
It also says that employers can sell some of this stock as soon as it's awarded to meet employees' tax liabilities.
Under the FSA's example, someone receiving a bonus of 100k will have 60% of it deferred (over 3 years) and 40% of it paid upfront. However, half of the upfront payment will be in ready-vested stock which must now be deferred for 6 months.
In the past, this created issues as recipients were being taxed (probably at 50%) on the full value of the upfront payment, including the stock element, even though they didn't receive it immediately. Their cash bonus was wiped out as a result.
The FSA suggests that banks may want to mitigate this by selling half the upfront stock payment the moment it's issued and paying the employee's tax liability out of that instead. This all sounds fine - unless the stock price happens to be abnormally low at the time the employer sells it, in which case employees will lose out.
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