Your Nike Benefits – What You Need to Know

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In 2018 Nike opened Restricted Stock Units to their already generous benefit line up.  Now employees have the option of choosing either Stock Options, RSUs or, a combination of the two. 

The following content provides guidance—and highlights the benefits and drawbacks of each option choice.

RSUs (Restricted Stock Units)

An RSU is a grant of stock units that, after a specified vesting period, provides an employee with a pre-determined amount of company shares.  The vesting schedule for RSUs varies by company.  At Nike, the vesting schedule is typically 3-4 years.  You do not receive the stock until you are vested, but once vested the stock is yours and will always have value unless the stock price goes to $0.  

Many consider RSUs to be a less-risky investment. However, it is essential to remember that the realized value of your vested grant may increase or decrease depending on the movement of the stock price.  Once the stock vests, you may choose to either sell the stock immediately or hold it.  RSUs are taxed as ordinary income equal to the market value of the stock at the time of vesting.  One crucial planning consideration is that the actual tax due on the RSU is often higher than the amount of tax withheld at vesting.  This leaves many RSU option owners with an unpleasant surprise at tax time. 

At Human Investing, we help our clients plan for the additional they will need to set aside for taxes, thereby avoiding end-of-year tax surprises. Tax planning and anticipating future tax liabilities are important for both RSUs and Stock Options.

Nonqualified Stock Options

Nonqualified stock options differ from RSUs as they are an option to buy Nike stock at a specified price, called the grant price.  Nonqualified stock options can provide a considerable upside if the stock grants are held during a time of substantial growth in the underlying stock.   

The downside is that if the stock price does not rise above the grant price, the options will be worth $0 at vesting.  Another piece to monitor is that stock options expire if they are not exercised within ten years, leaving the owner without benefit.  When a stock option is exercised, it is taxed on the grant price as ordinary income.  If held for a qualifying period, there will also be a tax on long-term capital gains on the difference between the grant price and market price at the time of sale.

Making Your Choice

Ultimately, considering the following questions has the potential to improve your outcome.  Questions like:  How high is your risk tolerance?  What is your confidence in how the stock will perform in 3, 5, and 10 years?  Is your portfolio diversified or highly concentrated in company stock? Are you looking to retire or leave the company? 

While RSUs can provide more predictable income and tax planning, if you separate from the company, you will lose any RSUs that are not vested.   

Stock Options must be vested upon separation and are generally required to be exercised within 90 days of separation from employment.  This is a risk depending on the stock price at the time of departure.  There is one exception to this rule when you turn 55, but additional criteria apply.

Both Stock Options and RSUs are great benefits and a great way to build wealth. At Human Investing we walk our clients through these choices with a close look at their situation.  We help our clients to determine the best course of action with all their benefits with a comprehensive financial plan we call hiPlan

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