Learn how Microsoft’s stock compensation and incentive plans can help you achieve your financial Goals
Restricted Stock Units:
Microsoft loves to compensate and award employees with stock awards. These can be given for several reasons, such as hiring incentives, annual compensation, and achieving specific work goals. Microsoft gives out these shares mainly through Restricted Stock Units (RSUs). These RSUs are granted to Microsoft employees based on a vesting schedule and are the most straightforward form of equity compensation. The year that the RSU shares vest will create a tax liability, and the value of the shares will be included on the employee’s W-2. For more information about the tax considerations of RSUs, please see our article describing the taxation of Equity compensation here.
As mentioned above, RSUs can be given for several different reasons. The reason the RSU was given can determine the vesting schedule of the shares. Below is the vesting schedule for the two most common forms of RSUs that Microsoft gives:
On-Hire Stock Awards: These RSUs typically vest 25% yearly over the first four years after being hired. The shares will vest based on your employment anniversary, not the calendar year.
Annual Stock Awards: Microsoft employees are evaluated yearly to see if they are eligible for new stock awards. The vesting schedule for these stock awards tends to be 20% a year over five years. The 20% is vested in 5% increments throughout each year (They are granted in February, May, August, and November). Annual stock awards will be evaluated and given out in August every year.
There are also RSUs that Microsoft offers in special circumstances and to those in management positions. These RSUs can have different vesting schedules from the RSUs listed above. It is advised that you meet with a financial planner to discuss how any RSU can impact your current cash flows and tax liabilities and how they can help you achieve your retirement goals.
Microsoft’s Employee Stock Purchase Plan:
Like many other large corporations, Microsoft allows its employees to buy their stock at a discount through an Employee Stock Purchase Program (ESPP). The ESPP allows Microsoft employees to set aside some of their after-tax paychecks to purchase Microsoft stock. Microsoft allows their employees to differ up to 15% of their salary into the ESPP annually. Then, the funds will be used every quarter to purchase Microsoft’s stock at a 10% discount from its Fair Market Value. As with all forms of compensation, there are inevitable tax consequences to consider with Microsoft’s ESPP. For more information about the tax considerations of ESPPs, please see our article describing the taxation of Equity compensation here.
As always, it is advised that you meet with a financial planner to discuss the amount you should set aside for an ESPP. A financial planner will also work with you to determine the best times to sell your stock purchased through the ESPP and diversify your investments so that you do not have too much of your net worth tied to Microsoft’s stock.
If you would like help navigating the best route for your specific situation related to equity compensation, please feel free to reach out to us here at Rhame and Gorrell Wealth Management for a complimentary financial plan review. Our CPA and CFP® professionals have years of experience and are happy to help answer any retirement questions you might have.
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