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'For FedEx employees, understanding and using equity compensation is important for long-term wealth accumulation,' said Tyson Mavar from The Retirement Group, a division of Wealth Enhancement Group. 'The effective use of your equity options can greatly affect your financial position without putting you over the top in terms of exposure to market risks.'
Wesley Boudreaux of The Retirement Group at Wealth Enhancement Group recommends that FedEx employees treat equity compensation as a strategic tool that helps meet both short- and long-term financial objectives,' noting, 'It is important that employees find the right balance between the advantages of stock options and RSUs in order to get the best outcome for their investments.'
In this article, we will discuss:
Types and Advantages of Equity Compensation: In this article, we will look at different types of equity compensation options like stock options and restricted stock units (RSUs) and the advantages that employees of FedEx companies get from it.
Strategies for Increasing Returns and Reducing Risks: Step by step instructions for how FedEx employees can take advantage of these equity options so as to reduce their financial risks.
Tax Implications and Optimization: A guide on the tax treatments of various equity compensations and how to minimize tax liability when exercising or selling these equity assets.
Equity compensation, also known as stock compensation or share-based compensation, is a form of non-cash payment to certain number of employees in the form of restricted shares and stock options. Not many people who have been through this perk are allowed to do so, but they are able to own a part of the companies they work for and a part of the companies’ profits.
This is especially common with startups, which cannot afford to pay out high salaries and, therefore, include some form of stock options in their offers to make the offer more attractive and to encourage the employees to work harder. Hence, if you are an employee of a FedEx company, equity compensation may be something you want to consider, depending on the financial standing of the company you work for.
In theory, the better you perform at your job, the higher the value of FedEx and its stock will rise, and the more you will make when and if you decide to sell your shares in the company. It’s usually a win-win situation.
When accepting a job offer however, as FedEx employees, it is important to know how to take advantage of the benefits of stock options without being exposed to the risks. The first step is to understand the basics of the language that has been used.
Equity Compensation
It is crucial to first understand the types of equity compensation awards, the advantages of each, and how they are taxed.
Stock options:
A stock option is a grant that allows you to buy shares in FedEx’s stock at a fixed price, known as the strike price, for a limited period of time (usually 10 years). As with all equity compensation, stock options are designed to tie you down to FedEx for longer periods since they are usually subject to vesting. This means that you have to be employed by FedEx for a certain period of time as determined by the company to be able to exercise (or buy) the stock that you were granted.
What is the advantage of having stock options? If FedEx is doing well, then your strike price on the stock will be lower than the fair market value of the stock once your options vest. This means you can buy FedEx shares at a lower price and sell them at the higher fair market value. This can lead to a huge return if the price of FedEx shares rises over time. At the same time, if the stock price declines and never rises above the strike price, your options may expire as worthlessness.
As FedEx employees, it is important to determine the current standing of the company you work for before accepting any form of equity compensation. This is to avoid incurring losses in case of a decline in the share price.
As FedEx employees with in stock options investments, you may want to understand how until you exercise your stock, you’re not putting any of your capital at risk. In this way, FedEx stock options enable you to have skin in the game without having to put money down. Up front.
Non-qualified Stock Options vs. Incentive Stock Options
There are two types of stock options: Non-qualified stock options (NSOs) and Incentive stock options (ISOs): NSOs would allow you to buy FedEx shares at a certain price, while ISOs would allow you to buy stock at a lower price with certain tax advantages. As FedEx employees, you need to know the advantages of NSOs and ISOs so that you can plan for your financial goals effectively when you consider investing in stock options.
Restricted stock units
RSUs are the most common type of equity compensation for FedEx employees and are usually provided to private companies after they have gone public or have become more stable. Like stock options, RSUs are vested over time, but unlike stock options, you do not have to buy them. Once they vest, they are no longer restricted and are treated exactly like if you had bought FedEx’s shares in the market.
In this manner, RSUs are less risky than stock options. If your stock price doesn’t drop to $0, they will always be worth something. As FedEx employees who are looking for more conservative returns and higher stability, you may want to consider RSUs as an alternative for you.
For example, let’s say that you are granted 10,000 RSUs that vest over four years and the stock price stays at $10 for the whole four years (that is, it does not rise as it usually does). The value of the RSUs is therefore $100k. In this same situation, stock options that have a strike price of $10 would be entirely worthless unless the stock price rises.
Like stock options, RSUs are also vested over several years. It is common to receive one-fourth (1/4) of the RSUs you were granted after your first year of employment, and every month after that, receive another one thirty-sixth (1/36) of the remaining grant. When you do your taxes, the value of the shares is going to be taxed as ordinary income on the day that they vest. Also like stock options, RSUs are tied to keeping employees with FedEx for longer because they vest over time.
Negotiate, Assess, Exercise, and Invest
Now that you have learned some of the terms, it is time to put your knowledge into practice. Here’s what you need to know about how to negotiate, evaluate, exercise, and invest your equity compensation in a way that will benefit you (and your wallet) as a FedEx employee.
Negotiate
As FedEx employees, you should negotiate it just like your cash salary. For instance, a company may offer you a $75,000 cash salary together with $20,000 worth of RSUs that vest within the next four years. For illustrative purposes only, assuming that the value of FedEx remains constant, you would be able to receive $5,000 of company stock per year, which would bring your cash plus stock compensation to $80,000 annually.
If you were looking for something closer to $90,000, you could ask for more cash salary, more RSU grant, or both to meet your desired income. Since stock compensation is generally tied to the success of the company, employers tend to prefer to give more stock than cash.
FedEx companies usually provide options or RSUs as part of the first job offer and annual or annual bonus refreshers. For instance, in one high-profile example, Jamie Dimon, the CEO of JPMorgan just received a bonus of 1.5 million stock options that will vest over five years as an incentive to make him more likely to stay with the company.
At the manager level, FedEx companies may even allow employees to receive a portion of their salary in RSUs instead of cash. For instance, you could be offered a total compensation of $100k and FedEx could allow you to take the full amount in cash or up to 75% in RSUs. You would come out on top if the company shares go up in the future.
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Evaluate
In addition, as FedEx employees, you must know the amount of company stock you should hold. To ensure that you do not concentrate your investments around a single entity and incur both the benefits and the risks that come with it.
As we have seen in the last 12 months, a downturn in the economy can wipe out people’s financial safety. At the onset of the global pandemic, companies like Zoom and Amazon experienced a rise in market gains while stocks of companies like American Airlines and Marriott took a nose dive. As employees of FedEx receiving equity compensation it is helpful to determine how much you own in your company stock compared to your net worth; this includes not only your salary and vested equity compensation but also your unvested equity compensation and future salary.
If you want to put a number to it, consider this hypothetical scenario: Let’s say you earn $100k a year, and you get $20k of RSUs each year that vest. You have been working at FedEx for four years and have done a great job of saving. You have $100k in cash, and you have $100k in company stock. This means that you have invested 50% of your savings in the company stock, and you may be putting all your money into FedEx. Equity in FedEx should be part of a balanced approach to accumulating wealth. In order to have a balanced portfolio, you will either need to invest your cash salary or diversify some of your equity compensation by investing in other assets. Consider diversifying over a few years.
This is what I would suggest to someone employed at FedEx and in this situation: Now: $100k cash, $100k company stock Year One: Take $60k of the cash and either invest it in the stock market or bonds depending on your risk tolerance, and keep $40k in case of emergency. Then, when you get new RSUs that are no longer restricted (that is, when they vest), you should sell the RSUs and use the money to buy other stocks. This will have minimal tax consequence. You should also consider another $20k investment in FedEx stock to balance diversifying and paying taxes.
Cash: $40k Diversified portfolio: $80k Company stock: $80k Year Two: This is because, unlike RSUs, the new shares that vest are not subject to tax consequence, plus maybe another $20k in FedEx stock to balance diversifying and paying taxes. Cash: $40k Diversified portfolio: $120k Company stock: $60k Year Three: This is because, unlike RSUs, the new shares that vest are not subject to tax consequence, plus maybe another $20k in FedEx stock to balance diversifying and paying taxes.
Cash: $40k Diversified portfolio: $160k Company stock: $40K Year Four: This is because, unlike RSUs, the new shares that vest are not subject to tax consequence, plus maybe another $20K in FedEx stock to balance diversifying and paying taxes. Cash: $40k Diversified portfolio: $200k Company stock: $20k At the end of the fourth year, your FedEx company stock is worth just under 10% of your portfolio, as opposed to the 50% you started with. (In general, you should not invest more than 10% of your investments in one company’s stock.)
Therefore, continue to manage future RSUs and other equity compensation in the same manner. No matter what your situation is, the main question you should always ask yourself as a FedEx employee is: “What would my financial situation look like if my company stock was cut in half tomorrow or, in the worst-case scenario, dropped to $0?” This will affect everyone at FedEx but you need to make sure it won’t destroy your finances. That typically involves having an investment portfolio that is appropriate for each major financial goal that you have and an emergency savings account to cover your basic needs for three to twelve months.
Optimized Sales Taxes
There are several ways to diversify your portfolio as FedEx employees. Some are more tax-efficient than others. For example, selling recently vested RSUs or recently exercised non-restricted stock options (NSOs) will likely have minimal tax consequence.
If you hold exercised incentive stock options (ISOs), it would be useful to first sell your stock options that meet the special holding requirement (that is, you have held the shares for two years from the grant date and one year from the exercise date) before selling your stock options that do not meet the holding requirement. Stock options with a special holding requirement are taxed as long-term capital gains and the tax rates for long-term capital gains are lower than regular income tax rates.
Finally, it is advisable to sell company stock you have acquired through FedEx employee stock purchase plans (ESPP) last. ESPPs are company stock benefits that enable employees to purchase company stock at a lower price than the market (usually 5-15%). You contribute to the plan through your pay deductions — just like you contribute to a company 401(k) — which then accrues between the offer date and the purchase date. ESPPs are often a great benefit for employees, but selling ESPP shares can result in higher taxes than selling shares acquired through RSUs and both types of options.
This is generally a good direction for those employed at FedEx to follow, but everyone’s situation is unique. If you require assistance with diversifying your portfolio while minimizing taxes, then you should consult with an accountant or financial advisor who specializes in equity compensation. It’s all about being tax smart without letting the taxes on equity compensation drive your diversification decisions.
Maximizing Tax-Savings Opportunities
You should consider investing the proceeds from your equity compensation into tax-advantaged accounts, which are savings accounts that are taxed today or in the future or that offer other tax benefits. For instance, you could use the money you make to cover your ongoing cash needs to max out your 401(k) or Roth 401(k) at FedEx. You could also use the proceeds to fund a traditional IRA or a Roth IRA.
The traditional 401(k) and IRA versions provide a tax benefit at the beginning, the Roth versions provide a tax benefit at the end, and both provide a tax benefit while the account is growing. If you are enrolled in a health savings account (HSA) at FedEx, you can use the proceeds from your equity compensation to contribute to this. HSAs also provide a tax benefit at the time of contribution and at the time of withdrawal as long as they are used for a wide array of qualified medical expenses.
Sources:
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Kiplinger's Personal Finance. 'Using Equity Compensation for Retirement Planning.' Kiplinger, 2024. www.kiplinger.com . This source discusses the benefits and risks of using equity compensation for retirement, emphasizing the importance of understanding vesting schedules and the potential impact of market volatility on retirement planning.
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Remember Equity Compensation When Planning For Retirement.' Morgan Stanley at Work, Morgan Stanley, 2024. www.morganstanley.com . This article provides a comprehensive view of how equity compensation fits into long-term retirement goals, offering strategies for maximizing these benefits while managing potential risks.
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3.How to Think About Your Equity Compensation as You Near Retirement.' Zajac Group, 2024. www.zajacgrp.com . The Zajac Group provides detailed advice on managing equity compensation as retirement approaches, focusing on strategic planning for exercising stock options and handling vesting schedules.
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Balancing Equity Compensation and Retirement Planning.' Wade Financial Advisory, 2024. www.wadefa.com . Wade Financial Advisory discusses strategies for integrating equity compensation into retirement plans, emphasizing diversification and tax planning to optimize financial outcomes.
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Safeguarding Your Retirement: Diversifying Equity Compensation for Long-Term Security.' Grunden Financial Advisory, 2024. www.grunden.com . This blog offers strategies for diversifying equity compensation to reduce reliance on a single company's stock, highlighting approaches to manage tax implications and enhance retirement security.
What are the implications of the Funding Target Attainment Percentage for FedEx Corporation employees, and how does it impact the security of the pension benefits offered by FedEx Corporation? This question seeks to explore the nuances of the funding target attainment percentage as reported in the annual funding notice, examining how this metric not only reflects the financial health of FedEx Corporation's pension plan but also how it affects employee confidence in future benefit payments and retirement planning.
Funding Target Attainment Percentage: The Funding Target Attainment Percentage for FedEx Corporation indicates the degree to which the pension plan is funded. A percentage of 101.33% for 2022 suggests that the plan has sufficient assets to cover its liabilities, providing security for employees' pension benefits. This high percentage likely increases employee confidence in the stability and reliability of their future pension payouts, essential for long-term retirement planning.
How does the merger of the FedEx Freight Pension Plan into the FedEx Corporate Employees’ Pension Plan influence the benefits currently available to FedEx Corporation employees? This question aims to delve into the practical changes that may arise due to this merger, assessing whether it aligns with employee expectations regarding their pension benefits and how the transition process is managed by FedEx Corporation.
Merger of Pension Plans: The merger of the FedEx Freight Pension Plan into the FedEx Corporate Employees’ Pension Plan appears to have been strategically managed to maintain benefit stability. Despite increasing liabilities by 5.3%, the merger was structured to ensure no negative impact on the benefit amounts payable to participants from either plan, preserving the expected pension benefits for all affected FedEx Corporation employees.
In terms of investment strategies, what measures does FedEx Corporation implement to ensure that its pension plan investments align with the long-term liabilities expected to be paid out to retirees? This question encourages an exploration of the investment policies in place, examining the asset allocations and risk management strategies that FedEx Corporation employs to ensure sustainable funding for its pension obligations, which could potentially include detailed analyses of stocks, debts, and alternative investments.
Investment Strategies: FedEx Corporation employs a diversified investment strategy across equities, fixed income, and alternative investments, aiming to meet long-term pension liabilities. This approach, which includes both active management strategies and the limited use of derivatives, is designed to generate returns that exceed market indices, thus ensuring adequate funding of pension obligations.
What options do employees of FedEx Corporation have for accessing their pension plan statements, and how frequently are these statements generated? The focus here is to understand the communication strategies employed by FedEx Corporation regarding pension benefit statements, including technological access points and the importance of these documents for employee financial planning.
Pension Plan Statements: FedEx Corporation provides annual pension plan statements through their Retirement Service Center, available electronically each fall. Employees can access their statements online or request them if notifications are not received, ensuring transparency and aiding in personal financial planning.
How are contributions to the FedEx Corporation Employees’ Pension Plan determined, and what role do excess contributions play in the plan's overall funding strategy? This question aims to educate employees about how the company balances mandatory contribution levels with potential excess contributions, exploring how these factors interact to influence the plan's solvency and employee benefits.
Contributions to the Pension Plan: Contributions to the FedEx Corporation Employees' Pension Plan are calculated to meet at least the minimum legal requirement and potentially include voluntary excess contributions. These excess contributions can help manage the plan's funding level and ensure its solvency, benefiting overall pension security for employees.
What types of benefits are guaranteed under the Pension Benefit Guaranty Corporation (PBGC) for FedEx Corporation employees, and what limitations exist that employees should be aware of? By focusing on the guaranteed benefits, this question prompts a discussion on the security of specific benefits provided by FedEx Corporation and highlights limitations, allowing employees to understand their rights fully.
PBGC Guarantee: The Pension Benefit Guaranty Corporation guarantees certain types of benefits for FedEx Corporation employees, such as pension benefits at normal retirement age and most early retirement benefits. However, there are limitations, such as exclusions for benefits without vested rights and recently increased benefits, which employees should be aware of to fully understand their pension security.
In what ways does the FedEx Corporation plan to adjust its pension funding strategy in light of changing federal laws that impact pension obligations? Employees are encouraged to consider how legislative changes influence corporate policies surrounding retirement benefits and the proactive strategies FedEx Corporation might take to remain compliant while ensuring the security of employee pensions.
Adjustments to Funding Strategy: FedEx Corporation is likely to adjust its pension funding strategy in response to legislative changes affecting pension obligations, such as those introduced by recent acts adjusting how pension liabilities are calculated. This proactive approach aims to ensure compliance with new laws while continuing to secure the financial health of the pension plan.
What are the steps that FedEx Corporation employees must take if they are considering retirement, particularly in how to navigate the pension plan and gain access to their benefits? This question aims to provide clarity on the retirement process, ensuring that employees are equipped with the necessary information regarding required documentation, timelines, and points of contact within FedEx Corporation.
Steps for Retirement Planning: Employees considering retirement should contact the FedEx Retirement Service Center to navigate their pension plan benefits. This process involves understanding necessary documentation, timelines, and available support, facilitating a smooth transition into retirement.
How does FedEx Corporation plan to manage potential funding shortfalls in the pension plan, and what mechanisms are in place for notifying plan participants should such an event occur? Employees would need to understand the proactive measures put in place by FedEx Corporation to address funding-related challenges while also knowing what this means for their benefits.
Managing Funding Shortfalls: In the event of potential funding shortfalls, FedEx Corporation has policies in place to manage such situations, including strategic contributions to mitigate shortfalls. The company maintains transparency with plan participants about funding levels and any significant changes affecting the pension plan.
For those seeking more information about their pensions and retirement options, how can FedEx Corporation employees contact relevant departments, and what resources are available for assistance? This question provides an opportunity for employees to familiarize themselves with contact points such as the FedEx Retirement Service Center, emphasizing the importance of open communication channels for addressing inquiries related to their pensions. Feel free to consult the provided document for more in-depth exploration of these topics.
Contacting for Pension Information: FedEx Corporation employees seeking more information about their pensions or retirement options can contact the FedEx Retirement Service Center. This center provides essential resources and support, ensuring employees have access to all necessary information regarding their retirement planning.
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