Microsoft Stock Award Agreement: Understanding the Basics
If you’re an employee of Microsoft, you may have heard of the term “Stock Award Agreement” (SAA). An SAA is a contract between Microsoft and its employees, outlining the terms and conditions of a stock award that the employee may receive as part of their compensation package.
But what exactly is a stock award, and how does it work? Let’s dive into the basics of the Microsoft Stock Award Agreement.
What is a Stock Award?
A stock award is essentially a grant of shares of a company’s stock to an employee. This can serve as an incentive for employees to work harder and contribute more to the success of the company, as the value of the shares increases over time.
At Microsoft, stock awards may be granted to employees in a few different forms:
1. Restricted Stock Units (RSUs): These are units of stock that will vest over time, usually based on the employee’s continued employment with the company. Once the RSUs vest, they will convert into actual shares of Microsoft stock that the employee can either hold or sell.
2. Performance Stock Units (PSUs): These are similar to RSUs, but they are granted based on the company’s performance. For example, a certain number of PSUs may be granted if Microsoft meets certain financial targets.
3. Stock Options: Stock options give the employee the right to purchase shares of Microsoft stock at a certain price, known as the “strike price.” If the stock price increases above the strike price, the employee can purchase the shares and sell them for a profit.
What’s in a Stock Award Agreement?
When an employee receives a stock award, they will also receive a Stock Award Agreement that outlines the terms and conditions of the award. The agreement will cover important details such as:
– The type of stock award being granted (RSU, PSU, or stock option)
– The number of shares being granted
– The vesting schedule (i.e. when the shares will “vest” and become available for the employee to sell or hold)
– Any restrictions on selling or transferring the shares
– Any performance criteria that must be met in order for the award to fully vest
– Tax implications of the award
It’s important for employees to carefully review their Stock Award Agreement and understand the terms and conditions before accepting the award.
How Does a Stock Award Affect Taxes?
One of the most important factors to consider when receiving a stock award is the tax implications. When a stock award vests, the value of the shares becomes taxable as ordinary income.
For example, let’s say an employee receives 100 RSUs that vest over a four-year period. Each year, 25 RSUs will vest and become available for the employee to sell or hold. When those 25 RSUs vest, the value of the shares will be taxed as ordinary income at the employee’s marginal tax rate.
There are also capital gains taxes to consider if the employee decides to sell the shares. If the employee holds the shares for at least one year before selling, they will be subject to long-term capital gains tax rates. If they sell the shares within one year, they will be subject to short-term capital gains tax rates.
The Microsoft Stock Award Agreement can be a valuable part of an employee’s compensation package. Understanding the basics of how stock awards work and the terms and conditions outlined in the agreement can help employees make informed decisions about their financial future.