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Short term stock prices can matter--a lot!

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  • Short term stock prices can matter--a lot!

    This is financial whimsy and some of you will be quite bored, but here is a real life example where I was tracking the price of a stock very closely over the last several weeks and every 30 mins or so throughout the day today. It also illustrates one of many incentive-based methods for which non-MD professionals receive their compensation.

    The set up is that my wife works for a Fortune 500 company (Company A), and part of her compensation is incentive-based, a stock grant, which is allocated at the beginning of a year and vests over three years, to be paid out in the spring of the following year (Year 4). The kicker is that the pay out can be modified, up or down, depending on the three calendar year performance of Company A's stock, compared to a pre-defined group of peer companies. In 2016, the 2013 shares were granted at 200% (meaning twice the allocated shares), and my wife had easily her highest earning year ever.

    Well, this year it was really down to the wire. In order to receive 100% stock compensation, Company A has to have a three year trailing return in the top half of the peer group. Otherwise, the stock allocation is 50%.  I checked the three year trailing returns of her company and the peer group on 12/26/16, and the results were as follows.

    Company A (wife's company)--17.00% annualized, and just barely inside the top 50%.

    Company B -- 16.86%

    Company C -- 16.76%

     

    Last night (12/29/16), I checked the stock prices and was disappointed to see the following:

    Company B -- 17.14%

    Company C -- 17.14%

    Company A -- 16.92%  My wife's company was now in the bottom half. Bummer!

     

    Today, I was following the price action all day long, and the day ended with all three down but B and C were down considerably more than A. I thought we were back on top. When I checked the Morningstar returns, it showed the following:

    Company B -- 16.87%

    Company C -- 16.82%

    Company A -- 16.68%  Again, my wife's company fell (barely) in the bottom half. So close. We will have to wait for the final tally and analysis by an independent accounting firm (I am hopeful that today's dividend distribution still needs to be accounted for) , but if my analysis is correct, we would have add a 100% grant (about $120k) on Monday morning, but as of Friday evening, we are looking at half of that (still better than a sharp stick in the eye!) after a very modest decline in the stock price and virtually negligible difference between the competing companies in the upper half of the group!

     

     

  • #2
    How is it worded? Total return or some other adjusted value? It would be a bummer if a dividend made the difference, though its much more likely rebalancing of funds from stocks to bonds to maintain their ratios this end of the month is the real culprit.

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    • #3
      Hoping for a 100% for you and your wife.

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      • #4
        That was a fun one - kind of like an all-day version of the KY Derby. Good luck to you and your wife, what a huge differential for a few hundredths of a point.
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #5




          How is it worded? Total return or some other adjusted value? It would be a bummer if a dividend made the difference, though its much more likely rebalancing of funds from stocks to bonds to maintain their ratios this end of the month is the real culprit.
          Click to expand...


          There is a 15 page document that describes the program, and it is overseen by an independent accounting firm. I also believe that the Board may have some discretion to fudge things, so I am keeping my fingers crossed for the 100%.

          I am not sure that rebalancing should have an effect, as any of the three companies would face the same buy/sell pressures, all being similar in size and in the same industry.

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          • #6
            As WCI says, first world problems/concerns for sure. Hope it turns out in the positive for you though.

             

             

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            • #7
              Wow!  Hopefully the bean counters can rule in your favor

              That is the biggest thing I don't like about the stock market.  It's entirely outside of your control, even when it's the company you work for.

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              • #8




                As WCI says, first world problems/concerns for sure. Hope it turns out in the positive for you though.

                 

                 
                Click to expand...


                When you live in the first world, every problem is a first world problem.

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                • #9
                  The final results are in. The stock allocation is 93%, so we made out better than I expected. Then again, my wife threatened to go to the jeweler this weekend, so maybe not as big a win as I was hoping for.

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                  • #10


                    hat my wife works for a Fortune 500 company (Company A), and part of her compensation is incentive-based, a stock grant, which is allocated at the beginning of a year and vests over three years, to be paid out in the spring of the following year (Year 4). The kicker is that the pay out can be modified, up or down, depending on the three calendar year performance of Company A’s stock, compared to a pre-defined group of peer companies. In 2016, the 2013 shares were granted at 200% (meaning twice the allocated shares), and my wife had easily her highest earning year ever. Well, this year it was really down to the wire. In order to receive 100% stock compensation, Company A has to have a three year trailing return in the top half of the peer group. Otherwise, the stock allocation is 50%.  I checked the three year trailing returns of her company and the peer group on 12/26/16, and the results were as follows. Company A (wife’s company)–17.00% annualized, and just barely inside the top 50%. Company B — 16.86% Company C — 16.76%
                    Click to expand...


                    Congrats! I'm happy you got (mostly) the outcome you were hoping for.

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