Earning From Shares

[gautat]

Hey Group,

I have a one quick question for you. I have been offered some 300 shares of company which I joined very recently. Those offered shares are not part of my annual salary package.

Now my question to you is can I show the earning from shares in my past year earning criteria. I was awarded this shares 3 months back when I joined a company.

I have read somewhere that you can show earning from shares just wants to double check. If yes what evidence are required ? Letter from HR or finance stating the same would be sufficient ?

Second question is because I am working in India but the company is headquartered in US and listed in US NASDAQ stock exchange and the price for each share is in US currency. So in letter from HR the total earning from share has to be in INR or US$ ? as my earning from salary is in INR. Would it make any difference?

and the price of shares are fluctuating every hour so on which basis HSMP team will consider the price of the share.

Many thanks

[John]

can I show the earning from shares in my past year earning criteria ...... the price of shares are fluctuating every hour so on which basis HSMP team will consider the price of the share

As at the point in time when the shares were allocated to you the shares will have had a value. I think it is that value that you have been given. What happens to the share price thereafter in IMHO irrelevant.

Not only the share price when they were allocated to you, but also the rate of exchange at that time.

Your employer could probably help you with these figures. After all there are probably tax implications on you receiving the shares so the company will need to know the figures that also concern you.

But are you sure you have been given actual shares? Or have you been given some sort of Share Option? If so, what are the terms of that option?

[gautat]

Hi John,

Thanks for your kind reply. Well you are right. Its a stock option not the actual shares.

I was awarded 300 numbers of shares at the strike rate of $9 when the price of that share used to be approx $12. Now it also has some locking period of 5 yrs. So my confusion is which figure I can show it in earning criteria. I believe the difference of $3. Secondly for my past 1 year income can I show all the 300 numbers of shares or number of shares/5 I dont have history of what was the exchange rate at the time when It was awarded. And I should have 3 exchange rate when it was awarded. Conversion from USD to INR , INR to GBP, USD TO GBP which is very tough to get.

Even I am not sure about tax implications because those shares are locked for 5 yrs. I think tax comes into a picture
when case comes in my hand.

Any advise on how to dealt with this.

Thanks

[John]

Hi, as regards the historical exchange rate this website should give you the answer.

Which just leaves the general principle ... can the value of a Stock Option be included in earnings for HSMP purposes? On the facts as laid out by you about US$900 was given to you, but can that be counted?

Sorry, I personally know the answer to that technical question. Anyone more knowledgeable on that detailed point like to comment?

[MWazir]

IMHO, the stock options have no monetary value and neither are they an asset to you at this stage. If you are offered $9 for a share that currently cost $12, then whats the guarentee that the share price after 5 years will remain $12. It may be $20 or $4. You cannot attempt to show income on contingent profits. What happens if the prices go down the year after. Are you going to show loss of income?

The term earnings from shares only refers to any dividend that you may have recieved from the shares. Being a taxable and supplimentary income that can be shown. As you yourself have stated, that will not happen until the options are converted to shares in 5 years time. If you are procurring shares at a lesser value than the market, then at worst it can be called a capital gain (I doubt though), also an income though a one time income. In your case, have you spent $9 a share to be awarded a $12 share?

Share options are only an incentive to an employee to ensure they last a distance. Thats the reason you have a locking period. Again IMHO, it doesnt always work because during the locking period any number of variables may crop up to change the scenario including a better and more attractive offer for you from a rival company thus rendering the share options no more value than the paper they are written on. Another example would be the actual fate of the company. If it goes upwards, all well and good. I have read scenarios where after 5 years employees choose not the excerise the share option because the market price is below the value offered in the share option, in this case $9.

Its only after your share options become shares that they actually have any recongnised value outside your company. There is no tax implication of any sorts on you, not for share options, not for the next 5 years.

[gautat]

Thank you so much John,MWazir for excellent explanation.

I have not spent singnle penny for any stock option. Its just what I have been offered as part of my salary package and you are absoulately right this is just to attract and part of employee retention policy.

Even my employer got scared hearing my requirement about giving me letter on company letter head stating this is my income which can be or can not be. It all depends upon how the company is growing. However the company I am working is in list of Fortune 500 and among world's most reputed software companies and growth rate every quarter is about 15 to 20% but you never know.

As per my employer words, anything that goes with Stock option is only decided by CEO's office and any communication regarding this should come from them. We are no way involved into it.

Actually my confusion is If I can show a little amount of approx 500GBP, I can claim for 10 more points and so I am fighting for it. But Looks its very tricky and not worth going for it.

Thanks

[sjgul]

Gautat,

The number of stocks vested and if you have exercised them , then you can show them as part of your earning else I assume you can't.

regds,
sjgul.

[MWazir]

Actually my confusion is If I can show a little amount of approx 500GBP, I can claim for 10 more points and so I am fighting for it. But Looks its very tricky and not worth going for it.

I can fully understand the need to accumulate as many points as possible to be very sure to your approval. I would be very suprised though if you get those extra 10 points on the basis of your share options.

All the best with your application.