Jun 28, 2017

Increasing the Value of Restricted Stock Units (RSUs) Through Deferral and Diversification

Many public companies have shifted to using Restricted Stock Units (RSUs) instead of restricted stock and stock options as a key component of executive pay packages.

Changes in accounting for executive compensation programs have contributed to this recent switch in the important area of long-term incentive programs for the executive group.

RSUs awarded to the executive represent a contractual right to receive, in the future, shares of company stock or a cash payment of equal value. The contractual nature of RSUs provides increased flexibility in terms of tax planning and capital structure.

Executive Benefit Solutions (EBS) was asked by a client company to explore ways to increase the value of RSUs for both the executive and the sponsoring company. The results of that work showed that a properly structured Deferred Compensation Plan (DCP) enables the executive to 1) defer RSUs in to the DCP, and 2) diversify at the appropriate time.

In a recent case study, EBS has shared a financial strategy to help the executive decide whether to defer RSUs in to the DCP.

In a new follow-up case study, EBS expands the thinking in this area with another wealth building strategy.

These two case studies highlight the following advantages to the executive of RSU deferral and diversification:

  • Flexibility to use RSUs for short-term needs
  • Achieving and maintaining full control of the RSUs
  • Using the DCP’s diversification feature, if available, to sell RSUs while deferred

And, the sponsoring company benefits by providing a meaningful and appreciated benefit which increases executive participation in the DCP.

Posted by: Hugh Carter, Managing Director, EBS-Richmond; hcarter@ebs-richmond.com

May 30, 2017

The President’s Tax Plan

From a macro perspective, what does President Trump’s Tax Plan mean to Corporations and Individuals?

In a recent analysis posted on EBS’s Resources section of our website, renowned Supply-sider Economist Dr. Arthur Laffer outlines President Trump’s Tax Plan with facts that support economic growth through lower Corporate and Personal taxation; as follows:

From a Corporate perspective, the Trump proposal spurs growth, reduces tax sheltering and encourages capital inflows into the U.S. The effects of the tax proposal address the federal deficit as well as the budgetary impacts to state and local governments. Obviously, with cutting the corporate tax rate from 35% to 15%, there could potentially be less tax revenues. But Laffer doesn’t believe that would be the case.

We know the top US Corporate statutory rate is 35% but because of tax sheltering the effective tax rate is closer to 13%. The 13% effective rate is still one of the highest compared to effective tax rates of other G20 countries.

For US based global companies the tax effects of a reduced corporate rate are even more beneficial. Approximately, $2-$3 trillion in funds (10%-15% of US GDP) are held abroad by US companies. If these funds were repatriated back to the US at more favorable tax rates the benefits would be enormous in generating more US output and creating jobs.

A major theme underlying the President’s Tax Plan is to stimulate incentives to work harder, longer and smarter. Clearly an entrepreneurial approach to increasing output! Obviously, companies will find profits more beneficial at 15% than 35%. Dr. Laffer states that productivity growth will generate more tax revenues in addition to more jobs, output and employment. He believes that with productivity increases in the 1.7% to 2.7% range that 3% GDP is achievable and tax revenues will not be a problem.

Dr. Laffer sites data that taxes do not redistribute wealth but taxes do redistribute people and businesses. Low tax states in the South and Southwest show large population gains and consequently a large percentage growth in those states’ adjusted gross income receipts.

From an individual’s standpoint, there are three proposed brackets (15%, 25% and 35%). The individual deduction will be doubled but mortgage and charitable deductions would be eliminated. The deduction for state and local income taxes would be terminated. AMT will end as well as the death tax.

To find out more about Dr. Laffer’s comments and insights on President Trump’s Tax plan download his complete overview in our Resources section: Dr. Laffer’s Analysis of President Trump’s Tax Plan

Posted by: Robert Flood, Managing Director, EBS-Boston; rflood@ebs-boston.com