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Stocks and Shares in Dubai UAE : Restricted Stock As a Compensation Tool

Stocks and Shares in Dubai UAE : Restricted Stock As a Compensation Tool. Dubai Stock Exchange : Stocks and Shares Trading in Dubai UAE. Invest Money in stocks and shares. How can I trade on the Dubai stock exchange? Can I invest in Dubai Stock Exchange? How do I buy shares? How do I start a trading account? How do I start investing in stocks with little money? How can I be successful in trading in Dubai UAE? How to Invest in UAE Stock Market.

Restricted stock is coming to a company near you. It is a non-qualified compensation arrangement that offers both executives and employees a stake in the company without the high volatility of option values. Last year Microsoft announced that its employees would henceforth receive restricted stock units (RSUs) in lieu of stock options. Amazon, Altria, and Progressive Corp have similarly begun to issue restricted stock to rank and file employees. More than 60% of companies surveyed by Mercer Human Resource Consulting in April 2003 said they were either introducing restricted shares or expanding their current program. There is a sea change in compensation afoot… and much to learn about it.

Stock market declines since 2000 have left many stock option programs under water. As much as 50% of outstanding stock options would have no value if exercised today. If recent trends continue, there is a good chance that your employer may substitute some other form of compensation for stock options. According to the consulting firm Watson Wyatt, RSU grants are generally made to employees earning $80,000 or more.

Why now? Apart from the decline in technology stock values, regulators have been pressuring companies to immediately expense options. Companies need not recognize restricted stock expenses until they vest with the employee. Also, many of yesterday’s high flying tech companies have grown up. Microsoft is a cash cow that has been a public company for 20 years. Restricted shares offer its more mature work force a stake in the firm that will always be worth something as long as the company is around.

Corporate scandals have also called into question the incentives offered by stock options. They can increase dramatically in value with relatively small changes in share price. Executives laden with stock options might be tempted to make decisions designed to enhance short-term stock price appreciation at the expense of the long term health of the company. So how does restricted stock work? These non-liquid shares effectively mimic the value of publicly traded stock. The key difference is that there are limits as to its disposition. It typically cannot be sold or pledged prior to vesting. There is usually a graduated vesting schedule that must be satisfied before the employee is able to sell shares. For higher level executives, performance criteria must be met in order to release the shares. These vesting schedules resemble those in place for stock options. Many plans provide for accelerated vesting in the event of death. In that case, the value of the stock becomes income with respect of the decedent (IRD) and is included in the employee’s estate.

Even before restricted shares vest, the employee receives ongoing dividends. The employee has less flexibility as to tax liability compared with stock options. Ordinary income tax is recognized on the value of stock as it is released to the employee. Payroll taxes are also due during the tax year in which restrictions lapse. Tax liability can be delayed if RSUs are issued in lieu of the stock itself. The former is a contractual promise to issue shares at some future date after they are vested. Employees with RSUs receive dividends and enjoy voting rights. Microsoft uses restricted-stock units.

Most restricted stock plans impose barriers on the transfer of value even after shares vest. Often employers request that their employees hold on to stock. The SEC may prohibit employees considered insiders from selling within 30 days of an earnings announcement. Remember… the employee owes taxes on the value of vested stock regardless of his ability to dispose of it. That creates a potential liquidity problem. Employees should set aside cash in advance of major vesting events so that they can afford the tax liability.

Another stratagem available to the employee is an election under section 83(b) of the Internal Revenue Code to pay taxes on the fair market value of the stock within 30 days of the grant. Thereafter, no income taxes are due on the stock when its restrictions lapse. However, appreciation on the stock once it is sold is taxed at the long term capital gains rate. Such an election is fraught with peril in that subsequent deductions may not be taken in the event that the stock price declines or the stock is forfeited. The employee is agreeing to pay taxes on income that may never be received.

There are probably two sets of circumstances where an 83(b) should be considered. The first is where the employee already has a substantial business loss or a deduction to offset the income from the election. Another case would be when an employee has restricted stock in a private company that is expected to go public at a considerable premium to its current value. Those cases are few and far between now but were quite common in the 1990s.

Like options, restricted stock poses some significant concentration problems with client portfolios. In addition to having human labor capital tied up with their employer, share grants offer even greater exposure to the company fortunes. Many employers have no practical access to hedging tools or are proscribed from doing so by their employers. In extreme cases, it may be useful to underweight the market sector of the employer in the balance of the plan participant’s portfolio. In most cases, it makes sense to sell the employer stock as soon as it vests. The best places for the proceeds are diversified equity or bond funds. Once taxes can no longer be deferred, portfolio diversification becomes a paramount concern.

Stocks and Shares in Dubai UAE
Stocks and Shares in Dubai UAE

Stocks and Shares in Dubai UAE : Restricted Stock As a Compensation Tool. Dubai Stock Exchange : Stocks and Shares Trading in Dubai UAE. Invest Money in stocks and shares. How can I trade on the Dubai stock exchange? Can I invest in Dubai Stock Exchange? How do I buy shares? How do I start a trading account? How do I start investing in stocks with little money? How can I be successful in trading in Dubai UAE? How to Invest in UAE Stock Market.

There is a lot of money to be made from stocks and shares but the only hitch is nobody knows a sure fire way of a method. Let us now see some of the basics of stocks and shares. You can earn money in two ways by investing in stocks and shares. One is trading and the other is investing. Buying and selling stocks, shares, futures and options over a short period of time is known as trading. If you buy shares, stocks, futures and options and retain them for a longer period of time then it is known as investing.

When it comes to searching for the best stocks and shares prices, you will want to do some research. Prices vary greatly for many reasons. It will depend on the company, the amount available, why they are up, and any other fees associates with making the investment or trade. One of the most important things to keep in mind when you are going to get into stock and share trading is that it is for real and it is for keeps. This is real money you are playing with when dealing with stocks and share, your money.

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