Investment Focus: Employee Share Options

This post is dedicated to my colleagues who I just recently found out are following my blog (and know that it’s me writing).

Yellow! Whadup. XD

A little backstory regarding employee share options

When I was given the offer to work in my current company, I noticed they didn’t have a retirement plan. That was weird; my previous ones all had great plans starting at 5 years of stay in the company (though I never got to that long). BUT the HR person I was talking to said that they have employee share options as an alternative. Huh? How is that an alternative?

Only when I finally joined the company and subscribed to my first share options did I understand the logic behind this.

Basically, the company offers their shares at a discounted price and on top of that, matches your purchase given you hold on to this investment for a number of years. It does contain the same conditions as a retirement plan!

During my first year in 2016, the company offered shares:

  • at 20% discount
  • matched the first Php52,000 investment at 100%
  • and matched the next Php41,600 at 50%

To illustrate, here’s a sample computation of what you’ll be getting if you invested to maximize the company matching:

eSOp 16

To maximize the company matching, you need to invest Php93,600.00. The company matches Php72,800.00 on top of that. The total fund now of Php166,400.00 is used to buy shares at a 20% discount so you technically buy Php208,000.00 worth of shares.

That’s Php114,400.00 free money or 122.2% return at Day 0!

And that’s what I actually did. Let’s see how much is my investment now:

eSoP actual 16

I work for a European multinational company. Hence, the shares are traded and valued in Euros.

Eur5,055.59 converted to Php today is: Php281,323.56.

eSoP 16 converted

Wait, you estimated only Php208,000.00 initially. Why such difference?

  1. Share appreciationJust your typical stocks doing what it does. This could mean the other way around to so beware of the risks!
  2. Forex upside. The Euro was cheap vs. the Peso when I bought shares last year compared to now.
  3. Dividends. Though in this scenario I haven’t actually found out if I did receive dividends, but it should have been imputed already in the value above.

Need I say more for you to take the chance to subscribe to this amazing company benefit? It’s even paid thru 12 months installment at no interest, and automatically deducted from your salary!

But let’s go on to the limitations:

  • There is a minimum amount of Php550. There is also a maximum amount which is 25% of your annual salary.
  • There is a holding period of 5 years. BUT there are early exit events which will permit you to withdraw your investment. This includes resigning from the company.
  • There are taxes involved. Please don’t ask me about this. I’m allergic to tax.

In general, I don’t really see these as disadvantages and share options still is a really good investment vehicle especially if you believe in the performance and profitability of your company. Again, to sum it up, my Php93,600.00 is now worth Php281,323.56. It sounds like a scam but it isn’t. And because I actually just discovered how to check the fair value of my shares, and for the longest time valued it at the initial amount, I will incorporate this to my next net worth update now! Hihi.

Unfortunately, I don’t know of other companies who offer such benefit so I cannot really gauge how good ours is compared to industry standard. So let me know if your company has this benefit! And if you’re my officemate, let me know if you need more insights into this, including how to navigate the tool where you can monitor your investment. Let’s discuss!

 

Cheerios,

Maven

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