Define: Performance Stock

Performance stock refers to a type of stock compensation that is granted to employees based on the achievement of specific performance goals or targets set by the company.

Performance stock differs from regular stock options in that it is granted based on the achievement of predetermined performance goals, whereas regular stock options are typically granted without any performance conditions.

Performance stock provides employees with a direct incentive to achieve specific performance targets, aligning their interests with the company’s goals. It can also serve as a retention tool and help attract top talent.

The performance goals for performance stock are typically set by the company’s board of directors or compensation committee. These goals can vary and may include financial targets, operational milestones, or other key performance indicators.

If the performance goals are not met, the employee may not receive the full or any portion of the performance stock grant. The specific consequences for not meeting the goals should be outlined in the stock plan or grant agreement.

Yes, performance stock can be subject to forfeiture or clawback provisions. These provisions allow the company to reclaim or cancel the stock if certain conditions are not met, such as the employee leaving the company before a specified period or engaging in misconduct.

Yes, there are tax implications associated with receiving performance stock. The timing and amount of taxable income will depend on various factors, including the type of performance stock plan and the employee’s individual tax situation. It is advisable to consult with a tax professional for specific guidance.

In most cases, performance stock cannot be transferred or sold until certain conditions are met, such as the achievement of performance goals or the passage of a specified period. The transferability of performance stock should be outlined in the stock plan or grant agreement.

The treatment of performance stock upon an employee’s departure from the company will depend on the specific terms outlined in the stock plan or grant agreement. In some cases, the employee may forfeit any unvested performance stock, while in others, they may be entitled to a pro-rata portion based on the achievement of performance goals up to the date of departure.

The conversion of performance stock into regular stock options is not common, as they are distinct forms of equity compensation. However, the terms of the performance stock plan or grant agreement may provide for such conversion under certain circumstances. It is important to review the specific provisions of the plan or agreement to determine if this is possible.