Employee 'share-save' scheme: a good idea????

tempuscat

Win/win then, definitely. Thanks, Twopints -- we were slightly confused that the letter mentioned a 15% discount on the rate prevailing in three years' time, but then also came up with a specific figure now.

TimC

I also work for a US company, and as all schemes are different this may or may not help?! Perhaps the confusion comes from there being a whichever is better option - in our scheme which only runs for 6 months at a time we get a 15% discount of the lower share price - either the beginning or the end. But we don't get the 1.9 times our monthly contribution either. Whichever is the case, my illustration assumes you get the price currently declared $16.29.

Things to take into account - the exchange rate if you hold the shares, you are at the mercy of both share price movement and the exchange rate movement - the exchange rate at which your shares are bought and at which you sell them, even if it is the same day can also go against you (or if you are lucky work in your favour). This is not usually a major factor, but may hit you if there are large movements between your shares being bought and your account being set up and you being able to sell them - second time participants wouldn't have this problem as they most likely have an account and all the necessary access.

Then there is good old benefit in kind tax - our scheme is not IR approved, so we get taxed on the 15% discount - this does mean that the capital gain is reduced which is probably not significant at this level. What can happen is that at maturity if the shares have increased significantly you get a big tax bill to pay, before you have had a chance to sell your shares - it can take a month for your trading account to be fully set up. All a bit confusing, but let me illustrate.

It did occur to me that the tax-free bonus has indicated that the scheme is approved - do check, it may be that the company actually commits to pay this after tax and will gross up the contribution, and then deducts the tax.

Using your figure of £10 a month over three years, running them through the spreadsheet our company provides and I'll use the exchange rates I got when I did a transaction last month.
£379 = $716.58 @ £1=$1.89072
This means he gets 51.75 shares at a discounted price of $13.85

Assuming the price stays at $16.29 his benefit in kind (BIK) is £66.88 and assuming standard rate of tax plus NI will cost him £20.06 - unless this is an approved scheme. Not a deal breaker!

Selling and security fees on our scheme for this would be $20.22 (and they are supposedly discounted) - he'll also need to complete a W8-BEN as a non-US tax payer to avoid any withholding taxes - the scheme managers will provide this - ours is all online through Smith Barney.

At the end with no move in share price and after fees, at a selling exchange rate of $1.92345 he'll get a cheque for £427.80 a grand profit of £47.73.

Of course he stands to make more if the price goes up:
Sale price ---- Benefit in Kind -- Profit
$16.29

---

£20.06

---

£47.73
$20.00

---

£50.53

---

£117.08
$25.00

---

£91.59

---

£210.55

All of which are more than he'll get by saving £10 per month, and these schemes have the escape clause. If the scheme is IR approved then you can add the Benefit in Kind on to the profit. And a final cautionary note - if the scheme is approved now, should Staples re-structure, spin-off a subsidary or similar the scheme may lose its IR approval, and BIK will be incurred (this happened to our stock option plan last year).

Good luck whatever you decide!

The fees breakdown is as follows on our scheme:
Sales Commission fee $0.25 cents per share = $5.18
Brokers confirmation fee $5.00
NYSE Securities Fee $0.04 ($0.01 for every $300 of proceeds).
Local Currency Cheque $10

tempuscat

Tim: great stuff! And a great help -- have pm'd you. :beer:

davidcampbell

very much a good idea. only wish i had invested more in mine last year as we look like we will not be continuing (at least in the near future) :mad:


DC

tempuscat

Thanks for the encouragement David -- as a result of all the great advice given here, our son has signed up for the scheme. :beer:

Gambler

I joined a scheme for a US company about 5 years ago. Monthly contributions were taken from our pay and used to buy shares at the end of each quarter at a 15% discount (taxable). I remember saying at the time that it was a gamble as if the share price went down there would also be the chance of redundancy !

How right I was !

The technology sector took a massive dive after 9/11 and the plant closed 3 years ago. I still have my shares which are currently trading at $15, they were over $100 when we joined the sheme.

We also bought the shares at an exchange rate of 1.4.

The staples sheme sounds like a much better option though.

TimC

Gambler wrote:

The technology sector took a massive dive after 9/11 and the plant closed 3 years ago. I still have my shares which are currently trading at $15, they were over $100 when we joined the sheme.

We also bought the shares at an exchange rate of 1.4.

The staples sheme sounds like a much better option though.

Sorry to hear that. Similar to my first dabble in our scheme - because my trading account was not set up immediately, the shares dropped the whole of the discount by the time I could sell, so of course I held on waiting for them to recover - and I'm still waiting - and as you say the exchange rate has added to the losses. This is why I warned about the time it took to set up the trading account.

So I stayed out of the scheme for four years before rejoining it with the rule that I use it as a savings scheme. I'm in at the full 10% of salary, and sold the last six month block within 2 weeks of getting the shares (was on holiday or it would have been sooner). They have gone up since then, but I made a nice small profit. I shall continue to use it as saving scheme unless my confidence takes a big leap - after all on the 6 month period that just ended I would have needed a regular savings account that paid 35% to make the same amount in 6 months! As you say, it is a gamble, but it is possible to minimise some of the risks - I can now shift my shares within 4 working days of the period closing if I wish, so would be very unlikely if the share price dropped 15% in that time, and should I not like what is happening can withdraw up to 1 week before the period ends.

The Staples scheme mentioned here, of course closes with a bonus being paid and then the option to buy shares - very nice - just a shame it is so long.