For P&G Employees:  

2019 P&G LTIP Bonus–What to Choose? Cash or Stock

You should consider electing to receive the 2019 LTIP award in options

  • Below is information comparing the receipt of the 2019 LTIP award in options versus receipt in RSUs.

  • The information is based upon a 4% growth assumption for P&G stock.

The Options:

  • P&G has given you a choice on how to receive your LTIP incentive award in 2019.

  • There is no longer a fixed RSU to stock option exchange ratio. Based on the November 1 example calculation provided by P&G, the exchange ratio is roughly 7:1. (Note, this is a 17% reduction as compared to last year’s terms with a ratio of 8:1). This analysis assumes a P&G price of $89.59.

  • In this analysis, we lay out an example scenario where a $100M RSU LTIP award is received in 7:1 options.

  • We have also included a calculator which will allow you to make your own assumptions.

But I have cash needs today (or in the near future) and too much P&G stock…I want the cash sooner:

  • With P&G currently trading at $94/share, consider exercising an older stock option to address your short-term cash needs,

  • This will allow you to:

  1. Get the cash you need today

  2. Reduce the risk of the options expiring at a lower price

  3. Reload your option roster with a new 10 year grant, which has more time value than options which expire earlier.

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  • A $100,000 RSU bonus today will be worth $146,121 in 2028, assuming 4% growth, 2% dividend growth, and you hold P&G stock for 10 years.

  • A LTIP bonus received in options offers 7x the value in P&G 10-year stock option shares, or 7,475 shares.

  • The STAR bonus in options is worth $283,468 or $137,347 more than the RSU bonus in 10 years, assuming 4% appreciation in the stock.

  • If you believe that the combination of P&G earnings growth and/or change in P/E ratio for P&G is less than 2.1% annually or 21% over the next 10 years, you may wish to consider taking RSUs.

  • In the event that P&G breaks-up and the options get truncated, the economics will be different. For example, if the options were truncated to 5 year, there is only a slight benefit to taking the RSUs ($6,674) and the break-even becomes 4.3%.

  • If you are considering leaving P&G without retiring or receiving a package, please be aware that you may be required to exercise your options within 30 days of leaving the company. This can impact the economics of holding an option vs a RSU.

  • As always, this information and your final decision should be reviewed in the context of your overall financial plan and your other P&G plans and benefits. We recommend you consult with your own professional team including your financial advisor, tax preparer, and estate planning attorney before making a final decision.

The information contained herein has been obtained from sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. The presentation is not intended to be either an expressed or implied guarantee of actual performance, and we assume no liability for damages resulting or arising out of the use of such information. This material is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. 

Past Performance is not indicative of future results.

 

This blog is limited to the dissemination of general information pertaining to its investment advisory/management services. This is not intended to be personalized investment advice. Please contact a Lenox adviser if you would like additional information.