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Please explain shares vs. bonus money
Hi Money Board! I am a frequent poster on the Book Club board, but lurk here occasionally. I am confused about work bonuses and shares in the company. Here's the story:
My husband works for a 30 person company with 6 partners. He usually receives a Christmas bonus, and I knew he would this year because the company has had a really good year and H is one of their best employees. He had his meeting with the partners today and was offered a bonus that was about $2000 more than I expected. He was also extended an offer to buy shares into the corporation. There are 1600 shares and he can buy 5 initially and 5 more later in the year. The partners told him that it is a start and that as the partners retire over the next 2-10 years they are looking for replacements and this is the first step to getting some "skin in the game". The partners are offering the shares to him at a big discount of the value. So 5 shares is expected to cost about the exact same amount as the offered bonus money. SO, the short story is that he has a BIG BONUS and a BIG OPPORTUNITY which will effectively eat up all of said bonus.
My husband seems all excited about the offer to buy the shares, but I don't understand. Aren't they saying, here's some money, but you need to give it back to us now if you ever want to make partner? That doesn't sound great. I feel like I would rather have some cash now! But I guess turning down the offer for that tiny piece of ownership would look really bad, right? Someone tell me this is a good thing because I was REALLY counting on being able to use that bonus money.
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Re: Please explain shares vs. bonus money
They are offering him an opportunity to invest his money in a company that seems to be growing. So basically as PP said, a little money now for the possibility of a lot of money later! If he is getting the shares at a discount, I would imagine that he could turn around and sell them immediately for more money than he's putting in, but I don't see why he would want to do that. No investment is a sure thing, but based on the info you've given, it sounds like a great opportunity!
I'm just thinking that it will take me 685 hours working at my second job to make the money it will cost to buy these shares. That's 685 hours of me being away from my family. But I guess he probably has to buy this share in the "ownership" (no voting rights, no say in anything) so they know he is a loyal employee. Darn it, I wish they would have just given the money OR the shares, so I didn't have to let this bother me.
OK, you all seem to think it's a better deal than to have a few grand right now. Deep breath. *Waves dream of paying off student loan principal early bye-bye.*
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I am not saying not to do this, but a point to consider is the double jeopardy issue here.
Owning shares in your company that you work for is making yourself two times as exposed to a financial disaster. Let's say the business went under and your DH became unemployed. Double jeopardy. He loses that job and the shares in the company all go away. If he lost his job, but the money they gave him were elsewhere in his own account, he would keep that money safe.
Example: My dad works for a design/build firm. Years ago, the company was doing really well and offered shares to the employees for their retirements. It was all ponies and roses. Then the economy tanked and the business went into bankruptcy and was bought by an international corporation. All the shares that my dad's coworkers had for their retirement savings disappeared. Just gone. These guys had nothing. Thankfully, my dad took his money and put it elsewhere to further diversify himself prior to this occurring and he was untouched.
DH's uncle is a commercial airline pilot. Again, years ago the pilots got share stakes in the airline. The airline went bankrupt. Money all gone. Many of these pilots were furloughed (laid off but with possibility of recall in "airline speak"). So, again they were hit two times.
DH's airline merged a few years ago with another carrier. In the deal the pilots got stock shares. Last quarter DH sold all of his because he did not want to hold stock in the same company he worked for.
It's just a point to consider maybe now or for the future. He may need to balance this with being a team player...showing he is vested in the company. Congrats on the success for him!
I used to own stock in the company I worked for as part of my 401k. My financial advisor put it this way. It is ok as long as it is part of a balanced portfolio.
Where people get into trouble is when their entire retirement portfolio is in their company's stock. Honestly, this is a bad idea even when it isn't in your company.
You need to have a diversified portfolio where his company stock is just a portion of your investments.
Yeah, I think your point on a "balanced portfolio" is key. I agree.
It also depends on the company and the industry in which it is in as some industries and companies are more volatile or prone to hurt with the overall economy being shaken. Other companies and industries ride out economic down-turns really well.