BB Stock-Based Bonus -- Worthless Now?
So for those of you BB analysts, associates, VPs, the amount of your bonuses you received in company stock -- is that portion now worthless? For instance, if you were at Morgan Stanley last September when stock was at 100, did you get some of your bonus in Morgan Stanley stock with a strike price of 100 -- meaning that that portion of your bonus is now worthless until MS stock gets back to over 100?
Also, what percentage of your bonus was in company stock? This seems to be one reason why -- at least financially -- EB experience might be superior to BB.
That’s not how I’ve seen equity grants. I have normally seen it as you get X dollars in equity that vests over time. So if the stock is down 25% from the time of your grant, your bonus is “down” 25% from the number quoted.
Thanks. But to clarify, let's say as an analyst/associate, you received 25,000 of your bonus in stock. Compnay stock was trading at 100 at time of issuance, so strike price was set at $100 (if this is even how the bonus structure works). ivfi timeo
Let's say you received 1000 shares, with 25% vesting each year (just a random number, by way of example).
Since your shares are underwater one year after issuance, does that mean that 25% of that previous year's bonus (250 shares out of the 1000 shares) will be forever worthless? Or that if company shares come back above the strike price at ANY point (even if it's, let's say, 7 years down the line), you can cash out for the difference on any/all of those 1000 bonus shares for the difference between what will be the current market price and the originally-set strike price of $100?
Your numbers aren’t making much sense to me, but maybe because of the structure. As I said, the only structure I’ve seen (could be different at other places) is (to use your example):
you get $25k of your bonus in stock
stock is at $100, so you get 250 shares
they vest over 5 years (50 shares a year)
if stock is now at $75 your value of that bonus is $18.75k
No strike price, etc. Just whatever that value is, given in stock. Other places may do it differently, but I’ve only seen that for senior executives (get grants if certain metrics are met).
Two parts:
Part 1: BB bonus is just "shares" and can't be "underwater"
This isn't how it works at banks so hopefully the below explanation is helpful. The bonus shares aren't options in the way that perhaps some tech companies or Fortune 500 executives receive their bonus, so they can't become "worthless" unless your company stock goes to zero.
You receive a $100,000 stock bonus, company trading at $100/share, so you get 1,000 shares that vest evenly over 3 years. 333 shares vest one year from your bonus date, 333 two years, and 333 in the third year. The shares are just shares so they are worth whatever the stock is worth. If a year from your bonus date the company is trading at $50/share, your 333 shares will vest but only be "worth" $16,650 instead of $33k. You own the vested shares now so you can do whatever you want with them.
It can be "unlucky" in the sense that a big bonus could be granted at an all-time high and you wish instead that your bonus grant day was at a 52 week low. However there isn't a concept of "underwater."
Part 2: Vast majority of the bonus is in cash so it doesn't really matter at the AN level
There is typically a sliding scale where the first few chunks of your bonus are received mostly in cash, and only if you make above a certain hurdle in bonus does stock really come into play. For example, the first $100,000 of bonus received is 100% in cash. Then for the next $X received after $100,000, it will be 80% in cash and 20% in stock. Then for the next band, it will be 60%/40%, etc. So if you make a $150,000 bonus as an analyst, you will receive e.g. $100,000 + 80%*$50,000 = $40,000 = $140,000 in cash, and $10,000 in stock the way described in Part 1.
Conclusion: Consider other factors when thinking EB vs BB
There are a lot of other factors to consider when thinking about EB vs BB. One advantage of an EB is simply that they typically can pay a higher bonus in general than a BB if you're a top performer. I would still consider factors like the team culture, group quality, exit options, sweatiness, and other classic variables before how the bonus is structured.
Very thorough and clear explanation, thank you!
Oh, so your bonus shares are always worth SOMETHING as long as the stock is worth something?
I assumed -- like I read about how many tech workers' stock-based pay is structured -- that there's a strike price to the IB bonus shares, and that if the current market price of the stock is below the strike price, then those bonus shares would be worthless. But I guess what you're saying is that -- if current market price of stock is less than the price of the stock at the time the company issued the bonus shares, then the bonus shares ARE still worth something... but just not as much as they were when the bonus shares were issued to you on the day you received your bonus.
You're not given options, you're given restricted stock. They're just shares of stock and perform just like common shares, only difference is you cant sell them until they vest.
If shares are worth 100 when you get it and drops 30% by the time it vests, stock is now 70%.
Also, the boutiques are down as much if not more vs. the BBs YTD, so this isn't really a EB vs. BB issue.
Laboriosam earum maiores sit dignissimos velit natus. Minima accusamus possimus maiores. Voluptatem sunt enim veniam facilis minima earum magnam. Consequatur magni laudantium nulla veniam qui incidunt magni doloremque. Sed et velit eaque neque. Excepturi id ut et ducimus recusandae quasi vel eligendi.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...