Every August, Nike employees must make an important decision on how to receive their annual stock award
Eligible employees can choose between 100% non-qualified stock options (NSOs), 100% restricted stock units (RSUs), or a 50/50 mix of NSOs and RSUs.
Typically, you are offered more shares if you choose NSOs over RSUs. In 2023, the ratio of NSOs to RSUs remained at 4:1 (this is the same ratio you had in 2022). This means you receive 4 NSOs for every 1 RSU.
This doesn’t mean electing 100% NSOs is the best choice for you though.
Here are some key differences between RSUs and NSOs to help you with your decision.
Restricted Stock Units (RSUs)
RSUs are simpler to manage and not as risky as Stock Options.
They have less risk since your Nike RSUs do not require the NKE stock price to increase in order to have value.
The value of your Nike RSU is based on the value of NKE stock on the day your RSUs vest. For example, if you have a RSU share vesting on Sept 1, 2023, and the value of NKE stock price is $100, your RSU is worth $100 pre-tax.
RSUs and Taxes
Your RSUs will be taxed as income in the year in which they vest. This gives you less control over how much and when you must pay taxes on this income.
What happens if you leave Nike?
If you leave the company, your vested Nike RSUs are yours to keep. You will lose any unvested Nike RSUs.
Non-Qualified Stock Options (NSOs)
NSOs are more complicated and riskier than RSUs.
For your NSOs to have value, there must be an increase in the NKE stock price after the grant date. For your 2023 NSOs, the grant date will be 9/1/2023. The value of your NSOs is based on the difference between the stock price on the date it is exercised and the price on the date of the grant.
If the stock price goes up – your NSOs have a value. If the price goes down or stays flat – your NSOs have no value.
NSOs and Taxes
You do have more control over your taxes with NSOs, because you choose when you exercise them. You’re taxed on the difference in price between the strike price (the price at grant) and the price at exercise, which is when you buy the stock.
What happens if you leave Nike?
If you leave the company, you only have 3 months to exercise your NSOs, if you don’t – you will lose them.
Further Considerations for Your Nike Stock Choice Decision
There are other factors you may want to consider before making this important decision, such as:
- What is your risk tolerance?
- When do you plan to use the income from your stock payout?
- How old are you?
- How much control do you want over your taxes?
- How long do you plan to stay with Nike?
- Do you have a diversified portfolio, or does it contain a large concentration of NKE stock?
These are a few of the questions we ask Nike employees. We want to help you have the information you need to make the best decision for your situation.