Understanding Your LTIP Options at Procter & Gamble

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As a Procter & Gamble (P&G) employee, you have a unique opportunity to shape your financial future through the Long-Term Incentive Program (LTIP). When eligible, this program allows you to customize your compensation to fit your personal goals. In this article, we’ll break down your LTIP options, weigh their pros and cons, and guide you toward making informed decisions that align with your needs and aspirations.

What Are LTIP Awards?

P&G’s LTIP is designed to reward your contributions to the company’s success while aligning your interests with those of shareholders. Eligible employees can receive awards as Stock Options, Restricted Stock Units (RSUs), or a mix of both, based on a cash equivalent value set by P&G.P&G’s LTIP is designed to reward your contributions to the company’s success while aligning your interests with those of shareholders. Eligible employees can receive awards as Stock Options, Restricted Stock Units (RSUs), or a mix of both, based on a cash equivalent value set by P&G.

A Look at the Differences

In practical terms, Stock Options and RSUs offer two distinct ways to participate in P&G’s long-term growth. Stock Options give you the right—but not the obligation—to purchase company shares at a set price in the future. If P&G’s stock price rises above your grant price, you can exercise your options and benefit from the difference. However, if the stock price does not increase, options may have little or no value. In contrast, RSUs represent a commitment by P&G to deliver actual shares to you after a vesting period, regardless of how much the stock price has changed. This means RSUs always retain some value as long as the stock is worth something, and they require no action on your part to receive them. The key distinction is that options offer more upside potential but higher risk, while RSUs provide more certainty and lower risk.

Your LTIP Choices

You can choose how your LTIP award splits between Stock Options and RSUs:  

  1. 100% Stock Options

  2. 75% Stock Options, 25% RSUs

  3. 50% Stock Options, 50% RSUs

  4. 25% Stock Options, 75% RSUs

  5. 100% RSUs

This flexibility allows you to tailor your award to your personal financial goals and risk tolerance.

Comparing Stock Options and RSUs

Stock Options

Pros:

  • Potential for significant upside if P&G stock appreciates substantially

  • Flexibility to choose when to exercise (between years 3 and 10), allowing for tax and income planning

Cons:

  • Worthless if the stock price does not exceed the grant price

  • Requires active management and decision-making

  • Higher risk compared to RSUs

Restricted Stock Units (RSUs)

Pros:

  • Guaranteed value as long as P&G stock retains value

  • Simple—no action needed for delivery at vesting

  • Earn dividend equivalents during vesting

  • Lower risk than stock options

Cons:

  • Less upside potential than stock options if the stock price rises significantly

  • Fixed delivery and tax event at vesting (typically year 3)

Understanding Tax Implications of Your LTIP Awards

When evaluating your LTIP choices, it’s essential to understand the tax implications, as they can significantly affect your net proceeds and overall financial plan.

  1. Restricted Stock Units (RSUs): RSUs are taxed as ordinary income at the time they vest—typically after three years. The value of the shares delivered to you at vesting is considered income, and P&G will automatically sell a portion of your shares to cover the required tax withholding. This means you’ll receive the net shares or cash after taxes have been deducted.

  2. Stock Options: Stock options are taxed as ordinary income at the time you exercise them, not at grant. When you exercise your options (anytime between years 3 and 10 after the grant), the difference between the grant price and the market price at exercise is treated as income. Like RSUs, P&G will sell a portion of your shares at exercise to cover tax withholding, and you can elect to receive the remainder in shares or cash.

Choosing the right Mix

The optimal blend of Stock Options and RSUs depends on your financial situation, risk tolerance, and long-term goals. Consider the following:

  • Risk vs. Value: Stock Options offer greater upside but come with more risk; RSUs provide stability with less potential reward.

  • Time Horizon: Options are best for long-term growth (up to 10 years); RSUs deliver value in 3 years, which may suit shorter-term needs.

  • Stock Outlook: While past performance is not a predictor, your view of P&G’s future can inform your decision.

  • Cash Flow Needs: RSUs provide predictable income at vesting; options can be exercised later to meet future goals such as retirement or major expenses.

It’s also important to monitor overlapping grant cycles, as you may have RSUs vesting and options expiring in different years. Consider how each award fits into your broader financial plan—whether you’re planning for a home purchase, education, or retirement.

LTIP decisions are complex and can have a significant impact on your long-term financial success. Vaultis Private Wealth specializes in serving P&G employees, helping you analyze your options, assess risks, and build a strategy tailored to your unique needs. Contact us to schedule a personalized consultation.

Disclosures:

The information in this blog is for educational purposes only and is not intended as personalized financial, investment, tax, or legal advice. The LTIP options discussed may not be suitable for everyone, as individual financial goals, risk tolerance, and circumstances differ. Consult a qualified financial advisor, tax professional, or legal advisor before acting to evaluate your specific situation and determine if these options fit your needs. Past performance of P&G stock does not guarantee future results, and investments in Stock Options and RSUs involve risks, including the potential loss of principal. Tax laws may change, potentially affecting the strategies described; this content reflects laws as of December 13, 2024. Vaultis Private Wealth does not guarantee the accuracy, completeness, or outcome of this information and is not affiliated with Procter & Gamble, which does not endorse this content or compensate Vaultis for any services mentioned.