Understanding P&G’s LTIP: Stock Options vs. RSUs
/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 (i.e., your award is denominated in dollars, then converted into shares).
Comparing Stock Options and RSUs
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. RSUs retain value as long as P&G stock has value, and they require no action on your part to receive them.
LTIP Award Mix Options
You can choose how your LTIP award splits between Stock Options and RSUs:
100% Stock Options
75% Stock Options, 25% RSUs
50% Stock Options, 50% RSUs
25% Stock Options, 75% RSUs
100% RSUs
This flexibility allows you to tailor your award to your personal financial goals and risk tolerance.
Pros and Cons of Each Award Type
Stock Options
Pros:
Potential for significant upside if P&G stock appreciates substantially
Flexibility to choose when to exercise (between years 3 and 10), assisting with income and tax planning
Cons:
Worthless if the stock price does not exceed the grant price
Requires active management and decision-making
Higher volatility/risk compared to RSUs
Restricted Stock Units (RSUs)
Pros:
Guaranteed value as long as P&G stock retains value
Delivered at vesting with no action required
Receive dividend equivalents during vesting
Lower risk than stock options
Cons:
Less upside potential if the stock price rises significantly
Fixed delivery and you cannot delay tax—you’ll be taxed when they vest (typically at year 3)
Understanding Tax Implications
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.
RSUs: Taxed as ordinary income at vesting (usually year 3). P&G will sell a portion of shares to cover tax withholding; you receive the net shares or cash.
Stock Options: Taxed as ordinary income when exercised (between years 3 and 10), based on the spread. P&G typically sells shares to cover withholding; you receive the remainder in cash or shares.
Factors to Consider When Choosing
Consider these factors when selecting a mix:
Risk vs. Value: Options offer higher upside potential but more risk; RSUs are more stable.
Time Horizon: Options are better suited for long‑term planning; RSUs offer earlier value delivery.
Stock Outlook: Your view of P&G’s future performance may influence your choice.
Cash Flow Needs: RSUs deliver predictable value at vesting; options can be timed for funding needs.
Overlapping Grant Cycles: Since RSUs vest in 3 years and options expire in 10, pay attention to when different awards vest/expire to better coordinate your income and tax events
LTIP Election Timing
You’ll make your LTIP election during P&G’s annual window, typically in early August, with the award granted in October . Election does not carry forward from prior years—you must actively choose each year via the Executive Compensation portal before the deadline.
Next Steps
At Vaultis Private Wealth, we work closely with Procter & Gamble employees and retirees to help them navigate the many financial decisions that come with a long career at P&G. Whether you’re evaluating your LTIP award, planning for retirement, or managing your Savings Plan and PST, our goal is to provide clear, objective advice tailored to your situation.
If you’re looking for a partner to help you make sense of your options and build a strategy aligned with your goals, we’re here to help.
Schedule a meeting below to learn how we can support your financial journey—both during your time at P&G and beyond.
Frequently Asked Questions
When do I need to make my LTIP election?
P&G typically opens the annual LTIP election window in early August, with the grant issued in October. Your prior choice does not carry over—be sure to elect each year via the Executive Compensation portal before the deadline.
What is the difference between Stock Options and RSUs in P&G's LTIP?
Stock Options let you buy shares at a predetermined price in the future and may offer greater upside if the stock rises, but they risk being worthless. RSUs deliver shares at vesting regardless of stock price and include dividend equivalents, offering more stability.
How are LTIP awards taxed?
RSUs are taxed as ordinary income at vesting, with P&G withholding taxes. Stock Options are taxed when exercised, based on the price difference—a separate tax withholding event.
Can Vaultis help with P&G retirement investment options like PST rollovers?
Absolutely. We specialize in guiding P&G employees through retirement investment options including Savings Plan, PST rollovers, IRAs, and the Procter and Gamble Savings Plan, helping tailor strategies to individual needs.
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.