P&G Changes LTIP Award Timing & Retention Policy

P&G recently changed the timing of the annual Long-Term Incentive Program (LTIP) award. Historically, employees received this award in February of each year and most have a choice between receiving their award in the form of RSUs or stock options. RSUs vest three years from the grant date and options must be exercised within the following ten-year period.

In December of last year, P&G announced a change in the timing for the LTIP award to coincide with the annual STAR bonus which employees receive in September/October. 2020 is a transition year where employees who are eligible for the LTIP will actually receive two awards in the same calendar year! Employees will receive their normal February 2020 award, but then receive their February 2021 award in September/October of 2020. Future awards will be on the September/October timing going forward. This change creates unique planning opportunities in the future, particularly if stock options are elected. As a result of this change, ten years from now, an employee could have two option grants expiring in the same tax year. This could create a very high-income year without proper planning and could indicate various strategies for exercising these particular grants in the future. Regardless of their choice, employees should be aware of this change and begin thinking about how it might impact their long-term planning.

In addition to this timing change, P&G also announced changes to how these awards are treated at retirement or special separation. The previous company policy allowed employees to fully retain these awards as long as they remained employed until June 30 of the year they received the award. Going forward, P&G will remove this provision. Instead, the grant will prorate monthly, based on the number of months worked beyond the grant date. For example, if the grant date is October 1 and an employee retires on December 31, they would be entitled to 3/12ths of the grant. This is a material change to the “all or nothing” policy that preceded it and is a new consideration for any employee considering separation or retirement from P&G.

Truepoint Wealth Counsel is a fee-only Registered Investment Adviser. Registration as an adviser does not connote a specific level of skill or training. More detail, including forms ADV Part 2A & 2B filed with the SEC, can be found at TruepointWealth.com. Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice. The accuracy and completeness of information presented from third-party sources cannot be guaranteed.

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