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Glossary of Stock Plan Awards

The following is a quick reference guide to the awards and grants that you may receieve as part of your equity compensation plan.

Restricted Stock Awards (RSAs)

Restricted Stock Awards are generally subject to sale restrictions, and you may not sell the shares until the restrictions are lifted (typically, until a vesting event occurs). You may also risk forfeiture of the shares until certain vesting targets are met, such as employment length or stock performance.

Following are the various types of restricted stock awards that you may receive:

Restricted Stock Shares (RSSs)

Restricted Stock Shares are awards that entitle you to ownership rights (including voting and dividend rights) in your company's stock. These shares are generally subject to sale restrictions and/or risk of forfeiture until the vesting event occurs (typically, completion of a service period). During the restricted period, you may have voting rights and the right to dividends paid on the restricted shares, which may be paid to you in cash or reinvested in additional restricted shares. Once vested, the Restricted Stock Shares are usually no longer subject to restriction.

Restricted Stock Units (RSUs)

Restricted Stock Units are awards granted in units instead of actual shares—you can consider it a “promise to award shares/units.” Each unit awarded usually represents the value of one share of stock. Generally, an award of Restricted Stock Units entitles you to stock or cash (with a value equal to the number of units awarded) upon vest. As a recipient of Restricted Stock Units, you usually have no dividend or voting rights until vest, since no shares are actually issued to you until that point. However, your company may choose to pay you a dividend equivalent. As with Restricted Stock Shares, Units are also subject to forfeiture prior to the vesting event.

Performance Stock Shares (PSSs)

Performance Stock Shares are restricted stock shares that vest upon the achievement of company-specified performance conditions. These shares are generally subject to sale restrictions and/or risk of forfeiture until a specific performance measurement is satisfied. Performance measurements are set by your company. During the restricted period you may have voting rights and the right to dividends paid on the restricted shares, which may be paid to you in cash or may be reinvested in additional performance shares. Once vested, the performance shares are usually no longer subject to restriction.

Performance Stock Units (PSUs)

Performance Share Units are restricted stock awards granted in units instead of actual shares. Each unit awarded usually represents the value of one share of stock. Generally, an award of Performance Share Units entitles the recipient to stock (or the cash equivalent) upon vest. As a recipient of Performance Share Units, you usually have no ownership or voting rights until vest, since no shares are actually issued to you until that point. However, your company may choose to pay you a dividend equivalent. Performance Share Units are usually subject to risk of forfeiture until a specific performance measurement is satisfied.

Please consult your company’s plan documents for the specifics of your restricted stock award plan.

Stock Options

A Stock Option is the right, but not the obligation, to purchase a company's stock at a fixed price for a fixed period of time. When the company’s stock price rises above the grant or exercise price, the award is “in the money.” When the price drops below the grant or exercise price, the award is “underwater” and loses its incentive value.

The primary difference between the two types of stock options—Non-Qualified Stock Options and Incentive Stock Options—lies in their tax treatment:

Non-Qualified Stock Options (NQSOs)

Non-Qualified Stock Options (NQSOs) have the following characteristics for U.S. taxpayers:

  1. No income recognized and no taxes are due when NQSOs are granted.
  2. When options are exercised, the difference between the Fair Market Value (FMV) on the exercise date and the grant date price (the “spread”) is reported as ordinary income on your W-2 in the year of exercise.
  3. Income taxes are withheld at the time of exercise on the spread and reported on your W-2 in the year of exercise.
  4. When you sell shares you purchased from an NQSO exercise, if the sale price is higher (lower) than the FMV at exercise, you will have a capital gain (loss).

For non-U.S. taxpayers: Please consult your local tax advisor for up-to-date tax regulations surrounding equity compensation.

Incentive Stock Options (ISOs)

ISOs offer a tax incentive and are typically granted only to U.S. taxpayers. Incentive Stock Options (ISOs) have the following characteristics:

  1. ISOs receive preferential tax treatment under the Internal Revenue Code. If the shares are held at least one year from the date of exercise and two years from the date of grant, any gain at sale will be taxed as capital gain rather than ordinary income. If shares are sold prior to the required holding period, the sale will be deemed a disqualifying disposition and treated for tax purposes as an NQSO.
  2. No income is recognized and no taxes are due when ISOs are granted.
  3. When options are exercised, no taxes are due or withheld.

Employee Stock Purchase Plans (ESPPs)

An ESPP is a way for you to purchase shares of your company’s stock through payroll deductions, usually at a discount to the market price. Once you have enrolled in the plan, your company will collect your payroll contributions to purchase shares on a specific date. The shares are then deposited into an account at Morgan Stanley.

The common terms listed in the ESPP Glossary can help you better understand your plan.

Stock Appreciation Rights (SARs)

Stock Appreciation Rights entitle you to exercise a right to a payment in cash or shares of a value equal to the appreciation in the company’s stock over a specified period. Similar to stock options, SARs gain value if your company’s stock rises. However, unlike stock options, you are not required to pay the exercise price, and may just receive the amount of any increase in price, deliverable in cash or stock upon exercising the right, depending on your company’s plan and your grant agreement.

Stock-Settled Stock Appreciation Rights (SSARs)

Stock-settled Stock Appreciation Rights pay out the appreciation in the form of stock. You then have the option of keeping the stock or immediately selling the stock for cash.

Cash-Settled Stock Appreciation Rights (CSARs)

Cash-Settled Stock Appreciation Rights pay out the appreciation in the form of cash. The cash payment is then paid through your company's payroll.

For more information about the various grants and awards that may be party of your equity compensation plan, please consult the “Help” section of StockPlan Connect and product-specific guides within the “Understanding Your Stock Plan Awards” section.

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