The Globe and Mail should be embarrassed by this reporting. I'll let you be the judge of how they should have positioned the impact of the CGT changes on public company options, based on their own examples. They paint two scenarios: a "low level" executive and a c-suite executive, the first of which is granted 100K of option value and the second who gets 1M of option value. First, let's just put on the table that this "low level" executive getting 100K in options is probably making 2-300K a year. 100K in options in one year is a lot. That said, in their example, if the share price goes up as much as 60 percent during the four year hold period, neither executive pays additional tax. Not one cent. 60 percent over 4 years would be well above the historical compound growth rate of the TSX. So, the company did amazing, no tax impact. If the company does super-duper amazingly well - 150 percent growth over 4 years - the "low level" exec pays about 30K more in tax, the c-suite Exec pays 80K. 150 percent growth over 4 years would be among the best performing stocks in Canada, and each of these execs would be very wealthy, since they'd no doubt also been granted options every year since. The low level exec would be in the top 1 percent, the c-suite person likely approaching 0.1 percent. The headline? "Budget change for employee stock options bites lower level execs not CEOs." Their reason? Given the extraordinary (and highly unusual) performance in one scenario, where both execs are now very wealthy, the lower exec's taxes go up by a higher percentage that the higher exec. Even though it's still a much lower amount. Wow. It would be laughable if this wasn't supposed to be Canada's top business newspaper. Brutal.
Andrew Sorlie
10mo
I am interested to see the leader who raises their hand and says: “I’m excited to be amongst the group who is now paying more tax, because we’re as a group contributing toward a stronger nation coast to coast. I consider it a privilege to play a role in the bigger picture”. Pipe dream? Maybe. Would be interesting.
Ian Moffat
10mo
the fellow who wrote the article is woefully ignorant of how taxes on option grants work. He states that "Canadian tax law considers all profits from options issued by your employer as ordinary employment income instead. That minimizes the impact of the potential changes to capital-gains taxation". Nothing could be further from the truth. If an employee exercises several stock options after their vesting period and the share price has appreciated since the option grant date then that is a capital gain and is taxed in that manner. As well most executives (certainly at the C-level suite level) do not have the opportunity to exercise their options until the cancellation date (usually about 10 years from the grant date) because of the negative perceived impact on share value (hey, look the insiders are unloading tons of share). As a consequence, they accumulate a lot and when they are eventually sold the 25% difference in inclusion rate (assuming a very successful company) is significant. The same for individual employees who choose to hang onto their options believing in the company and anticipating higher share value in the future. We are not talking about a 1 year grant of say $50K but maybe 5 years which is significant.
David Milstead
10mo
Hi, Jon. I’m the author of this article. I stand by it, and I’m not embarrassed. I specialize in executive compensation – and I often write about CEOs who make $10-million or more in a year. The wealthiest of the wealthy. Globe editors asked me to examine the impact of the capital-gains changes on executives with significant potential profits on stock options. I think they, and many others, assumed they would have to pay much, much more in taxes under the proposal. What I found, instead, was that it’s the lower-level executives who receive options who will feel more impact from the changes. (Please note the story consistently uses the phrase “lower-level,” not “low-level,” as you quoted.)
Rahim Khoja
10mo
When you work at a startup the value of your options are zero. You may have alot of options but since the company is worth nothing so are your options . You also have a vesting period , a period to wait . 5 years later , the company completed it's 3rd investment round , the company is worth 100's of millions , you cash out , it's 2 million dollars, but your salary is still low. This is why startup culture works .
Tim Capes
10mo
The problem is while options get granted on a yearly basis they typically get executed all at once which can move the capital gains for many years of options into a single tax year. If earn $50k in options a year for 5 years the stock only needs to double to use up the full $250k because you’re typically executing all those options because of a sale or IPO. Executing options sooner to spread out capital gains is risky because you’d be paying tax for unsellable stock and would have the risk of loss if the company isn’t acquired and doesn’t IPO.
Abhishek Mukherjee
10mo
From a proven bungling of covering international news to now bungling up local business news, it’s an absolute shame how the Globe and Mail is one of our (unfortunate) premier news institutions 🤦🏽♂️
Tim Hyde
10mo
I subscribed to the Globe for almost 40 years. I miss the paper but won't send them a dime. Their (maybe their owner's?) animus toward the PM has been clear since 2015 when they endorsed Harper on the condition he resign as soon as elected. Huh?
Akshay Kalle
10mo
I suspect there’s also a lesson required here in drivers of market performance and returns, stocks and other instruments, and statistics and probability. If there exist a huge bunch of local companies that grow like weeds, hand out options like candy, and where they hire and pay thousands of “low level” execs well into the 300s (or more with bonuses in order to exercise options), please let me know. Like now.
Chair at Social Capital Partners
10moAlso - just to indicate the level of bias in David Milstead 's reporting here, he quotes a lawyer in reference to a "back-office" employee. No back-office worker gets 100K in options, and likely none at all. In their scenarios, there's almost no way that back-office person would get enough to exceed the threshold where it matters. He must have known this, but included the quote anyway. Shameful.