Walmart's Equity Compensation: Yesterday and Today

Walmart has a long history of offering associates and management the opportunity to participate in the upside of the Company.

In the early days of Walmart, Sam Walton encouraged store managers to become limited partners in the stores they operated. Then following the IPO, there was the Profit-Sharing Program that allowed hourly wage employees to build wealth far exceeding those hourly wages. Now, today there is the 401(k) match and Associate Stock Purchase Plan (ASPP.)

This tradition continues as the Company recently announced that store managers are eligible for up $20,000 in Restricted Stock Units and a stock split that makes equity ownership more accessible to associates in the ASPP.

In this article we explore the three primary types of Walmart Equity Compensation - Associate Stock Purchase Plan (ASPP), Restricted Stock Units (RSUs) and Performance Share Units (PSUs.) - and offer some practical tips on effectively managing each type.

400,000 Associates Choose Ownership via the ASPP

If there is a bigger Employee Stock Purchasing Plan than Walmart's, I'd like to know. The scale is truly impressive.

The Walmart Associate Stock Purchase Plan (ASPP) is available to practically all Walmart associates and allows associates to purchase Walmart shares via payroll deductions ranging from $2 - $1,000 per pay period.

Walmart matches $0.15 per each $1 contributed to the Plan, up to $1,800 in contributions per year. To ensure you receive the full Walmart match of $270, contribute at least $70 per pay period.

Tips on Managing your ASPP:

1. Get the Match: Contribute at least $70 per pay period to receive the full WMT match.

2. Minimize Sell Transactions: Computershare (the Plan Administrator) charges $25.50 per transaction + $0.05 per share.

3. Keep Tax Lots at Computershare: Once you decide to diversify, sell the shares at Computershare and transfer the cash. There is a tax lot for each pay period and the cost basis for these lots is sometimes lost or incorrect after the transfer.

4. Donate Highly Appreciated Shares: If you have highly appreciated shares (which is common for long-tenured associates) these shares are great candidates to contribute to charity or a Donor Advised Fund.

RSUs: Grants, RSU Vesting Schedule and Taxes

A Restricted Stock Unit (RSU) is the right to receive a share of Walmart stock at a pre-determined date. There are two types of events associated with Restricted Stock Units:

1. Grant Date: The date that you are awarded the right to receive the Walmart shares, but you have not received the shares, yet.

2. Vesting Date: The date that the right is converted to an actual share of Walmart. At this point you can opt to keep or sell the shares but be mindful of the Open Trading Window if it applies to you.

Over the years various vesting schedules have been implemented, but they typically vest monthly/quarterly/annually over 3 or 4 years.

For example, if you receive a grant for 300 shares to vest quarterly over 3 years, 25 shares will vest every 3 months for 3 years. These shares (minus tax withholding) are deposited into your Fidelity account.

The vested amount is taxable income and taxed at your ordinary tax rate. Unlike stock options (which WMT does not offer today) there is not much tax planning to do in order to minimize the tax consequence as you have no control over the timing nor dollar amount.

Tips on Managing your Walmart RSUs:

1. Supplement Cash Flow: Consider using RSUs to cover living expenses, potentially allowing you to contribute more to tax-advantaged accounts such as 401(k), DCMP, Health Savings Account, and Backdoor Roths.

2. A Simple System to Manage WMT exposure: Consider a systematic approach to diversify at least a portion of your Walmart stock annually, preventing a highly concentrated position. At Taurus Financial Planning, we proactively facilitate transfer requests to clients twice per year, streamlining this process.

If you have any questions about the timing of your payouts, increasing contributions to tax advantaged accounts or effectively diversifying a large Walmart stock position, feel free to reply to this email or grab some time on my calendar - Calendar Link.

PSUs: Similar to RSUs but Larger and Less Predictable

Performance Share Units (PSUs) closely resemble RSUs as they grant you the right to receive Walmart stock at a predetermined date, yet there are notable distinctions:

1. Officers: Performance Shares are typically exclusive to Officers.

2. Cliff Vesting Schedule: Unlike RSUs, all performance shares vest on a single date. This is in contrast to RSUs, which typically vest periodically over a 3-4 year period following the grant.

3. Performance Targets: Performance share grants are assigned a target. The actual number of shares you receive will vary contingent on specific performance metrics, usually assessed in the first year of the 3-year vesting period.

Tips on Managing your Walmart PSUs:

1. Check Total Rewards: Your Total Rewards Document is a valuable resource for understanding your equity compensation vesting schedules. It also confirms whether your PSU grant will payout at the target or not after the first year.

2. Walmart DCMP: Officers can contribute salary and MIP to the Walmart DCMP, but not equity compensation. By utilizing the PSU payouts to cover living expenses and shorter-term savings goals, Officers can increase contributions to the DCMP and potentially benefit from tax savings.

3. Simple System for Managing WMT shares: Establish a deliberate system for managing WMT shares. Given the rapid accumulation of WMT exposure at this level, make informed decisions on whether to keep or diversify the shares before the trading window closes, typically at the end of March.

4. Feather In Grants: Upon promotion to Officer, anticipate two extra grants. These grants vest after 1 year and another after 2 years, providing Officer level compensation while waiting for the original grant to vest in year 3.

If you have any questions on understanding the Total Rewards Document, utilizing PSUs to contribute more to the DCMP, or setting up a system to manage your Walmart stock position, you may reply to this email or schedule a quick complimentary call - Calendar Link.

Walmart Equity Compensation FAQs

While the Walmart Equity Compensation Program is not necessarily complex, there can be a lot to manage. Here are some FAQs that I hope help you navigate your Walmart equity compensation:

When will my equity compensation payout?

Your Total Rewards document provides a vesting schedule for grants that have been awarded - usually towards the back of the document.

At Taurus Financial Planning, we provide clients a simple vesting to schedule illustrating the timing and estimated amount of the payouts -Calendar Link.

How much will my equity compensation payout?

For RSUs, the Total Rewards provides you the number of shares, but the dollar amount you receive is based on the Walmart share price on the vesting date. For PSUs, the Total Rewards provides the target and eventually the actual amount you'll receive. Again, while the number of shares is known, the price of those shares is not.

How does the equity compensation impact taxes?

For RSUs and PSUs, proceeds are taxed at your ordinary income tax rate. This amount then becomes the cost basis for those shares. Any stock appreciation following the vesting date is taxed as capital gains.

For the ASPP, the Walmart contribution (up to $270) is added to wages and taxed at the ordinary tax rate.

Where are the shares held?

The shares for the ASPP are held at Computershare. The shares from RSUs and PSUs are now held at Fidelity.

Is there anything that participants need to do?

Yes, but it is mostly administrative:

• For ASPP, you'll need to elect how much to contribute ($2 - $1,000 per pay period.)

• For RSUs and PSUs, you'll need to accept the grant after it is awarded in April through Fidelity.

• Keep tabs on how much Walmart stock you own.

• For RSUs and PSUs, you may need to make quarterly tax payments to the IRS since tax withholding on equity compensation is often below an Executive's ordinary tax rate. At Taurus Financial Planning we provide a tax projection in May and another in November to ensure clients make the necessary payments.

I hope you found this article on Walmart Equity Compensation helpful. Please share with a colleague if you believe it will be helpful to them.

If you have any questions on managing your equity compensation, feel free to reply to this email or grab a few minutes on my calendar - Calendar Link.

Thanks for reading.

Mark Chisenhall, CFA, MBA

Financial Planner and Founder I Taurus Financial Planning

Taurus Financial Planning is a Fee-Only Wealth Management firm based in Bentonville, AR. The firm offers comprehensive financial planning, tax planning and investment management to corporate executives across the country.

Taurus Financial Planning is a Registered Investment Advisor with the State of Arkansas. This information is provided as a guide to assist you in your financial planning. The specific examples are provided for illustration purposes only and are not representative of specific investments or guarantees of future returns. Please consult with a professional for specific questions regarding your particular situation. If there is any error or inconsistency between this document and the official company plan documents, your company plan documents will govern.

This publication is for informational purposes only and is not intended as tax, accounting or legal advice or as an offer or solicitation of an offer to buy or sell or as an endorsement of any company security fund or other securities or non securities offering. This publication should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made by the Author, in the future, will be profitable or equal the performance noted in this publication.