3 Ways Finances Change for Walmart Officers: Taxes, DCMP and Performance Shares
In this newsletter, we'll discuss 3 significant ways personal finances change for recently promoted Walmart Officers.
In terms of complexity, the Officer level is an inflection point as managing your Taxes, Equity Compensation and Walmart Deferred Compensation Matching Plan (DCMP) becomes more orchestrated and important to meeting your financial goals.
Whether you are a Walmart Officer seeking to better understand your taxes and compensation structure or a rising Sr. Director looking to proactively get a head start, this newsletter topic is for you.
#1 More Money, More Taxes...
It is common for recently promoted officers to owe significantly more to the IRS compared to their non-officer years. An April tax bill of $75K - $100K is not unusual. It is a bummer to spend a chunk of your MIP on taxes and an even bigger bummer to tap your savings to cover the tax bill.
There are 2 reasons why Walmart Officers end up owing more to the IRS. One is obvious, the other is often misunderstood.
First, here is the obvious one. An officer is making a higher income which pushes them into a higher tax bracket. As a result, you are likely paying as much as 40% of the incremental income from the promotion just on taxes (Federal, State and Medicare).
Second, here is the less obvious one. Walmart (like most employers) doesn't withhold enough tax on supplemental income for Officers. Supplemental income includes the MIP and Equity Compensation (RSUs and PSUs) which now make up a larger portion of your compensation. The typical withholding rate on this supplemental income is 22% (up to $1M) which is significantly lower than your actual tax rate.
There are a few things you can do to soften the tax bill hit in April:
1. Increase Tax Withholding on RSUs and PSUs to a rate more in line with your actual marginal tax rate. Walmart Officers (and Sr. Directors) can adjust the rate up to 37% on the Fidelity Net Benefits platform.
2. Making Quarterly Tax Payments to the IRS will not lower your tax bill, but it will minimize the surprise of a large tax bill in April and help you avoid under withholding penalties.
3. Defer More Taxable Income to your tax advantaged accounts including Walmart Deferred Compensation Matching Plan (DCMP), 401k Plan and Health Savings Account (if you are on the Saver Medical Plan).
Whether you work with an advisor or file your own taxes, a tax projection helps determine if you need to increase withholding and by how much.
Here are a few articles discussing taxes that you may find helpful:
#2 Now Things are Getting Serious with the Walmart DCMP
After getting to know each other while you were a Sr. Director, Officers are now permitted to contribute up to 100% MIP AND 80% Salary vs. only 80% MIP as a Sr. Director to the Walmart Deferred Compensation Matching Plan (DCMP).
The primary benefit is that you can defer taxable income while you're in a high tax bracket (as most Executives are), postponing it to a future date when, if planned correctly, you'll be in a much lower tax bracket, such as during retirement.
For a more in-depth explanation of the Walmart DCMP, I have a few (too many) posts that go into more detail. Here are a few but there are several on the TFP site:
#3 Oh, Hi Performance Shares, Nice to Meet You
As a Sr. Director you were accustomed to receiving Restricted Stock Units (RSUs) which vest at least annually. Now, as an officer you are receiving Performance Share Units (PSUs) in addition to RSUs. While it still results in (more) Walmart stock vesting in your Fidelity account, there are some key differences:
1. Performance Shares Vest 3 Years Following the Grant. Unlike the RSUs which may vest annually, quarterly or monthly over several years, the PSUs vest entirely at the end of the 3-year period (i.e. cliff vesting).
2. Compensation from Performance Shares is Variable. PSU grants are assigned a target amount, but the actual payout will vary depending on certain performance metrics. I believe that the payout is determined based on just Year 1 of the 3 Year vesting period, but your Total Rewards statement will confirm which payouts are final vs. still subject to the performance period.
3. Feather-In Grants Make New Officers Whole. Since the regular officer level PSU grant only vests after 3 years, a new officer will receive two extra grants referred to as "Feather-In" grants. These grants have shorter vesting periods and allow the officer to receive the step up in compensation in Year 1 and Year 2 while waiting for the initial grant to vest at the end of year 3.
Here are a few articles on Walmart's Equity Compensation Plans and managing highly appreciated company stock positions:
I hope this information is helpful as you navigate your Walmart careers and personal finances.
Thanks for reading,
Mark Chisenhall, CFA, MBA
Financial Advisor | Founder of 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.
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