Accenture Voluntary Equity Investment Program (VEIP)
If you want to know how Accenture partners or Managing Directors (MD) get rich, look no further than the Accenture Voluntary Equity Investment Program (VEIP).
While the VEIP is only one part of a generous Managing Director compensation package, it’s important and you should max the contribution if you can.
This is an equity program only allowed to the upper level of Accenture leaders that incentivizes them to purchase Accenture stock and receive a nice bonus for doing so.
Accenture Voluntary Equity Investment Program (VEIP) Overview
Accenture’s VEIP program allows leadership (Managing Directors) to designate 30% of their total cash compensation to the purchase of Accenture shares.
After meeting qualifications, they receive a 50% matching RSU grant that vests in two years.
This can be a huge number as total cash compensation is calculated based on gross income and bonuses, which means before taxes, Social Security, Medicare, and 401(k) contributions are taken out.
The 30% contribution amount is then deducted from after-tax income to make monthly purchases of Accenture shares at fair market value on the 5th of each month, based on the contributions from the previous month.
If all qualifications are met, participants receive a 50% matching Restricted Stock Unit (RSU) grant in January.
The grant is calculated based on the total number of shares purchased the previous program year and not sold or transferred before the awarding of the matching grant.
This not only incentivizes employees to purchase shares during the year but then to hold on to them the entire year to receive the full matching RSU grant.
To further incentive Accenture MD’s to stick around, this VEIP RSU grant takes two full year to vest from the grant date.
If a participant leaves Accenture or withdraws from the program before awarded the matching grant, they will not receive the grant. If they leave before the two years grant vests, they also won’t receive the grant.
However, you will get a match on the stocks you hold throughout the program year even if you sell some along the way. This provides some relief if you’re forced to sell during the program year as you can still get some match.
There’s a lot of information to unpack here, so just as I did with Accenture’s Employee Share Purchase Plan (ESPP), let’s get into the implications of the VEIP program.
Cash flow implications of Accenture’s Voluntary Equity Investment Program
There are major cash flow implications for Accenture’s VEIP program. If you’re able to max out the investment, you’re using 30% of your GROSS pay to purchase shares every month.
On top of that, you shouldn’t sell until at least the end of the year when you receive the matching grant.
Let’s walk through a theoretical example. Let’s say an Accenture MD makes $400,000 in total cash compensation each year and fully participates in the VEIP program.
Of that $400k, there’s a good chance half ($200k) will go to the government in the form of taxes and Social Security/Medicare, $19,500 can go into the 401(k) program and 30% will go into the VEIP ($120k).
That means your huge salary and cash comp is cut from $400k down to $60k!!
That’s right, you thought you were going to get to live richly as an Accenture MD, but instead, you only have $5,000 each month of free cash flow!
If you can hold on for a year or two, it will start to pay off handsomely, but this can be a massive hit to your cash flow in the beginning.
Hopefully, you’ve built up savings and additional stock purchases through the ESPP, and you can use these cash flow strategies to manage through it.
Tax Implications of Accenture’s Voluntary Equity Investment Program
We already know the Accenture MD is paying a massive amount of tax each year, but how else does the VEIP program add to the tax burden?
The program is non-qualified which means you’re taxed on the “free” 50% RSU match as ordinary income when the grants vest.
The monthly VEIP stock purchases are made after-tax so there aren’t any tax implications on the purchases made throughout the year until those shares are sold.
At that point, if they’re held longer than one year, any gains are taxed at long term capital gains rates (0% – 23.8% federal + state tax).
However, if they’re sold before one year, any gains are taxed as short term capital gains, which takes you back into the ordinary income tax level.
The big tax hit isn’t experienced when the RSU award is granted, but instead when RSU grant vests after two full years.
At that point, the RSU award shares are taxed as ordinary income based on their market value.
If you received 100 shares through the RSU grant two years ago and the stock price doubled, that’s great for you, but it means you’ll pay a lot of taxes.
Accenture VEIP Tax Example
Using the example above, let’s say two years ago when your VEIP grant was awarded (in Dec 2017), Accenture stock was $150 per share.
Your $120k in VEIP contributions purchased roughly 800 shares throughout the year which resulted in a grant of 400 RSUs.
Two years later, your grant vests (Dec 2019), ACN is now $205 a share, meaning your RSU’s original value of $60,000 are now worth $82,000!
That full amount will be treated as income for tax purposes, and you’ll have to give half away to the government.
If you remember from before, the available cash flow was only $60k per year, so adding $41k in additional taxes will have major ramifications.
The good part is once you’re to this two year vested award, you’ll have a lot of shares purchased which you can liquidate to pay the extra taxes.
As if that didn’t give you a bad enough headache, there are some additional things to think about.
The automatic monthly purchases can make you susceptible to the “wash sale” rule.
If your stock price went down and you wanted to “harvest” the loss, you can’t repurchase the shares for 30 days if you want to claim the loss.
Since you’re “purchasing” shares every month through the VEIP program, you won’t be able to claim any loss if you sell shares below what you purchased them.
What’s the Voluntary Equity Investment Program Investment Return?
Calculating the investment return from the VEIP program can be quite tricky because a lot can change in the two years between when you received the grant and when you can sell it.
Let’s use the example above from 2017 – 2019 to calculate the return. To keep the calculation a little more simple, let’s use the initial VEIP investment as the $120k used to purchase the initial shares.
Additionally, we’ll do two scenarios, one where the stock price remained the same over two years, and in the second scenario, we’ll use the actual stock price.
Scenario 1 VEIP Investment Return
Initial Investment: $120,000
Stock Price: $150 to start, $150 at the end
Investment return: $60,000 (VEIP grant available two years after awarded)
Cumulative return: 46% ($60k / $130k)
Annual return: 23% (it took two years to get the award)
Scenario 2 VEIP Investment Return
Initial Investment: $120,000
Stock Price: $150 to start, $205 at the end
Investment return: $82,000 (VEIP grant available two years after awarded)
Cumulative return: 68% ($82k / $130k)
Annual return: 34% (it took two years to get the award)
This is very simplified math that doesn’t fully take into the time value of money, but let’s just use it for illustrative purposes.
As you can see, both scenarios yield a nice return. The only way the VEIP doesn’t work out well is if there’s a massive drop in the stock price, which is a risk you are taking when investing in one of these programs.
Should You Participate in Accenture’s VEIP
That was a fast but exhaustive rundown of Accenture’s Voluntary Equity Investment Program. As you can see from the investment return scenarios above, your investment can yield a massive return, but you’re also taking on a lot of risks.
Risks are created by the lack of diversification due to holding so much of your company stock, the two year required holding period to receive the grant, tax implications, and major cash flow implications.
If you’re able to balance all of these risks and not jeopardize your financial situation, the VEIP is incredibly valuable and can generate massive returns.
Part of the work I do with Adventure Wealth Advisors is to help clients plan out their cashflows to maximize the benefit from these programs and minimize the taxes.
I’m excited to help my former Accenture co-workers and friends reach their financial and life goals as fast as possible, so feel free to reach out if you have any questions!
If you’re a Managing Director and want more compensation information, be sure to check out my Accenture Managing Director Playbook with 30 pages of compensation information and strategy.
