Some upside to $ACN’s downside

Fishbowl is blowing up with MDs who are unhappy with the performance of Accenture’s share price over the last six months. The feeling of lower compensation is real and many are not happy about it.

Rightfully so, the share price is down 35% since it peaked at the beginning of the year. Even more painful, equity awards vested on January 1st near the peak, and the share price has plummeted since then.

If you had $100,000 in equity awards vest on January 1st, you received around 240 shares and probably paid ~$45,000 in taxes. This left you with 144 shares, which are now worth $38k.

No doubt, it hurts – that’s how you turn $100k into $38k.

The worst part is you paid income taxes on $100k, which could’ve meant around $45k in taxes. If the shares would’ve vested at today’s value ($270/share), the equivalent taxes would have been $30k. So yes, you paid $15k in taxes for income you don’t have.

To add insult to injury, it’s hard to claim the loss on stock sales due to how the VEIP is structured. Since you’re purchasing every month, your sales are subject to the IRS “wash rule” so there are special rules to manage the loss.

It leaves you in a bad spot and highlights the risk associated with equity-based compensation.

If reading this has just renewed your bad mood and frustration – fear not; there are some upsides to this downturn.

Upside 1: VEIP RSU

If you’re a Managing Director still working and investing in the VEIP, there’s some upside to the share price crash.

That’s because you’re purchasing even more shares than you would if the price was still $415/share. Let’s do the math.

If your gross cash compensation was $400,000* in 2022 and you maximize the VEIP at 30%, you purchase $120k in shares.

• If the average purchase price in 2022 was $415/share, you would purchase 290 shares.
• If the average purchase price in 2022 is $270/share, you purchase 444 shares.

That’s an additional 154 shares purchased throughout the year. Assuming you satisfied the terms of the VEIP, your VEIP RSU is an additional 77 shares.

You have to remember the VEIP RSU award is based on the number of shares purchased, not the total amount spent on shares.

Obviously, the award amount is the same ($415 x 145 = $60k and $270 x 222 = $60k), but what happens if (when) ACN moves back to $415. The extra 77 shares are now worth $32k!

Upside #2: Dividend grants

Did you know you receive additional shares each quarter for your unvested shares? Accenture pays you “dividends grants” on your unvested shares each time they pay quarterly dividends.

If your MD grant is unvested, or you have lots of unvested RSU grants stacked up from the VEIP and equity awards, you’re receiving these dividend grants.

If you have 500 shares unvested, Accenture’s 1.42% dividend yield means you’ll receive an additional ~2 shares per quarter. It doesn’t sound like a significant amount, but it adds $2k per year at the “cheaper” stock price.

Upside #3: Tax-efficient selling

Ok, I’m starting to reach on this one, but we are trying to look at the bright side. Since the share price is back down to where it was 1 – 1.5 years ago, you might now have shares with minimal gains.

The price drop allows you to sell these shares without much tax impact.

If you sold while the price was jumping last year, you probably paid significant capital gains on your 2021 tax return. Now, “thanks” to the drop, you can sell more tax-efficiently.

The Downsides of the drop

With those small bright spots in mind, there are obvious and multiple downsides to the current share price, especially if you’re regularly selling shares.

• Monthly VEIP purchases disallow you from claiming a loss on shares sold, but they can be recaptured later
• Your pockets feel a lot lighter if you hold a lot of Accenture shares.
• You may be forced to sell at a loss and lose the money you already paid on taxes.

To manage through the pain of a drop, you should have a strategy to minimize the damage.

Strategies include:

• Selling in a tax-efficient manner on a regular plan
• Diversifying when possible
• Keep enough in savings to have cash on hand to get through at least small drops (and MD blackout windows)

Times like these are always valuable reminders of the advantage of diversifying your holdings so you don’t own so much of one company. In this event, we had a market-wide downturn, but if Accenture stock was sliding against a strong market, it would be even more painful.

Finally, it’s important to remember these drops are going to happen. Yes, Accenture rewarded shareholders with a ~17% annualized return for the last five years before the drop.

However, if you were paying attention to the P/E Ratio (Price to Earnings), you would have also realized the stock price was growing much faster than “normal” last year.

Painful times like these allow us to have even more significant gains down the road.

*Compensation example based on latest salary data from glassdoor.com_.