If you work for Pfizer, you are probably used to receiving long term incentives as part of your overall pay package.
Some of these are fairly straightforward, but the one that gives many colleagues a challenge is understanding their Total Shareholder Return Units, also known as TSRU’s.
TSRUs give employees the right to receive Pfizer common stock at Settlement. This is usually 5 years after receiving the grant.
equal to the difference between the Settlement Price and the Grant Price, plus dividend equivalents accumulated during the settlement period
Key Takeaways
- TSRU’s are a valuable piece of Pfizer colleague’s incentive package
- Determining whether or not to convert TSRU to PTU can make a big difference on what the employee receives
- Understanding how they are calculated can help you plan for the future better
How TSRU’s are Calculated
The value of the TSRU can be calculated by taking the settlement price and subtracting the grant price. You then add the dividend equivalent units to that number, and multiple by your total number of grants. Settlement price is based off the 20 day moving average of Pfizer share price before settlement.
When Do TSRU Vest?
Typically TSRU awards vest after 3 years, but recent awards have had a 5 year vesting. This means that you need to work for the company at least 3 years after receiving the grant to be eligible for payout.
Some Pfizer Colleagues are retirement eligible. If you are a retirement eligible Pfizer colleague, you are eligible to keep unvested TSRU grants that you have held for at least 12 months from receiving the grant.
When Do TSRU Settle?
Typically TSRU awards settle after 5 years, but recent awards have had a 7 year settlement. This means that the shares you receive will payout on either the 5th anniversary or 7th anniversary of the grant.
Upon settlement, the value of the TSRU is converted into Pfizer stock. The stock is then deposited in a brokerage account.
What is a PTU?
Pfizer gives retirement eligible colleagues the ability to convert their TSRU to PTU. PTU stands for Profit Unit. A profit unit valuation moves dollar for dollar with the Pfizer share price.
Should I Convert?
In rising markets, TSRU will generally appreciate faster than PTU’s will. If you believe that Pfizer share price will increase between now and settlement, it generally makes sense to hold the TSRU and NOT convert.
In flat markets, TSRU will generally have more value than PTU’s. The reason for this is that when you convert to PTU, taxes are withheld. This means you have 22% less PTU than TSRU. Less shares means less dividend equivalent units. If you believe share price will be flat, it generally makes sense to hold the TSRU and NOT convert
In down markets, the TSRU will generally lose more value than the PTU. If you believe share price will be down between now and settlement, it generally makes sense to convert the TSRU.
Conclusion
Converting a TSRU to a PTU can be a big decision. If you want to have a discussion about whether or not this makes sense for you, and how it could impact your taxes, feel free to schedule a complimentary evaluation.
