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Making the Most of Your Intel Benefits: A Look at Outperformance Stock Units (OSUs)

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Starting in 2009, Intel announced a new form of stock compensation in the form of Outperformance Stock Units (OSUs) for top executives (MCM members) and expanded the OSU grants to executives grade 12+ in 2014 (coinciding with the last year of stock options). In 2017 for those levels 12+, OSUs will make up 60% of the focal grant’s value with the remaining 40% coming in the form of RSUs.

Given the increased importance of this relatively new form or stock compensation, let’s take a look at how they work, their historical performance and, for those nearing retirement, how they vest upon leaving the company.

OSU Payout Calculation

OSUs vest three years after being granted with the total shares awarded depending on Intel’s total shareholder return (TSR) compared to the S&P 500 IT index[1]. The number of shares you ultimately receive will vary based on Intel's performance versus its comparison index and a 4x multiplier—for every 10% out(under)performance, 40% more(less) shares are vested (capped at a maximum of 200% and a minimum of 0%). Therefore, 25% outperformance maxes out number of OSU shares granted and 25% underperformance takes the vested shares down to zero.

An example should make this clear. Assume 1,000 shares are granted, and three years later Intel outperformed the S&P 500 IT index by 15%. In this case, 1,600 shares would vest [1,000 * (1+ 15%*4)]. If underperformance were 15% instead, the number of vested shares drops to 400.

The chart below depicts how OSU payouts vary at difference levels of out(under)performance. As you can see, payouts reach 0% and 200% of target at -25% and +25% TSR performance respectively and these levels serve as the minimum and maximum points.

clip_image001-1.png 

Past Performance

OSUs awarded 2015 or later are not yet final, however historical and live performance for open OSUs can be found on your Intel ‘Peer Tracker’ website. We find that many are curious how the OSUs have performed in the past, so we’ve summarized below. Using the data available at ‘Peer Tracker,' we've graphed performance for OSUs grants from 2012-2017 (years in green are finalized while the years in yellow are still open). As you can clearly see, payouts can vary widely, with payouts dropping from a maximum of 200% in 2014 to, as of right now, a 0% potential payout for the 2016 awards. OSU Payouts.png

At Retirement

For those hitting the Rule of 75 or 60, open OSU grants will vest on the date of retirement, although payout will still take place three years from the initial grant date and will be based on Intel’s TSR performance relative to its peer group.

Conclusion

We work with a number of Intel employee and executives and due to the many moving pieces in the company’s benefits plans they often lack a full understanding of their benefits—especially how to model the effect of these benefits on their personal financial situation. Many times, this lack of clarity turns into uncertainty about how far retirement is away for them and how the price of Intel’s stock will factor into this decision.

Because we are familiar with how the Intel benefits programs work, we can model and stress test these different scenarios for you— ultimately helping those we work with make financial decisions with confidence.

If you need help understanding your Intel benefits and building them into your financial plan (a.k.a., your financial decision-making tool), get in touch with one of Cordant’s advisors today.

 Click here to contact Cordant and start making smart and intentional financial decisions

 

The information provided herein is intended for informational purposes only and is subject to change without notice. We recommend that you speak with your HR representative regarding your specific circumstances.

 

 

[1] For 2017 awards. OSUs granted in prior years have a slightly different formula for outperformance where Intel's TSR is compared to the median TSR from a peer group of publically traded technology companies.

Click here for disclosures regarding information contained in blog postings.
Cordant, Inc. is not affiliated or associated with, or endorsed by, Intel.

Published on June 08, 2017

Isaac Presley, CFA

Isaac Presley, CFA

Isaac Presley is Director of Investments for Cordant, a wealth management firm serving current and former Intel employees. To learn more, you can read Isaac's full bio.

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