Whether you’ve been at Nike since the waffle iron days, or have recently joined the team, you’ve undoubtedly come across the many savings and benefit plans offered. While these plans are quite generous, they can also be complicated and confusing. In this article I’d like to briefly touch on each plan, describe their basic functionality, and help you prioritize which to contribute to and when.

The 401(k) and Profit-Sharing Plan

The first and most accessible option for long-term savings is the 401(k) plan. In 2024 you can contribute up to $23,000, or $30,000 if you’re over the age of 50. The beauty of the traditional 401(k) is twofold: tax deferral and the employer match. When you contribute to the traditional 401(k), the money goes in pre-tax, meaning you pay no taxes on contributions. In addition, any gains in the account are tax deferred, so no taxes are paid until you take the money out. The employer match is another very important advantage of the 401(k). Nike is willing to match whatever you put in, dollar for dollar, up to 5% of your salary. Now, I consider myself a pretty good financial advisor, but there are no investments out there that I can guarantee will double your money each year. An employer match gives you that opportunity, so, if nothing else, contribute to the 401 (k) to take full advantage. If you’re currently in a lower tax bracket and expect your tax rate to go up in the future, consider contributing to the Roth 401(k) where dollars go in after-tax, but can be withdrawn tax-free in retirement. Keep in mind: the 401(k) is a retirement plan, so outside of a few exceptions, you can’t take money out until you’re 59.5 without incurring taxes and a penalty.

The Employee Stock Purchase Plan (ESPP)

If you think of the 401(k)/Profit Sharing Plan as your long-term retirement savings, think of the ESPP as an account for your intermediate needs or large purchases. While there are no tax advantages like those associated with the 401(k), there is more flexibility in accessing the funds. The main advantage here is the ability to purchase Nike stock at a 15% discount, applied to the lower of the share prices at the beginning or end of the period. If Nike starts the period at $100 per share and ends at $115, you get to buy it at $85 per share ($100 – 15% = $85). You can sell the shares whenever you’d like, but holding them for at least 18 months qualifies you for the most favorable tax treatment. The amount you invest in the plan can be updated once per offering period if your cash flow needs change. Your contribution can range from 1% - 10% of your income, up to $25,000 per year. If you consistently contribute to the ESPP and Nike’s stock price increases, you can create a nice nest egg which can be used for all kinds of purchases such as a down payment on a home, large vacations, remodeling expenses, etc.

Nike Stock Options & RSU’s

At the Director level you will begin receiving an annual stock award. Unlike the 401(k) or ESPP, you do not use your own funds to contribute to this plan. Instead, a dollar amount is awarded based on your individual performance and the performance of Nike as a whole. RSU’s are restricted stock shares that vest over a four-year period. To determine the number of RSU’s you’ll receive, take your stock award amount and divide it by the current share price. RSU’s are taxed at the time of vesting so you have less control over the taxation, but they are less risky than stock options and you can take the vested shares with you, should you leave Nike. Stock options are a bit more complicated. As the name implies, stock options give you the option to purchase Nike shares at a specific price. This makes stock options riskier because if Nike stays at the grant price or goes below the grant price, they have no value. There is more upside potential with options because you typically receive four to five times as many options as RSU’s. If Nike’s stock does well, you have more upside potential with stock options. You also have more control over taxes because taxes are due only when options are exercised. It is important to note that all options must be exercised within three months of leaving Nike, or they expire. There is no one size fits all approach to stock options or RSU’s. It’s important to consult with your financial advisor when making this selection to determine which option is best for you.

The Deferred Compensation Plan

Next, we’ll discuss the Deferred Compensation Plan, which is offered to employees earning an annual base salary of at least $150,000. If used correctly, this plan can be a valuable tool for reducing your tax bill. The deferred comp plan is the last of the options you want to contribute to and is designed to reduce the tax burden on any income that you don’t currently need. It works like this: rather than receiving this money in your paycheck, you can have Nike place it in an account for you with various investment options. You then decide when you’d like the contribution to be paid out to you. This must be a minimum of four years down the road but can be extended much longer. Because you don’t receive the money in the year you earn it, you’re only responsible for paying the Social Security/Medicare taxes at that time. While you will be taxed on the subsequent distributions, you can plan them for a time when your earned income and tax bracket are lower. Open enrollment is once a year in the fall, and you can elect to defer between 1% and 100% of your eligible compensation. As always, consult with your tax and financial advisors before selecting any specific strategies involving the Deferred Compensation Plan.

The Long Term Incentive Plan (LTIP)

The final plan I’ll address here is the Long Term Incentive Plan or LTIP. At the Vice President level, you become eligible for the LTIP, which is based on two components: company revenue and earnings per share (EPS). Each year a new LTIP is established and is paid out at the end of the three-year performance period. Because a new three-year plan begins each year, you may have three separate LTIP plans running concurrently. When a plan ends, you’ll receive a payout of Nike shares in the form of Performance Stock Units (PSU’s) between 0% - 200% of your target based on Nike’s revenue and EPS. Plan participants don’t have control over the plan performance or investments, so it is important to remember to diversify out of your Nike shares over time to avoid too much concentration in your employer’s stock.

Hopefully this guide sheds some light on the various financial benefits offered through Nike. If you have specific questions regarding your situation, please reach out to our team of professionals. Good luck!