If you’re a high-level executive, your salary is only part of the story. Stock grants, RSUs, and other equity awards can often make up a significant portion of your compensation—but knowing how to manage them effectively can be challenging.
Without a clear strategy, it’s easy to miss opportunities, pay unnecessary taxes, or take on too much risk. That’s why it’s crucial to align your equity compensation with your overall financial goals.
In this quick video, Mike Gibbons from Gibbons Financial Group walks through five essential tips to help executives maximize the value of their equity compensation. From understanding your options and planning for taxes to diversifying your portfolio and ensuring proper account titling, these strategies can help you make smarter decisions and reduce financial risk.
Watch the video now and start turning your equity compensation into a powerful part of your financial plan.
Transcript
Equity Compensation Tips for Executives
If you're a high-level executive, your salary is just one part of your total compensation package. Depending on the value of your company and your personal strategy, stock grants or restricted stock unit (RSU) compensation may be more valuable in the long run than straight salary.
Hi, I'm Mike Gibbons with Gibbons Financial Group. Today, I’m going to walk you through five tips for building equity compensation into your overall financial plan.
Tip 1: Understand Your Options
Most executive compensation plans include several equity compensation options. It’s important to understand how each option works before you create your plan.
Restricted Stock Units (RSUs) are a common type of equity compensation. With an RSU, your company grants you a certain number of shares, but you cannot access them until a set period of time, often following a 36-month vesting schedule.
Stock options are also common. These give an employee the right, but not the obligation, to buy a company's stock at a certain strike price within a set time frame. Often, the strike price is lower than the current market price.
Tip 2: Plan the Tax Consequences
Many executives overlook tax planning for equity compensation, but it’s crucial to understand how each grant is taxed.
RSUs are taxed as ordinary income as soon as they vest. Stock options, particularly non-qualified stock options (NSOs), have a more complex tax treatment: the difference between the price you paid and the fair market value is taxed as income when you exercise the option.
Creating a tax strategy can be complex, especially when equity compensation is part of a broader financial plan. At Gibbons Financial Group, we specialize in helping executives craft highly personalized strategies that account for all aspects of their financial lives.
Tip 3: Outline Your Financial Goals
Some executives treat equity compensation like a gamble, aiming to make as much money as possible without considering the timing or strategy for turning grants into cash.
When you align your equity compensation strategy with your larger financial goals, it’s easier to make meaningful progress. This involves planning around taxes and your overall financial strategy.
Tip 4: Diversify
Many executives have portfolios overly concentrated in their employer’s stock. This can make a portfolio unbalanced and expose you to considerable market risk.
If your portfolio—through stock grants, 401(k) allocations, or deferred compensation—is heavily weighted toward your company stock, it may be wise to mitigate that risk through proper asset allocation.
A 10b5-1 trading plan can help. This allows insiders to set predetermined trading schedules to sell shares, even during company blackout periods, removing the emotional burden of deciding when to sell.
Tip 5: Proper Titling and Account Registration
It’s important to ensure company stock grants are titled correctly. While many grants are issued in individual names, as they vest, consider holding them in a joint tenancy or a trust with a partner or spouse. Proper titling can help avoid the probate process and protect your estate.
At Gibbons Financial Group, we’re here to help executives navigate the complexities of equity compensation. We offer custom financial planning services, with a special focus on clients in the pharmaceutical industry.
If you would like to learn more about how we can support your financial journey, whether you’re already a client or exploring your options, we would love to connect. You can contact us online, call 224-419-5550, or email Mike@gibbonsfinancialgroup.com to schedule a complimentary consultation. And don’t miss our free webinar, Retiring Early From Pharma, where we share strategies to help you achieve your financial goals.