Welcome
Equity Compensation Planning
Planning for and managing equity-based compensation relies not only on an in-depth knowledge of the mechanics, tax implications, and risk/reward profile of your equity, but also on a fundamental understanding of your unique financial situation. We strive to bridge the gap between the potential upside of your equity and the achievement of your financial goals.
How We Can Help?
As an employee, understanding your equity-based compensation is vital for making informed financial decisions. We help clients...
-
Plan for the exercise of incentive stock options (ISOs) and non-qualified stock options (NQSOs)
-
Understand how the vesting of restricted stock units (RSUs) impacts their portfolio and their tax situation
-
Utilize employee stock purchase plans (ESPP) to capitalize on the opportunity to buy shares at a discount
-
Manage concentration risk and execute the diversification of large positions in your employer's stock
It is never too early to start developing a game plan for your equity based compensation.​ The key to avoiding surprises is being proactive. Call us today to schedule your free initial consultation.
Related Resources
Common Questions
1
When Should I Exercise My Stock Options?
ISOs and NQSOs are taxed differently when exercised. ISOs impact the calculation of the Alternative Minimum Tax if shares are held after exercise. The exercise of NQSOs triggers ordinary income tax if the strike price is below the fair market value. Decision making needs to incorporate (1) the difference between the strike price and the fair market value, (2) the potential timeline until liquidity (tender offers, IPOs, publicly traded shares, etc.), and (3) your specific financial considerations (marginal tax rate, short-term cash needs, progress towards financial goals, risk tolerance, etc.)
2
How Do RSUs Impact My Taxes?
RSUs trigger ordinary income taxes when they vest. Any future gains or losses are then treated as capital gains. For individuals in high tax brackets, withholding too little on RSU vesting can lead to tax surprises. These surprises can be mitigated through increasing your withholding (RSU tax withholdings are usually at the 22% or the 37% federal rate) or through making estimated tax payments. For those with already large positions in their company stock, selling RSUs soon after receiving them effectively turns the compensation into cash compensation and can be used to reinvest elsewhere to improve diversification.
3
How Much Should I Contribute to My ESPP?
For public companies, employee stock purchase plans typically allow employees to purchase stock at a discount over a certain time period. An example of this would be buying stock at a 15% discount to the low price over a 6-month period. If sold before a two-year holding period, the initial discount to fair market value is treated as ordinary income while any gain or loss from the fair market value to the price at sale is treated as a capital gain. Participation in ESPPs should be calibrated with your existing portfolio and financial goals/needs.
4
Do I Have Too Much Tied Up in My Company Stock?
Through stock options, RSUs, and ESPPs, holdings in company stock can quickly accumulate. Often, employees don't realize how much of their investments are tied up in these shares. Research has shown that as one stock becomes greater than 10% of a portfolio, additional concentration causes portfolio level risk to rise rapidly. Your ability to take risk is deeply tied to your total assets, the time horizon of your financial goals, and your own behavioral relationship with volatility. The decision when and how to sell should rely on your specific situation rather than on what your coworkers are doing.
