Equity Compensation Deserves a Financial Plan

Stock options, restricted stock and other equity awards can connect compensation, taxes and investment risk in ways that deserve coordinated planning.

Inventory every award

Start with grant type, vesting schedule, expiration date, exercise price, current value and applicable company restrictions. Different forms of equity compensation can have very different tax treatment.

Model cash needs and taxes

An exercise, vesting event or sale may create a tax obligation. Estimate potential withholding and cash requirements with a tax professional before acting. Avoid assuming payroll withholding will necessarily equal the final tax liability.

Watch total company exposure

Salary, bonus, unvested awards and owned shares can all depend on the same employer. That may create more concentration than the brokerage statement alone suggests.

Tie decisions to goals

The purpose of equity compensation is ultimately personal. A planned sale may fund a home purchase, diversify retirement assets or create a reserve. Holding may preserve desired exposure. The appropriate decision depends on goals, risk capacity, taxes and the specific award terms.

Use the right professionals

Equity compensation can involve tax rules, securities restrictions and plan-specific provisions. Coordinate financial planning with the employer’s plan documents and qualified tax and legal advisers as needed.