If you are fortunate enough to be an executive with equity compensation, you have many opportunities available to you depending on the particular offering. The programs quickly begin to look like alphabet soup, however.
The most common are grants of Non-Qualified Stock Options (NQSOs) and Restricted Stock Units (RSUs). Other forms include Incentive Stock Options (ISOs), Restricted Stock Shares (RSSs), Stock Appreciation Rights (SARs) and Performance Stock Units (PSUs). Each offering comes with its own set of advantages and disadvantages, not only relative to risk and return, but also tax implications, vesting requirements, deadlines, withholdings and the impact on your aggregate investment portfolio.
For planning purposes, it is prudent to complete a concentration analysis that compares the value of all company stock and options to the value of one’s other investments. Additionally, it is prudent to know the approximate stock price needed in order to accomplish your goals of retirement, college funding, or other specific cash flow needs. Importantly, the after-tax proceeds should be calculated since most often the amount of tax liability is higher than expected.
A complete analysis of your equity compensation should be completed in the context of a comprehensive financial plan. If you are interested in learning more, please contact David Wilder, CFP® and request a complimentary report “10 Things You Should Know To Get the Most From Your Employee Stock Options”.