The Challenges of Equity Compensation
Equity Compensation is Complex
As an owner in the business there are a lot of challenges for you when it comes to equity compensation. First, equity compensation is confusing and complex. The assortment of acronyms are endless and baffling – RSUs, ISOs, NSOs, RSAs, ESPPs, etc. Keeping the ins and outs of each instrument straight can be very overwhelming for you.
Unexpected Income Tax
Additionally, unexpected income taxes can arise with equity compensation. You make a decision during the year and then on the following April 15th you get a large, surprise tax bill that you can’t pay with your cash on hand. This has been even more painful because of the bear market so far in 2022. For example, $50,000 worth of RSUs vested in August 2021, you paid your surprise tax bill based on the $50,000 in April 2022, and now the RSUs are worth $18,000!
Stock Ownership Stress
Furthermore, as an owner of the business, you are subject to the fluctuations in the stock price. Your lack of control over these fluctuations is stressful. Sometimes you can miss out on the stock’s upside by not owning enough. Other times owning too much of one stock can be a money losing proposition when the share price declines.
Cash Flow Timing Challenges
You can choose many outcomes for equity compensation instruments. Received, vested, exercised, or sold, are some of the “options” and different rules apply to each one. If you don’t understand these terms, call me immediately! For example, the taxes and structure around RSUs is very different from those for ISOs. It’s a challenge to manage the cash flows and tax obligations for each piece of equity, let alone the appropriate timing for each decision.
Equity Compensation is Hard to Integrate with Your Financial Plan
Finally, equity compensation arrangements are an important part of your overall financial plan. Integrating them into your plan is complicated and very convoluted. If you are confused, and none of the articles you read elsewhere seem to help you, don’t worry, you aren’t alone. I’m here to help. I have helped lots of clients like you understand equity compensation and feel comfortable and confident about their sensible financial plans we developed together.
The Solutions for Your Equity Compensation
Experience Matters
As an experienced advisor who thrives on the complexity of equity ownership, I will explain in terms you understand what you own and what to do about it in a straightforward manner. I have read countless annual reports and proxy statements to understand the businesses, the ownership structure, and incentive compensation. I still read through those documents now, so you don’t have to. You can spend your free time at your leisure.
Make Income Tax Expected
Moreover, I collaborate, develop, and work on a plan to help you vest, exercise, hold, and sell stock that align with your situation that considers your income tax, capital gain tax, and withholding tax implications. There won’t be any surprise tax bills or payments on April 15th!
Appropriate Share Ownership
Likewise, when it comes to share ownership, your plan will strike a proper balance between selling or holding shares based on your risk appetite and your overall investment portfolio across all accounts. The investment risk will be allocated appropriately for your situation.
Best Use of After Tax Proceeds
When you sell the shares, I help you make the most of your after-tax proceeds so you can take care of your parents, get your partner that extra-special birthday gift, or fund college for the kids. I work with you to incorporate the value of your company stock into your overall financial goals and objectives.
Straightforward Plan for Equity Compensation
I offer professional step-by-step guidance to help you manage your equity compensation with an integrated action plan for share ownership, expected income tax payments, and best use of after tax proceeds for your hopes and your dreams. The process involves a convergence of tax planning, investment management, and financial planning. We work together to focus on what’s important to you.
Actions to Take
Determining the proper time and the right action for your equity compensation is a personal decision that considers your personal goals, your financial situation, the rules and regulations put in place by your employer, and the US tax code.
A great place to start is to learn more about what equity compensation benefits you have and important dates you should be aware of. Then you can start planning, develop a timeline, and have a great strategy for the appropriate action. If you want to get started, schedule a free consultation.