Many executives think of the process of wealth management as beginning after money has been made. Unfortunately, that can be a costly mistake for those who overlook opportunities to grow their wealth by taking actions that can increase their compensation.
Specifically, this relates to employer stock-based compensation, which for many executives makes up the majority of their potential compensation package.
Executives obviously don’t get to decide what their own compensation will be, so what actions can they take to increase it?
This is about avoiding big mistakes when considering a job change, which can be achieved by getting professional advice to understand the financial upside in an offer that you’ve received, and whether or not it makes sense to exercise stock options in your current employer after departure.
Understanding Your Stock Options, RSUs, and Other Forms of Employer Stock
The first step in managing stock-based compensation effectively is fully understanding what you have received. To get started, you’ll want to gather all documents related to employer stock that you’ve been granted.
Many executives are shocked to know how many of their peers don’t have all of the documents related to stock that they’ve received on hand, and this matters for numerous reasons.
These documents will dictate how vesting occurs, as well as how stock is handled upon termination (voluntary, or involuntary). While tax treatment is prescriptive (i.e. tax rules), nearly all other key terms and conditions are determined by the employer who has relatively broad discretion in how they setup their stock plan rules.
Career Opportunities Can Arise Unexpectedly, and Require Close Consideration
There is always the possibility that another (better) career opportunity may arise unexpectedly while employed in your current job.
This matters because considering what money you may be leaving on the table should be a key part of your decision-making process (i.e. walking away from unvested stock, or being required to exercise vested stock options shortly after termination to avoid forfeiture).
When a job offer arises, people don’t have a lot of time to decide, and asking your employer (out of the blue, with sudden urgency) for a copy of your stock grants could signal your potential departure.
If it turns out that a new opportunity doesn’t prove to be the right fit, signaling your intent to leave could put you in an uncomfortable situation with your current employer. People rarely accept the first opportunity that they encounter, so this needs to be handled with care, and may come up more than once before your departure.
When Considering a Career Move, Seek Professional Advice on Your Employer Stock
If you’re considering new opportunities where employer stock is a material part of your total compensation package, working with a financial advisor who is skilled in stock-based compensation, and advising upon career decisions related to it, can be highly valuable.
While all executives can benefit from this type of specialized advice, this is especially insightful for those who work at private companies. That’s because it can be difficult to evaluate and understand the potential value of private company stock, and there is likely to be little (if any) opportunity to turn that stock into cash until there is a successful exit.
Of course, it’s not possible to know exactly when or at what price a company may sell several years in the future. However, it is very possible (and important) to understand if an employer stock package is potentially lucrative (or not) before you accept an offer.
Getting a professional opinion on the structure, attractiveness, and potential upside in stock that you’ve received from your current employer, or have been offered by a new employer, is one of the most important things you can do to increase your compensation.
If you’re an executive who recently made a career charge or are considering one, let’s have a conversation.
This blog was written by Jeremy Bohne, Principal & Founder of Paceline Wealth Management. Paceline is a fee-only investment advisor serving clients in the Boston area, and on a remote basis throughout the country. Paceline specializes in helping tech and biotech executives, physicians, and those seeking financial planning services.