With the markets hovering near all-time highs and many companies rewarding employees with equity, the second half of the year is always a great time to reassess your compensation package. Equity can be one of the most valuable and complex components of your total compensation. Whether you’re early in your career or a seasoned professional, without a clear plan in place, it’s easy to let stipulations slip through the cracks.
Whether the market is at a new high or low, the second half of the year is a great time to take a step back, take inventory, and review your strategy in order to optimize your equity benefits and look at the opportunity set. This should be a recurring event every year to recap any decisions that have been made so far, as well as any potential choices moving forward, as the year comes to an end. Here’s a simple yet powerful checklist to help you evaluate where you stand today and how to plan for tomorrow.
- Understand Your Equity Compensation Type: Not all equity is created equal. Start by identifying the types you have been granted. Understanding your specific mix of equity grants is the first step toward a strategic plan. It’s important to identify both the grants you have already received, and those you will receive in the future.
- Employee Stock Purchase Plan (ESPP)
- Restricted Stock Units (RSUs)
- Non-Qualified Stock Options (NQSOs)
- Incentive Stock Options (ISOs)
- Consider Vesting Schedules: Each type of grant comes with a vesting timeline which can vary widely. Knowing when your shares vest helps you anticipate future income, plan liquidity events, and avoid leaving value on the table if you are considering a job change.
- Are you on a standard four-year vesting schedule?
- Is there a cliff period involved?
- Are there performance-based or milestone-driven vesting?
- Identify What’s Vested Vs. Unvested: Take inventory of what you already own or what is vested compared to your remaining unvested share. Keeping track ensures you know what’s available to act on and what is still locked up.
- Concentration: What is your current concentration level in your vested shares, and what is your overall concentration if you add the potential value of unvested shares?
- Risk exposure: Vested shares can be sold or held; unvested shares could be lost if you leave the company.
- Planning sales: You can only sell vested shares or exercised-vested options regarding NQSO and ISO.
- Check Expiration Dates. Are grants expiring? Should I exercise? Stock options don’t last forever. If you have NQSOs or ISOs, check the expiration dates on your grants, especially if you have been at your company for several years. Typically, grants will expire 10 years after the grant date. Exercising options can be a strategic move or a costly misstep if not timed correctly.
- Are there any options approaching expiration? If so, what is the strategy to make sure you do not lose out on this benefit?
- Should you exercise now or wait, based on the stock price of the company?
- Can you afford the out-of-pocket cost associated with exercising the shares?
- Do you understand the tax implications of exercising shares?
- Evaluate Tax Implications: Planning for taxes can dramatically change the outcome of your decisions. Being mindful of the tax impacts and working closely with professionals is a major key to success.
- If you have RSUs, how much of a tax impact will you face based on how many shares will vest and the company stock price?If you are exercising shares, it is important to recognize the different tax impacts between ISOs and NQSOs.
- With ISOs, you want to be mindful of any Alternative Minimum Tax (AMT) exposure.With NQSOs, you want to be mindful of additional ordinary-income impacts.
- When looking to sell shares, will there be long-term capital gains or short-term capital gains based on the holding period?
- If you have RSUs, how much of a tax impact will you face based on how many shares will vest and the company stock price?If you are exercising shares, it is important to recognize the different tax impacts between ISOs and NQSOs.
- Align Future Goals with Future Sales: Your equity compensation should serve your broader financial goals, not the other way around. By mapping equity decisions to future goals, you shift from reactive to proactive, which is where real financial progress happens.
- Do you need to sell shares to fund a down payment, education, or other future expenses?
- Would it make sense to diversify away from the company stock based on your concentration level and where you are in life? For example, concentration levels might differ from a 30-year-old professional to someone retiring in the next three years.
- How does your equity fit into your retirement or long-term wealth plan?
Equity compensation is more than just a workplace perk; it’s a powerful tool for building long-term wealth. But without a plan, it is easy to miss key deadlines, pay more taxes than necessary, or simply feel overwhelmed by the complexity. By walking through this checklist, you are taking the first steps toward clarity and control. Mid-year is the perfect time to reevaluate. Make your equity work for you, not the other way around.
Summary:
With markets near record highs and equity playing a bigger role in compensation, now is the time to reassess your equity strategy. Whether you hold RSUs, ISOs, NQSOs, or participate in an ESPP, it’s important to understand what you’ve been granted, when it vests, and how it fits into your overall financial plan. This mid-year checklist covers key areas like vesting schedules, concentration risk, tax implications, and expiration dates. By aligning your equity decisions with your long-term goals, you can make smarter, more strategic moves—whether it’s diversifying, exercising options, or planning for future liquidity needs. Equity can be a powerful tool for building wealth, but only with a plan.
Disclosure:
Green Ridge Wealth Planning, LLC is a registered investment adviser. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment/tax advice. The investment/tax strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment/tax strategy for his or her own particular situation before making any investment decision(s). You are responsible for consulting your own investment and/or tax advisor as to the consequences associated with any investment.
The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of the AUTHOR, may differ from the views or opinions expressed by other areas of Green Ridge Wealth Planning, LLC, and are only for general informational purposes as of the date indicated.