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PFP1920 - Taking Stock: Planning with Executive Compensation

Jun 11, 2019 7:00am ‐ Jun 11, 2019 8:15am

Standard: $49.00


For many corporate professionals, salary and cash bonus is just part of the reward for work well done. Additional compensation can come in other forms: stock and option awards, contributions to a defined benefit pension plan, or an employer match to a defined contribution 401(k) plan. Some companies also allow employees to defer additional compensation to a non-qualified plan, which may be matched, too. These awards and plans offer attractive opportunities to build wealth based on a company’s success. However, a full compensation review often reveals that an employee is more exposed to the health of the company than she suspects. In our experience, it’s not uncommon to encounter executives who have more than half of their total portfolio tied up in company-related assets. Such concentrations make it essential to evaluate the risk/reward equations of each type of compensation or award. That’s because the building blocks of executive compensation— which include cash, stock, and options—each require a different set of decisions. For example, how much of one’s salary or bonus should be deferred into a company-sponsored investment program, and when should these funds be withdrawn? If one receives restricted stock, should all shares be sold upon vesting, or just enough shares to pay taxes and continue holding them? Options, which offer a leveraged investment in stock, present a different set of challenges due to their finite life span. Should one exercise vested options if the stock has appreciated or wait until expiration, risking that they might be worthless? To make these decisions, executives need to weigh each potential outcome—in an integrated way—since each decision impacts the others. Typically, executives are so focused on effectively stewarding their companies that they have little time to spare for their own financial planning. This presentation illustrates a framework to help executives take the guesswork out of compensation planning by suggesting how to manage various awards to ensure a high probability of realizing personal, charitable and legacy goals. 

Learning Objectives:

  1. Understand how to calculate an executives' total exposure to his or her own company through the various types of options, grants and executive retirement plans.
  2. Make recommendations of how much stock exposure to diversify and which forms of exposure (for example, options vs RSUs) to sell first.


  • Tara Popernik, CFA, CFP, Director of Research, Wealth Strategies , Bernstein Private Wealth

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