March 15, 2023

The Importance of Proper Equity Compensation Planning

Equity compensation can be a powerful tool for building wealth, but it also comes with unique risks and challenges that need to be addressed through proper planning and execution. Many employees who receive stock from their employer as part of their pay, known as equity compensation or equity comp, often face issues such as concentration of risk, phantom taxes, and missed investment growth opportunities. Without proper planning and execution, these issues can lead to significant financial losses and even stymie career growth.

That's where Ryan Ahrens and his team at Green Ocean Global Advisors come in. As fiduciary financial professionals, they specialize in providing custom investment strategies based on the individual needs and goals of their clients. They prioritize understanding the unique situations, risks, and resources of each client through a comprehensive and empathetic discovery process. By doing so, they help their clients navigate the challenges of equity compensation and achieve their financial goals.

Equity compensation can take many forms, including restricted stock units (RSUs), stock options, and employee stock purchase programs (ESPPs). Each type of equity compensation comes with its own set of challenges and requires specific strategies to leverage its value to maximum effect.

With RSUs, for example, Green Ocean analyzes vesting schedules, estimates future grants, assesses cash flows, taxes, career plans, and risk tolerance to create a custom plan of action and realize improved outcomes. Stock options, while a powerful wealth creation tool, feature some of the most costly and complicated tax consequences in the equity comp lineup. Green Ocean's planning approach involves creating a systematic exercise and sale plan based on mathematical formulas that account for the underlying security, tax bracket, and broad market risks. ESPPs require keen eyes and a steady hand to manage effectively, as the position must be monitored throughout its life. Green Ocean's approach involves introducing a mathematical system of management that limits tax consequences to the client's unique parameters and produces a glide path from purchase through sale, accounting for the specific employer stock price and historical volatility.

Through their planning process, Green Ocean aims to help their clients achieve their financial goals while mitigating risks and maximizing opportunities. By taking a comprehensive and data-driven approach to financial planning, they help their clients enjoy increased tax savings, improved risk and reward relationships in their investments, more predictable financial and retirement plans, and more realized usable wealth to do the things they love.

However, the benefits of equity compensation planning go beyond just financial gains. Many employees who receive equity compensation also face the challenge of balancing their personal values and priorities with those of their employer. As Ahrens explains, "If equity comp is left to its own devices, we are effectively valuing our employer stock over our own personal financial goals and priorities." By working with Green Ocean, clients can gain a better understanding of how their equity compensation fits into their overall financial picture and make more informed decisions about how to use their money to achieve their goals.

Equity compensation can also act as golden handcuffs, keeping employees tied to their current employer due to unvested or unexercised shares that would be canceled upon leaving the company. Green Ocean's planning process takes these factors into account and helps clients make more informed decisions about their career moves.

Ultimately, the success of equity compensation planning comes down to proper execution. As Ahrens emphasizes, "If critical steps are not taken with all the risk factors at the correct time in the correct way, you can easily end up in a situation where market dips, errant tweets and unexpected taxes rear their head and we're back to the drawing board of how to accomplish your financial goals."

Equity compensation can be a double-edged sword, but with proper planning and execution, it can be a powerful tool for achieving lasting wealth. Ahrens says, "A good financial plan views money as emotionless, but helps to connect people and their money with what they care about the most." Through their efforts, Green Ocean Global Advisors aim to give people more time back in their day and more money in their accounts, so they can focus on what truly matters to them and their families.