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Maybe you’ve landed that senior level position you’ve been working toward. Or perhaps you’ve been in the C-Suite, but you’ve just taken an opportunity at a new company, or your company has been sold/merged. These kinds of life changes should prompt you to revisit financial planning in general, but when it comes to executive level compensation offerings, there is a lot more to consider. It is a world filled with acronyms such as: SERP, ISO, NSO, RSU and DCP, just to name a few!
Rod Young and Jackie Cornelius— the ExecutiveEdge™ team at Valley National Financial Advisors—offer some explanations, insights and cautions around some of the most common options presented to high-earning professionals. RELATED VIDEO: Executive Compensation Series Introduction
1. Deferred Compensation Plans
Definition: Deferred compensation is a portion of an employee's compensation that is set aside to be paid at a later date.
Planning Considerations: Decisions surrounding these plans go well beyond deciding how much of your salary or bonus to defer. How should the account be invested? What are the considerations in making your distribution elections—elections that need to be made now even though the payments may not be happening for many years? What is the security of your deferred compensation account? How do these decisions affect your overall financial plan? Knowing your options and then making these choices about the future require sophisticated and personalized planning. RELATED VIDEO: Deferred Compensation
2. Stock Options
Definition: A stock option gives an investor the right, but not the obligation, to buy or sell a stock at an agreed upon price and date.
Planning Considerations: It is important to understand the type of stock options you have and the tax consequences when exercising the stock options. What is an optimal time-frame to target exercising your stock options? What happens when you retire or change jobs? Busy professionals often do not have the time to explore possible outcomes of all of these scenarios, so consulting with Human Resources and financial professionals can be a stress-saver.
3. Restricted Stock
Definition: Restricted stock refers to unregistered shares of ownership in a corporation that are issued to corporate affiliates, such as executives and directors. Restricted stock is nontransferable and must be traded in compliance with special Securities and Exchange Commission (SEC) regulations.
Planning Considerations: When do the shares vest? What should you do with the shares once they vest? Are there any actions you should take at the time Restricted Stock is awarded to you? Additionally, what are the income tax consequences now and in the future. These are a few of the questions to consider.
In addition to the myriad of choices, opportunities and risks of the big three above, Managing Stock Concentration Risk is a key component of planning as these types of benefits can leave you with “all your eggs in one basket.”
Planning Considerations: How do you develop a priority system for selling company shares to manage that challenge and mitigate potential risk? That is where the rest of your financial plan comes into play. Rod and Jackie will share some approaches to managing concentration risk in an upcoming part of their video series. Stay tuned for more, and find out more about this duo here.
Valley National Financial Advisors is the marketing name for Valley National Group, Inc. and its affiliates. Securities offered through Valley National Investments, Inc. - an independent broker/dealer and member FINRA and SIPC. Valley National Advisers, Inc is a Registered Investment Adviser with the U.S. Securities and Exchange Commission.
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This post is a sponsored collaboration between Valley National Financial Advisors and Lehigh Valley Style.
