Equity Compensation Optimization
The Situation
A 42-year-old tech executive came to Ivory Oak Capital with a complex equity compensation package including stock options (ISOs and NQSOs), RSUs, and ESPP participation. Her company stock represented over 70% of her net worth, creating significant concentration risk. She faced multiple decisions with substantial tax implications: when to exercise stock options, how to manage AMT exposure from ISO exercises, when to sell RSUs upon vesting, how to diversify without triggering excessive capital gains taxes, and how to coordinate equity compensation with her overall financial plan. She felt overwhelmed by the complexity and concerned about making costly mistakes with timing and tax strategy.
Our Approach
Dylan T. Franzten created a comprehensive equity compensation strategy coordinated with the client's overall financial plan. The planning process included detailed inventory and analysis of all equity grants with vesting schedules and expiration dates, modeling of various exercise and sale scenarios with tax projections including AMT calculations, development of a multi-year diversification strategy to systematically reduce concentration risk, coordination with her CPA to optimize timing of equity events across tax years, analysis of qualified small business stock (QSBS) opportunities if applicable, and integration of equity compensation strategy with retirement planning, college funding for her children, and other financial goals. The plan provided clear decision frameworks for when to exercise options, when to sell vested RSUs, and how to manage ESPP participation.
The Outcome
The executive now has a clear, tax-efficient strategy for managing her equity compensation. She implemented a systematic diversification plan that reduced her company stock concentration from 70% to 40% over two years while minimizing tax impact. The ISO exercise strategy managed AMT exposure by spreading exercises across multiple years and coordinating with other income events. She established automatic sell rules for RSU vesting to prevent further concentration. The tax-optimized approach saved an estimated $150,000 in taxes compared to ad-hoc decision-making. Her diversified portfolio now includes a mix of asset classes that reduces risk while maintaining growth potential. She has clear decision frameworks for future equity grants and feels confident managing the ongoing complexity of her compensation package. The coordinated strategy also accelerated progress toward other goals including college funding and retirement savings.
What This Means for You
If you receive equity compensation and feel overwhelmed by the tax complexity and concentration risk, comprehensive planning can help you optimize your decisions and build wealth efficiently. Every equity compensation situation is unique, but the process of analyzing your specific grants, modeling tax implications, and creating a coordinated diversification strategy can help you maximize after-tax value while managing risk. This case demonstrates how specialized planning addresses the complex intersection of equity compensation, tax strategy, and overall wealth management.
Ready to Optimize Your Equity Compensation?
If you have complex equity compensation and want to create a tax-efficient diversification strategy, let's discuss your specific situation and goals.