Managing Stock-Based Compensation
Company stock and options and other non-cash forms of compensation can bring tremendous wealth--but making the most of these awards demands an active management approach. The natural tendency to accumulate as much as possible can lead to an overconcentration of risk or lost opportunities to maximize value. However, with the right tools and thoughtful planning, you can make well-informed decisions on building and protecting wealth with stock-based compensation.
As an investment manager for many corporate executives and entrepreneurs, Bernstein has conducted extensive research regarding executive wealth issues. Using our proprietary Wealth Forecasting SystemSM (WFS), a powerful financial planning tool, we have a unique capability to model stock-based compensation as part of an individual's or family's total wealth. The WFS can project the probable outcomes of portfolios that include both current and expected future grants of single stock, restricted stock, and stock options--as well as traditional and alternative asset classes. (For more information on the WFS, see "A Closer Look at Our Modeling: The Wealth Forecasting System," page 8.)
In this report, we present our key findings, including:
* How to evaluate and compare different types of stock-based compensation
* How to integrate stock-based compensation into lifetime wealth planning using a Core and Excess Capital[SM] framework
* A method for determining how much single stock is appropriate in your portfolio, and, if you need to diversify, a framework for choosing which holdings to divest and which to keep
* How to manage stock options to maximize their value
* Strategies for integrating single stock with estate and charitable planning
* Determining when and how to use non-qualified deferred compensation plans
* How to structure 10b5-1 trading plans
* How to make informed decisions regarding net unrealized appreciation (NUA) elections and 83(b) elections
Large holdings of company stock and options are a double-edged sword: They can build tremendous wealth, but they are also risky, no matter how strong the company. Many executives have greater exposure to their company's fortunes than they realize. Not only are their investments largely tied up in company stock, but their livelihood (salary and bonus) and benefits (healthcare and certain types of retirement plans) may also rely on the company's continued health.
A proactive approach to managing stock-based...