Are Complexity and Clarity at Odds in Executive Financial Planning?

By Chuck Steege. Whoever coined the phrase “cash is king” wasn’t talking about executive pay, which as you know has become increasingly weighted toward equity compensation. Has the complexity of executive compensation trumped clarity in executive financial planning? That’s the challenge for today’s C-suite executives.

The longer executives have worked for the company, the more likely they have accumulated various combinations of executive compensation and rewards. Over the course of a technology and advertisement concept - laptop computer with grapdecade or two, the mix can include stock options, restricted stock grants, stock appreciation rights, employee stock purchase plans or performance arrangements. Few executives would say they have a good grasp on the particulars of their company stock holdings, tax treatments and a game plan to optimize these rewards.

As public companies begin to rely more heavily on equity compensation, and boards and their compensation consultants add more accountability to stock awards, the personal financial plans of public company executives have been beset by complexity and affected by such issues as:

  • Meeting performance targets prior to vesting of performance stock awards
  • The timing of stock compensation awards and the effects of extended holding periods
  • Variations in tax treatment by various types of equity awards
  • Sequencing of sales and the strategies around maximizing after-tax returns
  • Sale of company shares and establishing 10b 5-1 plans
  • Company-specific restriction such as blackout periods and lockups

These are serious considerations for what is often one of the executive’s largest stock positions and most concentrated assets. The most astute financial executives have to admit that, at any given time, they don’t know the equity value of company stock they own or how much they can sell to meet other objectives such as diversification.

Executive compensation, tax and cash flow planning

Few financial advisors are equipped to dig into their plan documents and provide a single point of contact to analyze an executive’s equity compensation and other assets, assess their tax liability and coordinate a comprehensive plan for their financial future.

Beyond current needs, your executives look forward to a future that will eventually include retirement, either unplanned or on their own timetable. An optimal financial plan will Plan3help them to maximize equity rewards and minimize taxes. As retirement approaches, the analysis of cash flows can identify the source for pre- or post-tax retirement income.

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A well-conceived plan will balance investment, tax and liquidity considerations in view of overall financial goals. The guidance is evolving in view of regulation in this area and public scrutiny of equity compensation is at its highest point.

Providing your participants with access to proper guidance so they can maximize the return of their awards will have a significant impact on their perception of the value of the awards. An investment advisory firm can assist senior executives with comprehensive financial planning that incorporates their complex stock-based compensation.

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