Finding long-term success at a growing company is a problem most executives would be happy to have. But that success often comes with complications — like concentrating too much of your wealth in company stock, and juggling the pros and cons of a range of financial benefits and incentives.
We help you take full advantage of your non-salary compensation by taking a holistic approach that balances your bonuses, stock options, and tax-deferred plans within your total financial picture. And we do it as part of an integrated wealth management program, with a coordinated team of financial planners, accountants, tax and insurance specialists, and estate strategists that address your needs comprehensively.
Non-cash benefits can be complex. We understand the nuances of these packages, and can help busy executives get the most out of them.
Simplifying Executive Compensation Planning
Early in your career, the bulk of your compensation most likely came from your salary. But as you’ve advanced, your salary has probably become a smaller portion of your total compensation.
When bonuses, stock, and other incentives start to become a larger portion of your overall compensation, keeping track of and managing it can get confusing and time consuming. That’s where our planning, tax, and investment specialists come in.
-
Cash Bonuses
Almost all executives will have a bonus target, typically a percentage of salary. It is important to know and understand the metrics that will drive this payout and what percentage of the target these can achieve. Also, because the tax withholding on bonuses varies based on amounts, it is important to review your withholding with your CPA and advisor to help avoid any surprises at tax time.
Restricted Stock Units (RSUs)
RSUs provide executives with company stock that vests over time or upon the achievement of specific performance milestones.
Executives gain ownership rights after the vesting period, aligning their interests with long-term company success. The value of the award is included as ordinary taxable income when it vests. Future growth of the shares is subject to capital gains taxes with the purchase date being the date of vesting and the cost basis being the share price at vesting. Although the company may withhold a number of shares, highly compensated executives may still face an unexpected tax liability when filing tax returns.
Our advisors and investment and tax specialists can help you decide when and how to access the value of your RSUs to help maximize that value and minimize the tax impacts.
Stock Options
Stock options can be qualified, or non-qualified options based on the design of the company plan. Each has different tax consequences, making it important to understand the components of the plan.
Option plans differ from restricted stock in that options are granted at a strike price and can be exercised at any time between vesting date and expiration. Stock options can expire worthless if the current value of the company stock is less than the grant price. It is also important to understand if the company offers a cashless exercise which can impact your need to bring cash to the table.
Mercer Advisors can help you think (and act) strategically about how and when to exercise options, balancing your liquidity needs, long-term goals, and tax situation.
Are You Getting More in Equity Than Salary?
Source: Harvard Business Review, Compensation Packages That Actually Drive Performance: Principles for designing executive pay, February 2021.
Equity Compensation: Managing Concentrated Stock Risk
Alongside the benefits of equity compensation are the risks of having a high percentage of wealth in a single investment. How can you tell when it’s time to diversify? What options should you consider?
