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Why are execs avoiding these benefits ? By Allen Injijian

The current darling of the “ Magnificent 7 ,” Nvidia , the microchip manufacturer that is helping to drive the AI revolution , saw its market capitalization shoot up to $ 2 trillion just 180 trading days after hitting the $ 1 trillion mark ( according to Dow Jones market data ).

However , according to Nvidia ’ s own public filings , none of its executives own stock options in the company . Considering the explosion in Nvidia ’ s valuation , that represents an enormous lost opportunity .

If it brings the leaders of Nvidia any consolation , they are not alone . The trend in recent years among executives at both public and private companies has been to not ask for stock options or stock appreciation rights (“ SARs ”) as part of their overall compensation packages . Like many other companies , Nvidia has eschewed the perceived complexity of stock options in favor of time-based and performance-based equity grants . These “ simpler ” forms of equity compensation still allow for handsome returns and meaningful participation in a company ’ s success , but few alternatives rival the exponential wealth creation power of exercising an option at a low price before a stock shoots into the stratosphere . Again , that represents significant money left on the table . To reverse this trend and help executives ask for and exercise the stock options they deserve , advisors should explore these key considerations with their executive clients :

Negotiating Stock Options

• Executives should buck the trend and explicitly ask for stock options as part of their overall compensation . It shouldn ’ t be considered “ taboo ” or overly self-serving . Stock options help ensure that a firm , its investors and its executives have their interests aligned and that all benefit when those options go up in value , which makes them a “ win-win-win .” Such options might not always be available — when it comes to publicly traded companies , only the highest paid executives can exert enough influence to request special grants or the reopening of a stock option plan that ’ s already been eliminated . But entrepreneurs and executives at young companies ( i . e ., startups ) or private corporations with aspirations of significant growth should be able to use stock option compensation . Such fledging non-publics are also more likely to grant incentive stock options , which receive more favorable tax treatment than the non-qualified stock options typically issued by large public corporations .

• Know the standard practices in your client ’ s industry . When it comes to stock options , not all industries and sectors are created equal . In consultation with their advisors , executives should explore what the standards are in their industry . Are

30 | FINANCIAL ADVISOR MAGAZINE | JUNE 2024 WWW . FA-MAG . COM