stock options common practice ? What quantity is typical ? Again , there can be a wide variance by sector when it comes to these options — executives in real estate are generally not likely to receive stock options as part of their compensation packages , whereas such compensation is quite common in tech . Once you know what is commonplace in your client ’ s industry , they should align their ask to that percentage . The point is that your clients shouldn ’ t negotiate in a vacuum . Executives at privately held companies should push for incentive stock options , which are relatively tax-friendly .
• Engage with legal counsel . Your executive clients finalizing their compensation package should connect with their legal counsel to carefully review their option grants and ensure they are getting the best possible package . They should understand , for instance , under what conditions stock options are forfeited and what happens to the options if their companies are bought out .
• Have a fallback plan . If a firm balks at offering your client stock options , it ’ s important they have a fallback plan to ensure they are compensated commensurately . Any refusal by companies to offer stock options could be used by an executive as leverage to get more cash compensation — or better retirement benefits or a pension . Some corporate structures may even allow for tax-advantaged “ profits interests ” in lieu of traditional cash or equity compensation . Advisors should work with clients to explore all the ways they can receive the compensation they deserve .
Exercising Stock Options
• When it comes to exercising stock options , executives should consult with their advisory team . When your client has robust stock options hopefully in place , the first step in exercising them is to connect with a highly qualified tax advisor and financial planner . The process can seem overwhelming , but a talented team of advisors should be able to simplify the
process and model out how and when to exercise a client ’ s stock options . They should do the math to clearly present a cost-benefit analysis of various scenarios , which should tell a client how much and when to exercise according to different variables . The reality is that most executives wait until the last possible date to exercise ; they end up leaving money
behind this way because while they are not holding the stock they lose money by missing dividend payments , potentially sleepwalk into a higher tax rate or shorten their holding period for capital gains purposes if the stock appreciates .
• Consider the client ’ s overall financial picture . Once a client has consulted with their advisory team and decided on the approach that makes the most sense for them , they should integrate that strategy with their overall financial plan to ensure it is congruent with their goals . For example , will their gifting plans ( to family or charity ) be affected by the valuation of their stock options ? How much will their
Any refusal by companies to offer stock options could be used by an executive as leverage to get more cash compensation — or better retirement benefits or a pension .
retirement and future lifestyle depend on the appreciation of their equity ? What happens if they move to a new state ( or even a new country )? These are the types of issues they should evaluate with their strategic advisors .
ALLEN INJIJIAN is managing director and head of wealth strategy and planning for Geller Advisors .
Percentage Of S & P 500 Companies Using Different Long-Term Incentive Types
■ Restricted Stock ■ Stock Options / SARs ■ Performance Awards
100 %
80 % |
90 % |
94 % |
94 % |
94 % |
93 % |
93 % |
92 % |
94 % |
94 % |
|
60 %
40 %
|
65 % 63 % |
62 % 60 % |
69 % 65 %
59 % 57 %
|
65 %
53 %
|
65 %
50 %
|
65 %
54 %
|
68 %
69 %
54 % 52 %
|
20 % |
|
|
|
|
|
|
|
0 % 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source : Frederic W . Cook & Co ., 2015 – 2023 Top 250 Report .
JUNE 2024 | FINANCIAL ADVISOR MAGAZINE | 31