Equity compensation can put a person’s professional success and personal financial risk in direct tension. Compensation, future employment, and net worth can all become tied to one company. When that happens, taxes, concentration, and timing need to be considered together.
Over time, restricted stock units (RSUs) may vest, nonqualified stock options (NQSOs) may accumulate, and shares may build up after a successful career because selling them would trigger a substantial tax liability. By the time the position feels too large, an executive may also face limited trading windows and several competing priorities for the proceeds.
At Richard P. Slaughter Associates, we incorporate equity compensation into the broader wealth plan. The planning addresses taxes, portfolio construction, retirement income, charitable goals, and the decisions that need to be made before a vesting date, option exercise, or sale window arrives.
RSUs and NQSOs Create Different Tax Decisions
RSUs and NQSOs can both create wealth, but they do so on different schedules and with different tax consequences.
RSUs generally create ordinary income when they vest, and any future change in value may create a capital gain or loss when you sell. The decision also includes how much of your portfolio is already tied to the company and whether holding additional shares still fits your investment strategy.
NQSOs work differently, and that difference is often to an executive’s advantage. Exercising an NQSO creates ordinary income based on the difference between the exercise price and the stock’s value at that time, but the choice of when to exercise, within the option’s term, belongs to the executive. That flexibility lets us time the exercise to a year when the executive’s tax bracket is lower, rather than treating vesting itself as a trigger for immediate action.
We worked with a client holding NQSOs who was approaching retirement. Rather than exercise while still earning a full salary, we mapped his option grants against his projected retirement-year income and identified windows when his bracket would be meaningfully lower, being mindful of each option grant’s expiration date. He exercised in stages during those lower-income years, reducing the tax cost of converting the options into shares he could then manage as part of his portfolio.
The details differ between RSUs and NQSOs, but the underlying planning question is the same: how much of your financial life should remain connected to one employer and one stock, and on what schedule should that exposure be reduced?
A Trading Window Is a Time to Act, Not Start Planning
Trading windows typically apply to executives with regular access to material nonpublic information. RSUs can vest on a schedule, but the opportunity to sell may be limited to specific windows.
By the time a window opens, the household should already know how much stock it may sell, how the proceeds will fit into the portfolio, and what tax consequences the sale could create.
A 10b5-1 plan commits an executive to a preset schedule of future sales. It is not a universal answer, and it requires careful legal, company-policy, tax, and planning coordination. For some executives, it can create a disciplined path to diversify over time despite restricted trading periods.
A limited window should allow an executive to carry out a decision that has already been considered, modeled, and coordinated.
Concentration Can Follow You Into Retirement
Limited windows, taxes, and a belief in the company’s future can all make it easy to hold shares longer than originally intended. Over time, a position built through compensation can become too large for the role it plays in the household’s broader wealth plan.
An executive we advise spent many years at a technology company that grew substantially in value. By retirement, a large share of their net worth remained in publicly traded company stock, which no longer fit the household’s retirement plan, and selling too many shares at once could create a substantial tax cost.
We began with the full balance sheet, building the rest of the investment portfolio without adding unnecessary exposure to the same sector or closely related parts of the market.
We then evaluated a range of approaches to reducing the concentrated position, including staged sales, options strategies, a long-short portfolio, an exchange fund, and a qualified opportunity zone investment. Each approach carried different tax treatment, liquidity constraints, costs, and risks.
Charitable giving was also part of the client’s plan. For donations they were already planning to make, appreciated stock could support those commitments while reducing a portion of the concentrated position without requiring a sale first.
Our objective was to reduce risk at a pace that supported retirement income and the household’s broader wealth plan, while addressing the tax consequences with care.
A Strategy Set Once Rarely Fits for Long
An equity compensation plan built at one point in a career can look very different a few years later. A new grant vests, a promotion changes the pace of future awards, a company’s stock price moves substantially, or a retirement date that once felt distant starts to come into view.
We treat these decisions as an ongoing conversation, revisited on a regular schedule rather than only when a position has already grown too large to manage comfortably. That discipline is often what a new client has been missing before they come to us: a position that grew unchecked over several years, or an exercise strategy built around one tax bracket that was never revisited once income changed.
Richard P. Slaughter Associates has been fee-only and fiduciary since 1991. We help executives bring employer stock, compensation decisions, taxes, investments, and retirement plans into one coordinated wealth plan.
Learn more about how we serve business owners and executives.
If any of this resonates — whether you are managing annual RSU vesting, considering an NQSO exercise, approaching retirement with a large company-stock position, or preparing for a limited trading window — we would welcome a conversation.
CFP Board owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
