Victor* was ever the smartest kid in his class, even after his family immigrated to the US for his sophomore year. Bilingual, a whiz in math and keen to invest in the stock market, Victor bought his first stock in high school and never looked back. He had his Dad’s blessing to be the first in his family to graduate from college with a BS in Math.
Working as the quality manager for a health care billing systems company, Victor has done well. He has been playing the market for years and assumed it would always be thus. He tells slightly embellished tales of the stock picks that win big and stays mum on the losers that are more easily forgotten. Now he’s coming to the realization that he may have met his match with the complexity of his executive compensation.
He is proud of his success at work at age 38. Along with his wife Valerie, he wants to continue to grow always – in all ways. Being aggressive has paid off; he and Valerie have salted away a six-figure stock portfolio and have a baby on the way. For four years, he was granted a straight 50/50 mix of Nonqualified Stock Options (NQOs) and Restricted Stock Units (RSUs). Until 2018, that is.
Now the financial stakes are higher and there are decisions to make. He has to make an election by July 31 to accept up to 100%/0 of NQOs vs. RSUs. If the company grows its expected 10% in each of the next five years, his equity compensation could be worth $300,000 or more. What would be an optimal mix of NQOs and RSUs? The multiple ratio of 9:1 NQOs to RSUs is a bit confounding. He wants to be aggressive - how would he quantify his risk?
The new dream house will be ready for occupancy soon and the baby is due in December. With family responsibilities and real money at stake, Victor has finally outgrown stock picking. His smarts have taken him far and he has grudgingly admitted that his portfolio is growing “too big to fail.”
*The name, likeness, and circumstances in this example are a fictional composite of facts from executives similar to actual SFG Clients.Tagged: executive compensation, sfg wealth planning services, chuck steege, performance shares, insider, executive compensation issues
Posted In: Executive Compensation, Incentive, Non Qualified Deferred Comp, Performance Shares, Performance Stock Units, Planning