Financial Parity Planning: When the Grass May Be Greener

Terrance is apprehensive about stepping out and is seeking a methodical way to move forward. When he joined the company in 2007, he was long on talent and short on experience. A high potential executive, Terrance, vice president of product development, has been tied to several wins in the new product line. Terrance is now in demand for every new business initiative before the project is greenlighted.

Having proven his skills as an innovative collaborator, he is ready to have greater impact in a new role. Also, he wonders how much of his influence is derived from his own accomplishments instead of from the whole team, and in fact, the entire company.

He meets Joe playing lacrosse one night, a healthcare search executive who is plugged into the early stages of a just listed healthcare space. Joe wants to interest Terrance in the search he is undertaking for a fast moving medtech manufacturing company looking for a chief marketing officer (CMO). Terrance is intrigued by the opportunity to influence the direction of the new company. But how can he compare working for a market leader with jumping ship for a promising aggressive organization?

Financial parity is the side-by-side comparison of total compensation – short-term and long-term compensation – to determine an equitable comparison of financial offers. Terrance is satisfied with his current salary and bonus. Joe says the new company could offer as much at an 18% jump in salary, although his bonus would be based on company and individual performance. They say cash is king, yet Terrance knows as much as 30% of his annual compensation comes from his equity compensation.

His company’s stock has been a slow and steady grower over the last eight years. He has met his performance targets each year and has earned substantial performance shares. He neither includes the in-the-money value of performance shares in his personal financial statements, nor does he discount that they are helping him to build wealth.

Every time he thinks of his company perks, he is reminded how fortunate he is. The 401(k) match is substantial, and he is proud of the company’s charitable giving. Their sponsorship for causes like Juvenile Diabetes, a cause near and dear to his family’s hearts, means the world to him.

Terrance knows his financial advisor at SFG Advisors has a clear line of sight to a wide variety of executives and their compensation schemes and asks him about the young medtech. His financial advisor discusses the variables that comprise financial parity, including the title and role, strength and size of company, risk/return factors and a host of other considerations. He also asks about Terrance’s unvested long-term incentives that he had overlooked in his financial considerations.

The conversation about financial parity is illuminating. Terrance decides to stay in his role and to codify a product development process that streamlines his involvement in early-stage meetings. His colleagues find the product development guidance to be valuable and this work is a win-win.

*The name, likeness, and circumstances in this example are a fictional composite of facts from executives similar to actual SFG Clients.

Executive Compensation, Non-Qualified Deferred Compensation, Restricted Stock Units, Retirement Planning, Stock Options

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