You’re a corporate executive with an opportunity to take a leadership role elsewhere. What should you do about your stock-based compensation? The pleasure of a career move and title change may be appealing, but you need to do your homework first. Financial parity is the side-by-side comparison of total compensation – short-term and long-term – to evaluate financial offers. It involves asking yourself important questions, like:

1) What am I leaving on the table?

When totaling your long-term incentive compensation, determine which funds are vested and unvested. If you have unvested compensation, what is the dollar amount you risk by leaving your current organization? Even with a slow-growth stock, it could be substantial. Don’t be enticed to take a new role by looking only at short-term salary and bonus compensation. Real wealth comes in the form of equity built from accumulated company stock owned outright in the form of stock options, restricted stock units, and performance shares.

2) What will I gain with another organization?

They say cash is king. Near-term cash flow from a base and a short-term cash incentive should be a given. How a new employer makes you whole with other forms of long-term incentive compensation should be your overriding financial consideration when making a move. Total compensation is paramount. What is the new company both able and willing to offer to compel you to move?
3) How long will it take to break even?

As a senior corporate leader, you’ll need to sharpen your pencil to determine just how much time you’ll need in your new job to clear a break-even financial benchmark. More important, once you cross that line, you’ll need to determine how the overall financial reward contributes to your financial well-being. This comparison becomes easier with a faster-growing stock price.

4) How will my new employer make me whole?

Your new employer may promise you the world, but those promises may be contingent. For instance, you may not see a payout until a business event occurs, such as an initial public offering or a change of control to an acquirer. If legal assurances of tangible monetary benefits aren’t forthcoming, you may want to look elsewhere, given the opportunity cost and risk. It’s critical that senior leaders receive a grant agreement that lays out stock amounts and when they will vest.

5) What will I need to pay in taxes to make the move?

Another significant factor to consider is your tax liability. For instance, consider how your stock awards could result in lower tax rates when you realize them vs. pushing you into a higher bracket if you take a new position. Also, given that parts of the Tax Cuts and Jobs Act could sunset after 2025, transactions sooner may result in a lower tax burden. A helpful move would be to determine just how much of your wealth is subject to tax before you accept a new position.

A specialized financial advisor can work with you to create a strategic financial parity plan as you consider a significant career move. Your advisor can help determine how much you risk leaving behind, provide financial planning guidance on how to potentially increase equity wealth from your new company, help you understand tax implications, and provide positioning tools when negotiating total compensation.

Savant has a team of specialized advisors to assist in handling the unique situations of executives. Please feel free to reach out today.

This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation.

Author Charles F. Steege Financial Advisor / Managing Director

Chuck is an advisor to senior-level executives of public companies, helping them unlock the value from their varied and complex stock-based compensation plans and equity awards.

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