This post may be one of Sheri’s favorites because it represents one of her own earliest financial challenges as well as the inspiration behind her current career.
In an earlier career, Sheri was employed by General Electric for 15 years in a variety of roles. As she accumulated company stock options and other executive benefits, she realized how hard it was to find good advice on how to make the best use of them … so she took it upon herself to learn more on her own.
As her understanding grew, she soon found colleagues turning to her for ideas and assistance. This early experience planted the seeds that eventually grew into her career as a CERTIFIED FINANCIAL PLANNER™ professional and co-founder of SageBroadview. Here is a taste of the advice Sheri has to offer corporate executives today.
Four Questions to Keep Your Stock Options Out of Jeopardy
Originally posted: October 2, 2013
In the classic quiz show, Jeopardy, contestants show their smarts by asking rather than answering the right questions. Executives who want to make the most of their stock options can do well by taking a similar approach. Your company stock options can be a source of significant enrichment, but effectively managing them can be daunting. To clarify your next best steps, start with these four questions, preferably in partnership with your financial advisor:
- What type(s) of equity compensation grants do you currently hold: options or shares?
Have you been granted options (nonqualified or incentive) or shares (restricted stock or restricted stock units, i.e., RSUs)? Options are more complicated because you will need to know when and how to exercise them. But they are also more flexible. As we covered in our earlier posting about RSUs, options provide more choices over when you want to incur the taxable income.
- What role does your equity compensation play in achieving your financial life goals?
Rather than letting your executive compensation drive your financial circumstances, flip that planning on its head. First define your life’s goals – such as educating your children, achieving a desired lifestyle or retiring within a particular timeframe. Then let those goals drive your stock option or restricted stock decisions.
- What is your framework for making timely and profitable decisions?
Have a disciplined approach that coordinates your executive-compensation planning with your overall portfolio management. Having a plan that’s tailored to suit your personal circumstances helps you stay focused on your true goals (as identified in your answer to Question #2), so you can make rational rather than emotional decisions about how to get there financially.
- What resources do you turn to for assistance?
Even Alex Trebek can’t run the show all by himself; he relies on his seasoned team to help. Similarly, there are a lot of moving parts to your equity compensation package, so we recommend you seek solid advice along the way. We recommend this quick-reference from www.StockOpter.com to help you get started:
1) Your Forfeit Value – the potential value you forfeit if you leave your employer.
2) The upside & downside leverage in portfolio value with a 20% change in stock price.
3) The stock price at which your financial goal is attained.
4) Your concentration percentage in company stock, restricted shares, and stock options.
5) Your Insight Ratios – the percentage of time value remaining in each stock option.
At SageBroadview, we offer our clients a Personal Equity Compensation Profile that answers the “5 Things” listed above, providing a foundation for making timely and prudent decisions about their employee stock options and company stock holdings.
More questions? Take “Sage Advice” for $100.
SAGE Serendipity: Just in case you’re not up on the latest Harry Potter craze, here are a few links. Michiko Kakutani of The New York Times reviewed the book Harry Potter and the Cursed Child which is a play of the same name that currently opened in London. An excerpt: “Harry Potter and the Cursed Child is about the journey Albus takes while growing up, and the roles he and his best friend, Scorpius (Draco Malfoy’s son), play when dark forces, perhaps in league with Voldemort, once again threaten the fate of the planet.” Needless to say, the London shows have sold out but they are releasing more tickets this Thursday. When in London…