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Taking Stock: Planning with Executive Compensation


Cost Free
Presentation Length 1.0 hour

Recorded DateFebruary 5, 2020
CPE:Not available
(archived webinars do not offer CPE credits)
Subject AreaSpecialized Knowledge
Course LevelBasic
Course Description

For many corporate professionals, salary and cash bonus is just part of the reward for work well done. Additional compensation can come in other forms: stock and option awards, contributions to a defined benefit pension plan, or an employer match to a defined contribution 401(k) plan. Some companies also allow employees to defer additional compensation to a non-qualified plan, which may be matched, too.

These awards and plans offer attractive opportunities to build wealth based on a company’s success. However, a full compensation review often reveals that an employee is more exposed to the health of the company than she suspects. In our experience, it’s not uncommon to encounter executives who have more than half of their total portfolio tied up in company-related assets. Such concentrations make it essential to evaluate the risk/reward equations of each type of compensation or award. That’s because the building blocks of executive compensation— which include cash, stock, and options—each require a different set of decisions.

For example, how much of one’s salary or bonus should be deferred into a company-sponsored investment program, and when should these funds be withdrawn? If one receives restricted stock, should all shares be sold upon vesting, or just enough shares to pay taxes and continue holding them? Options, which offer a leveraged investment in stock, present a different set of challenges due to their finite life span. Should one exercise vested options if the stock has appreciated or wait until expiration, risking that they might be worthless?

To make these decisions, executives need to weigh each potential outcome—in an integrated way—since each decision impacts the others. Typically, executives are so focused on effectively stewarding their companies that they have little time to spare for their own financial planning. This presentation illustrates a framework to help executives take the guesswork out of compensation planning by suggesting how to manage various awards to ensure a high probability of realizing personal, charitable and legacy goals.

Learning Objectives:

  • Understand how to calculate an executives' total exposure to his or her own company through the various types of options, grants and executive retirement plans.

  • Make recommendations of how much stock exposure to diversify and which forms of exposure (for example, options vs RSUs) to sell first.

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Andrew Bishop is a Director in Bernstein’s Washington, DC, office. As a member of the Wealth Strategies Group, he consults with advisors, their professional partners and clients as an expert in a wide field of complex investment planning topics for high-net-worth individuals and foundations. These topics include planning for the sale of a business, managing executive compensation awards, trust and estate planning techniques, charitable planning vehicles, tax management strategies and investment management strategies for nonprofits. Andrew joined Bernstein in March 2011 as a Private Client Associate. He began working in the Wealth Strategies Group in 2014, serving as an Analyst and subsequently a Senior Analyst in 2016 before being appointed to his current role in January 2020. Prior to joining Bernstein, he worked at Morgan Stanley in New York as an Associate in their Equity Derivative Client Service Group. Andrew graduated from Purdue University in West Lafayette, Indiana, with a BS in accounting and a minor in finance. He is a CFA charterholder since 2012.

About Our Presenter

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Bernstein was founded 50 years ago to manage money for families and individuals. Our focus has never changed, although our client base has expanded to include institutions, and the services, tools, and resources we offer have evolved with our insights into markets and clients’ needs.

We’re exclusively focused on investment research and management; we don’t engage in investment banking and proprietary trading, so we don’t face the conflicts of interest such businesses pose for other firms.