Executive Compensation Strategies

Wednesday, May 20th, 2020

By: Peter Vander Ploeg, CFP®

Strategies to optimize your compensation package

One thing that COVID-19 has taught us is that nothing is certain. Things change. Our plans change. Sometimes not by choice. In just two months, many American’s now find themselves on a different course than they planned.  If you have the cash flow during this pandemic, you can supercharge your savings strategy by taking advantage of the executive compensation benefits that may be available to you.

 

How can I optimize my executive compensation during this pandemic?

 

Employee Stock Purchase Plan

You may be able to pick up a lot more shares at a discount right now if you change your purchase elections temporarily. An ESPP plan allows you to purchase up to $25,000 worth of your company stock per year in your ESPP.

Take Cisco as an example. Within the last 12 months, Cisco shares traded as high as $58/share. Had you bought shares at that time, you would only have purchased 17 shares per $1000.  Now shares are around $43, and you can buy 23 shares for the same $1000, a 35% increase in shares.

Restricted Stock

Equity awards in the form of RSUs or PSUs are great, but they can create tax headaches and single stock risk in your portfolio. By selling RSUs and PSUs the day they are awarded, you incur no additional taxes and diversify your single stock risk. This strategy is especially useful if you are participating in the ESPP or also receive stock options as a part of your compensation package.

Deferred Compensation

Maybe you are a long way away from retirement and have deferred compensation. Or maybe, you want to delay your retirement due to the pandemic. Consider adjusting your asset allocation elections or pushing out the date you are set to receive the funds.  Changing your deferred compensation elections could allow for more growth and/or better timing if your situation has changed. I recently discussed Cisco’s deferred compensation plan, but the principles hold true for most deferred compensation plans.

Stock Options

Stock options are highly personalized. Deciding to exercise NQSOs or ISOs can take a lot of planning. See If the custodian of your options will provide a black Sholes analysis and discuss the results with your advisor.

401k

Lastly, executives can capitalize on the equity market selloff by changing after-tax contribution elections in your 401(k). Adding after-tax money to your 401k is an easy way to save, and you can convert that money to a Roth IRA later in life. Check out my video on using a Mega Roth Strategy in your 401(k).

This pandemic has changed the world, but there are responses executives can consider. Since everyone’s situation is different, any of the suggestions above should be discussed with an advisor before taking action. If you would like to explore some strategies specific to your package, give me a call.

Peter Vander Ploeg | CFP®