Equity Award Center

A Holistic Approach

Successful strategies for stock compensation begin with identifying the role that these grants will play in your life. The greater the value of your grants, the more important this process becomes. This article provides helpful points to consider.

A Holistic Approach to Managing Equity Compensation

Geoffrey M. Zimmerman

Key points:
  • Successful strategies for stock grants begin with understanding their role in your financial life, along with identifying your personal core values, beliefs, and activities.
  • Identify your general investor type: wealth accumulator, corporate insider, or financial independent.
  • Create a lifetime cash-flow analysis. This consists of one or more "if/then" statements that translate into specific actions (stock sales) based on metrics that are both quantifiable and easily monitored.
  • If you have employer stock options, or if you’ll receive options in the future, you need to understand how they work. Making the right decisions about stock options can put money in your pocket. Making the wrong decisions could cost you money—in some cases, a lot of money.
Successful wealth-building strategies for equity compensation begin with a discussion of the role that stock grants will play in your financial life, along with identifying your core values, beliefs, and activities. The greater the value of grants, and the greater the proportion of your wealth they represent, the more important this process becomes.

Three Investor Types

Stock grants are classified into three broad categories: the Wealth Accumulator, the Corporate Insider, and the Financially Independent (these categories can sometimes overlap).

Wealth Accumulator: Your planning for stock grants usually involves qualifying and quantifying goals related to financial milestones, along with managing risk. Your goals may include:

  • The purchase of big-ticket items (e.g., a vacation home)
  • Funding college education
  • Planning for retirement (or being wealthy enough to make work optional)

For you, the primary role of stock compensation is to provide a greater share of the funding for these goals.

Your income, your net worth, and often your health benefits are tied to the success of your company. You will benefit most from planning strategies that do the following:
  • Prioritize risk management
  • Promote diversification
  • Generate cash flow as needed to fund goals

Tax minimization should play an important but secondary goal for the Wealth Accumulator: many a fortune was lost during the bear markets of 2000–2002 and, more recently, 2008–2009 because of a misguided focus on tax results over profit maximization and risk protection.

Alert: It is far better to keep a small fortune (and pay some taxes) than to lose a large one (while possibly still having to pay some taxes).

Corporate Insider: If you are a Corporate Insider (usually an executive), you face additional planning considerations because your actions are highly visible. You are also subject to blackouts that prohibit you from trading stock (you may want to schedule stock trades beforehand in what is called a Rule 10b5-1 trading plan). When trading windows open, significant sales of stock may be perceived by the markets as a pessimistic outlook on the company. In addition, your confidence in your company may lead you to ignore the risks of holding a concentrated position in your company's stock.

Financially Independent: If you are a Financially Independent investor type, you do not face critical planning concerns with stock grants since, by definition, you are not reliant on them to fund retirement or other accumulation goals. However, maximizing and preserving the value of your grants is still important.

Using Equity Compensation To Fund Accumulation Goals

For all but the Financially Independent, planning strategies for stock compensation begin with the larger plan first: traditional financial planning using a lifetime cash-flow analysis. This involves your lifestyle and goals. Consider your ideal vision of the life you want and the financial milestones you want to attain, and for any community and family legacies you may wish to leave. From this vision, the goals may then be quantified in time-bound, dollar-denominated terms.

Once you have answered key questions about your short- and long-term financial goals, you (and perhaps an experienced advisor) will be better prepared to analyze the role played by stock grants, and understand how they fit with your goals. This should include diversification targets, and identifying the timing of any desired cash flow from your stock compensation. In other words, decisions about your stock grants can be optimized only when they are seen in the context of your total current circumstances and hopes for the future.


When the time comes to implement the plan, a basic decision flowchart becomes an important way to keep you and your advisor working in concert. This flowchart consists of one or more "if/then" statements that translate into specific actions based on metrics that are both quantifiable and easily monitored.

Action Triggers: Actions may be based on the price of the underlying stock, they may be driven by events or dates, or they may be based on a formula. Defining trigger points helps to make your exercise and/or sale decisions much easier. For example:

  • Price-based action: An action (usually a sale of company stock or exercise of options) triggered when the underlying stock price reaches a specific target.
  • Event- or date-based action: Time-based actions are triggered upon a particular event or date, such as a vesting event, the approach of an expiration date for options, or a needed purchase.
  • Formula-based actions: An action triggered upon some milestone. Examples include option theoretical value; stock and option concentration measured as a percentage of the overall investment portfolio; or percentage of goal attainment.
Action triggers can operate individually or in combination. For example, if the value of the grants were sufficient to provide more than enough after-tax wealth to meet your financial goals, a combination strategy might involve first capturing enough wealth to reach financial independence and then attempting to maximize the value of the remaining grants.

Alert: Implementation based on quantitative data such as price, event, or formula metrics must be reviewed regularly to facilitate timely decisions. Periodically review the plan. Make adjustments that reflect changes in your goals and circumstances or are warranted by external factors.

Remember Your Goals

Money and wealth themselves are not the end; rather, they are means to an end. It is important to first understand what you want and the role your stock grants can play in building your wealth toward those life goals. Once you understand this, you can develop the action triggers and then monitor them.

Geoffrey Zimmerman is a CERTIFIED FINANCIAL PLANNER™ and Senior Client Advisor with Mosaic Financial Partners Inc., located in San Francisco and Lafayette, California. myStockOptions.com selected this article solely for its content and quality.

Contact Us

Schwab Stock Plan Specialists are available by phone, Monday through Friday, 24 hours a day.

Outside the U.S.:
Call toll-free with an international dialing instructions.

Speak with a Schwab Stock Plan Specialist:


Monday through Friday, 24 hours a day

Outside the U.S.:
Call toll-free using our
international dialing instructions.

Find a branch


Helpful Links

Understand your Restricted Stock Units?

Explore vesting, options & more.

Click to watch