You’re ready for your equity to pay off

Whitney Reagan sits down with Mariner’s Steve Moyer to tackle the complex world of equity compensation—an “alphabet soup” of NQs, RSUs and ISOs that often leaves employees feeling overwhelmed. In this episode, Steve demystifies these diverse award types, offering clear guidance on how to move from simple investing to sophisticated, long-term wealth planning.

Discover the essential steps to take when managing your equity, including how to take proper inventory of your awards, why proactive planning beats reactive decision-making and how to avoid letting the “tax tail wag the dog.” Steve also explores the crucial emotional component of equity compensation, offering advice on how to navigate the personal connection you feel to the company you’ve helped build, while keeping concentration risk in check. Learn when it’s time to move beyond standard benefits and turn your equity into a concrete, comprehensive plan that helps you prepare for your family’s long-term financial security.

Transcript

Whitney Reagan: If you are incentivized or awarded equity compensation by your employer, it can often get confusing and complex. Today, we’re going to unpack that topic and help you understand when you’re ready to have that deeper and more sophisticated conversation.

Welcome, welcome. We are back with another episode of Your Life Simplified.

I’m Whitney Reagan, and I’m very excited. Today I have a special guest. He’s been with Mariner for about five years. And more than that, he’s been in the business for two decades and has deep expertise about the topic at hand. I’m joined by Steve Moyer, and I’m so excited that he’s here to help us better understand equity compensation, because there’s a lot that goes into it.

And sometimes it seems a little bit like an alphabet soup of different acronyms. So maybe we can unpack that a little bit and just help our audience feel more comfortable and more empowered around their equity compensation and what to plan for in the future. So, with all of that preamble, Steve, thanks for joining us. How are you?

Steve Moyer: Doing well. Thank you, Whitney, I’m excited to be here.

Whitney: Excellent. So maybe just quickly in the beginning to help everyone understand the credibility and why you are here as a guest to talk about this specific topic. Can you give us just a little bit of your background and experience?

Steve: Oh, sure. Yeah. So, as Whitney mentioned, I’ve been in the business for a little while. I have served in different roles, so I’ve been an advisor where I’ve worked directly with clients and the relationship and all the great things that go with that. And then I’ve worked in leadership positions and currently I’m at Mariner to provide in-house expertise in the area of—I call it executive planning—but maybe a better word is equity compensation planning. So, we certainly do meet with senior executives, we also meet with a lot of what I would call key employees and, typically, one of the common planning items is around equity compensation. So oftentimes a portion and a lot of times a significant portion of their compensation is in the form of equity.

And as we’ll talk about, there are many different forms, and the planning decisions are a little bit different. The opportunities are a little bit different. The risks are a little bit different. And so that’s where I spend most of my time planning in that particular area.

Whitney: And I have to say this in the very beginning, because Steve is very humble, but his expertise has been so useful in my work with clients. It makes me so proud to be at Mariner and have the resources and the tools and the expertise behind us, just like you, Steve.

Steve: Thank you.

Whitney: I think let’s start with—since I did say it’s an alphabet soup—why don’t we start talking about the different forms of equity compensation? Because there’s NQs, RSUs, ISOs. So maybe you can just put it into simpler terms and start to walk through—and I’ll jump in with questions—but maybe we’ll start to walk through the different forms.

Steve: Yeah. There can be a lot of letters really, if we just take a step back and think through what is equity compensation? It’s really just a way of paying typically an employee by paying them with ownership rather than a paycheck. And this is where the employer gives you a chance, an opportunity to participate in the success of a company.

So, the challenge is that there are a lot of different forms, and not all forms of ownership work the same, but just to keep it simple, there’s really three, I would say, common types of equity compensation. The first is an employee stock option. This gives you the right to buy stock at a fixed price over a certain period of time.

There are different types of stock options. The two most common are non-qualified and incentive stock options. The second type of award is a restricted stock. The most common form by far is a restricted stock unit or an RSU. And then the third type that I categorize would be an employee stock purchase plan.

And this is generally going to provide all employees the opportunity to purchase company stock. Usually, it’s at a discount. So, usually there’s favorable prices where they can purchase the shares at. But that’s another form. But the key is that there’s a lot of different types out there. Even within what I mentioned.

There are different types of awards and how they’re structured and whatnot. And they all have different types of like tax rules, different risks, different planning opportunities. So really, I think before anybody can really start to make great decisions, they need to first understand what they own.

Whitney: So, if somebody has employee stock or if they are just starting to get awarded, maybe they just got a promotion, and they now have available to them this employee stock that they’re getting awarded. The first thing that you would tell them is you want to understand which specific type you own?

Steve: Yeah. And to that point, a lot of times when I first meet with somebody, they refer to any equity award they have as their options. And a lot of times they’re not actually stock options. And fortunately, or unfortunately, I don’t know, the details do matter. And so being able to distinguish what exact type of award they have is the starting place and the documents will specify that.

And a lot of times documents will specify code. And that gives us clear direction on the types of awards that we’re dealing with.

Whitney: And whenever you say—when you were talking about non-qualified and qualified, the incentive stock options—is that tied to performance of the company? What’s the incentive part of it?

Steve: Economically, they’re both tied to the performance of the company. A stock option award for example, think about growth. They’re an appreciation award. So, the potential value is if the company continues to grow and the price of the stock goes up. Economically, though, qualified stock options and incentive stock options are equivalent.

The difference is in how they’re taxed, and incentive stock options can potentially qualify for more favorable tax treatment. In other words, it’s possible to pay a lower tax rate and so overall pay less taxes on incentive stock options than on non-qualified stock options. The difference really comes to taxation. So, there’s some additional planning with incentive stock options usually.

Whitney: So, thinking through, understanding—you want to understand what types you have—and then what are the next most important decisions to make if you have them. And I was kind of going to talk about this later, but it may be different if you’re younger and just starting out versus if you’re retiring.

I’m sure there’s different goals and planning in place, as there would be with anything, but maybe if you think about the next most important step after understanding the type.

Steve: I think we always start with taking proper inventory. And that again is understanding the type. And that’s a great starting point. After that, a lot of the biggest decisions come down to this. I like to say the plan should inform decisions. So really understanding how your equity fits into your overall financial goals.

And what I really mean by that is how can it help you accomplish your goals. That should be, in my opinion, the number one priority that drives a lot of the decisions that we’re going to make. So that’s where we start. You know, I think it’s also important to understand how concentrated your wealth has become.

Hopefully over time, the company is done well. And if you’ve remained employed and you’ve continued to receive awards, hopefully the amount of wealth you have in your company has grown. That’s a really good thing. At the same time, it can grow to the point where maybe too much of your wealth is comprised of company positions.

And so, what that means is that those life goals that you’re looking to accomplish are more dependent on the continual performance of the company. Again, hopefully the company continues to do well. That would be a good thing. But what if it doesn’t?

What if there’s a change and sometimes changes are hard to anticipate? How would that impact your ability to accomplish your goals? And so that’s something that is going to be really important to continue to monitor over time.

And then I would say, understanding the tax consequences. This is important. We don’t want the tax tail to wag the dog. We don’t make decisions just because of their tax implications.

I’m not saying the tax plan is not important. It is. What we want to do is understand how these awards work so that we can avoid making common mistakes and oftentimes facing large tax surprises. The other reason it’s important is because there are things we can do to potentially mitigate or knock down the tax liability.

And in order to really structure things the right way, we need to understand how these types of awards are taxed so that we can put a plan together that helps mitigate taxes.

Hopefully that’s helpful.

Whitney: No, that’s really helpful. I love that you talked about taking inventory and then thinking through your overall goals and financial planning. What you want to achieve. And then go back to your stock options—how concentrated they are within your portfolio and what some of the tax consequences are. I think all those steps are important.

What do you think would be the biggest mistake that you see happens with people in their equity compensation and how they plan for it, or maybe the lack of planning?

Steve: Yeah, I would summarize it there. I see a lack of planning. And so, what that typically leads to is reactive decisions rather than proactive decisions. With private companies, for example, sometimes tender offers come along. That’s where the company allows employees to essentially sell some of their shares.

And oftentimes it can happen kind of quickly. And decisions need to be made quickly. And so, it can put somebody in a position of reacting to that event rather than a more proactive, I would anticipate that at some point in the future there may be a tender offer. And if there is and the price is right, we may want to participate.

Identifying in advance, if there were a tender, how much would we want to sell ideally, and which shares would we want to participate in that with? A lot of times employees have different types of shares, and some are better than others to participate in that. I would say not planning ahead to summarize that, which often leads to again, reacting, can increase stress and oftentimes can put somebody at risk of making a costly mistake.

I would say another mistake is letting the tax tail wag the dog. And I said before, we don’t want to let that happen. Again, taxes are very important. Taxes matter. But the thing I think about is the lowest tax bill doesn’t always produce the best financial outcome, right? And if we’re making decisions purely on taxes, we’re probably avoiding other things that we should be paying closer attention to.

Whitney: I’ll do a quick example of, not mistakes, but I’ll share an anecdote—and maybe you can kind of touch on this. So, I had an actual client. This was two years ago, and she had a significant amount of her wealth in her compensation, her equity compensation was within the company.

And it was a significant part of wealth. So, big concentration. And also, a lot of her wealth was in her retirement accounts. And so, we had formulated a plan to sell RSUs because—correct me if I’m wrong—RSUs, once they vest, it’s oftentimes good to sell because of the tax consequences being better at that point?

Steve: It can be. If somebody is looking to reduce just because of—its ordinary income, whether you hold the shares or you sell them right away. So, a lot of times, those can be good shares to consider selling once they vest, once they become available to sell, because there’s not the opportunity like some other forms to change the tax character of them.

Whitney: Exactly. I just wanted to make sure I was clear on the point. And so, we had made a recommendation to sell the RSUs to reduce some of the concentration, but also because it was more favorable tax treatment in the whole scenario.

And it was powerful for me to hear from her. She was like, I know what the spreadsheet says. I know what the analysis says, but I don’t want to sell because this is my hard-earned money, that I earned this. And I’ve worked so hard for this, it doesn’t feel great to just sell it.

The reason I tell you that story is because there’s always an emotional side to everything, and you have to make sure that you are relating with the client and understanding the emotions and the tie to their money. But also, our responsibility is to give them all of the information, all of the numbers, and make a recommendation and then let them come to a good, informed decision on their own.

Do you have anything to add to that?

Steve: Yeah. I mean, I would say that kind of ties to another risk, which is downplaying concentration risk. And a lot of times that’s informed by emotional ties to the company. If I back up, I want to say what your client communicated to—that’s a pretty amazing observation, quite honestly.

A lot of people I meet with haven’t really paused to reflect on the reason for their emotional ties to the company. They may recognize they have emotional ties. Sometimes they don’t. But just understanding that there’s an emotional time tied to the company, I think is really powerful.

Whitney: She did have a lot of self-awareness, so she was a smart cookie.

Steve: Yeah. But then what do we do about that? Right. Because maybe those emotional ties are going to prohibit her from taking actions that would be beneficial to her. But with equity awards, it is different than just buying stock in a brokerage. It’s not just purely an investment decision. A lot of times to get to the point where you start to receive awards, you’ve had to work really hard.

You know, shares don’t just represent, again, an investment, but they represent like late nights, product launches, maybe promotions or challenges they’ve had to overcome, years of hard work and effort.

Whitney: Working on the weekends, travel—everything that you do and all the work that you put into it—blood, sweat and tears. There’s so much that represents these awards.

Steve: Absolutely. There are emotions and that’s normal. That’s natural. What we want to do and again, this is why I believe in leading with planning, is because planning doesn’t ignore emotions. It doesn’t get rid of emotions. But it also helps us consider other factors that are also very important, so that we’re not just making emotional decisions, we’re making well thought out decisions that also factor in our emotions.

Whitney: Okay, Steve, so I think you hit on a lot of great points and really emphasized that there are emotional ties and clients or people can often underestimate the emotional ties to their investing.

I have one last question, and then we can wrap it up. When do you think that—at what point does the conversation turn from just investing to true wealth planning, when we’re talking about equity compensation?

Steve: Yeah, good question. I think it’s a little bit different for everybody. But how I think about it is when equity stops being just a benefit and starts becoming the largest line item on your balance sheet. And at a point where every equity decision impacts some other area of your plan, such as retirements or taxes, estate planning, charitable planning, and your family’s long-term financial security.

At that point, we’re really not just talking about an investment. Now we’re talking about more comprehensive wealth planning.

Whitney: And it’s something that could fund all of those things. I mean, that’s when you have a larger conversation. And you need to have likely a more deeper and sophisticated conversation around your equity compensation.

Steve: Yeah. If we ask the question—hopefully this wouldn’t happen—but what if the stock was cut in half tomorrow? How would that affect my family’s future? The answer to that, I think, changes everything. And that’s something that’s important to reflect on.

Whitney: Absolutely. I think you definitely gave our audience a lot to think about. And I just want to emphasize again the amazing resources and tools and experienced professionals, just like Steve, that we have right at our fingertips here at Mariner. And I’m so appreciative of working with so many clients with you, Steve.

I hope that everyone enjoyed the conversation and liked what they heard. And I am so grateful that you joined us today. Thanks for your time, Steve.

Steve: Thank you, I appreciate it.

Whitney: And thanks to the audience for listening or watching. If you liked what you heard, then please like, subscribe or follow wherever you listen to your podcasts and we hope to see you again next time.

The views expressed in this podcast are for informational and educational purposes only and do not consider any individual personal, financial, legal, or tax situation. As such, the information contained herein is intended, and should not be construed, as a specific recommendation, individualized tax, legal, or investment advice. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals regarding their specific circumstances and needs prior to taking any action based upon this information.

The information provided has been obtained from sources deemed reliable, however, the accuracy, completeness, and reliability cannot be guaranteed. Tax laws are subject to change, either prospectively or retroactively. Any opinions expressed are subject to change at any time, without notice.

Mariner is the marketing name for the financial services businesses of Mariner Wealth Advisors, LLC and its subsidiaries. Investment advisory services are provided through the brands Mariner Wealth, Mariner Independent, Mariner Institutional, Mariner Ultra, and Mariner Workplace, each of which is a business name of the registered investment advisory entities of Mariner. For additional information about each of the registered investment advisory entities of Mariner, including fees and services, please contact Mariner or refer to each entity’s Form ADV Part 2A, which is available on the Investment Adviser Public Disclosure website. Registration of an investment adviser does not imply a certain level of skill or training.

The advisor’s personal comments and results may not be representative of the experience of other advisors and there is no guarantee of future performance or success.