Johnson Lyman Wealth Advisors

Optimizing Equity Compensation

Tech professionals with valuable stock options

Age: 36
Age: 39
Paul is an individual contributor for a large, mature tech company while Denise is a VP of product management for a key service offering at a smaller, but rapidly growing tech firm. Denise’s company has recently gone through an IPO – so things have changed.
They both love their jobs and admit the pace can be grueling.
Both Paul & Denise have been rewarded with equity compensation through their employers. Since the IPO, the stock Denise previously exercised (83(b) election), along with her unexercised ISOs and NQSOs, have grown significantly in value. Paul has significant unvested RSUs at his firm.

Primary Goal:

Optimize the exercise and sale strategy of Denise’s held stock and options to manage risk, reduce taxes, and grow their nest egg so they can make work optional.

The Challenge:

Even though they have already taken significant dollars off the table, they are both concerned about the downside risk of Denise's remaining shares, which have grown in value beyond their earlier expectations. Although they have no intention of leaving work, they like the idea of having work be optional – potentially at a much earlier age than they had previously thought possible.

Plus, the rapid pace of their jobs makes it difficult to have time to fully research all the financial possibilities. They knew they didn’t want to get bogged down trying to figure everything out on their own

Paul & Denise weren’t sure where to begin, so they sought out professional help from Johnson Lyman Wealth Advisors, a qualified wealth management firm that is experienced in advising on equity compensation.

The Approach:

When Paul & Denise hired our firm, they were concerned about more than just their employer stock investments. They wanted help with the entire financial picture, especially how to reduce risk around their stock options, lower income taxes, and prudently grow their wealth.

Although they believed there was additional growth potential in Denise’s company, they also knew they needed to diversify their exposure to her stock, as it had become a significant percentage of their total net worth.

Paul & Denise worked with us to develop a comprehensive plan to meet all their needs:

  • An exercise and sale strategy was developed that balanced the upside in Denise’s company stock while also controlling risk by taking money off the table to diversify their holdings.
  • Multiple strategies protecting against the risk of a steep decline in the value of Denise’s shares were considered, and an appropriate tax-thoughtful technique was selected. Denise’s remaining ISOs were moderately leveraged to get capital gains treatment, using a strategy to adjust regular taxable income to fully reclaim their AMT tax credit generated by their exercise.
  • As the sale strategy unfolded, funds were allocated to both college savings and long-term savings (work-optional) portfolios.
  • A disciplined investment strategy was adopted that allowed them to invest prudently and in line with their values around environmental sustainability, including:
    • A globally diversified approach that also significantly reduced exposure to greenhouse gas emissions.
    • Adopting an improved asset allocation for each of their portfolios (college and long-term savings) to better align with each portfolio’s unique goals.
    • Significantly lowering overall investment costs.
    • Putting into place a smart, sustainable rebalancing strategy.
  • Additional tax efficiency was achieved by carefully managing available tax deductions, including a charitable gift strategy that includes donating appreciated shares.
  • Life insurance was evaluated and updated to make sure they could attain their goals, even if one of them were to die prematurely.
  • Working with their attorney, their estate plan was reviewed to verify that it continues to meet their needs, and to discern if any changes might be considered.

The Results:

Paul & Denise are now able to easily assess their progress via a client portal that provides access to their ongoing financial model results. This allows them to gauge their progress towards making work optional, monitor their portfolios, and secures document exchange between all the advisors on their professional team.

They now enjoy the far greater piece of mind that comes from a clear financial plan, and they also enjoy working with an advisor that provides ongoing support for the implementation and review of their plan.

They have more energy and mental space to dedicate to their family and career – able to live their lives fully every day!


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