Let’s imagine that your company stock has recently rocketed to an all-time high. This news has you feeling euphoric, but at the same time, wondering if the stock has overshot the mark?

Your company is not an island. It is a ship at sea, subjected to the winds of a stock market that many “experts” are now calling overvalued and riding on the waves of a historically long economic expansion.

Should you sell your company stock? How much company stock is too much to hold? What financial planning strategies should be explored?

Six Factors to Consider Regarding Your Company Stock

Before you make a decision about your company stock, consider the following:

1. Concentration

How large is your company stock exposure (i.e., company stock options, restricted stock units, and directly held stock) compared to your other assets and the rest of your portfolio? If your company stock drops 30%-40%, how will this affect your portfolio? How will it affect your bonus, total compensation, job satisfaction, and peace of mind?

How you feel about it—your risk tolerance—is an important consideration, but not the only one. More tangibly, how would a drop in your company stock affect your future financial goals? Would it change your retirement plans? Are the college tuition bills funded and diversified or still subjected to traders’ day-by-day bidding war over your company stock’s value? Will the next data breach, activist investor attack, or CEO ouster take Junior’s higher education hopes down along with your company stock? How about that next vacation, vehicle, or other “nice to have” that you’ve been seriously thinking about buying?

If you don’t have the present value of the funds needed to accomplish those goals in highly-diversified, higher-probability portfolios, but instead have earmarked your concentrated, pre-tax, and possibly leveraged company holdings (stock options) to pay for these goals, you could be in for a sorry awakening with the next downfall.

I’ve written more about how financial modeling and planning strategies can help determine these crucial goal-funding targets, and help determine how much an executive should diversify from their company stock.

2. Non-Qualified Deferred Compensation Election

A non-qualified deferred compensation plan, such as the Executive Deferred Compensation Plan (“EDCP”), can be an incredibly useful tool for unwinding a concentrated position with built-in taxable gains. Making deferrals can offset gains recognized from sales, and you have the ability to diversify once funds are in the plan (within the constraints of your company’s relatively narrow list of investment options) without tax impact. Presto-change-o! Risky holdings with big tax liability ported into a diversified and tax-sheltered portfolio.

However, the EDCP is not without its own unique risks and constraints that should be considered. I’ve written more about this here.

3. Stock Options

Did you realize that your existing stock option grants lose leverage as the stock price climbs? There is also more value at risk on old low-priced options with today’s higher stock prices. While your company’s share price climb has given dynamic growth in the intrinsic value of the options, a downturn can wipe the value out just as quickly—and with less time on the clock to recover. Being smart about an option exercise plan is crucial to achieving long-term financial goals.

4. Restricted Stock (RSU & PSU)

Are you still holding vested shares from restricted stock unit (“RSU”) grants? Should you be? While on the surface, RSUs are not as complex as other executive compensation methodologies, restricted stock awards are one of the areas where we see the most confusion and missed opportunity. For more information about RSU decision making, check out my blog post.

5. Charitable Giving

If you’ve benefited from your company’s stock price rise and want to share the wealth, it would be wise to consider charitable giving options before year-end. There are several charitable giving strategies that may help you fund your philanthropic goals, obtain a current year income tax deduction, lower your taxable estate, diversify your company stock exposure without recognizing capital gains tax, and, in some cases, create a stream of income for you or your heirs. In many cases, simply gifting appreciated shares, either directly or through a Donor Advised Fund, is the simplest and preferred strategy. Be sure to consult with competent advisors! Also, new higher-standard deduction limits warrant a close look at “bunching” of multi-year gifts.

6. Estate Planning

Have gains from your company stock inflated your net worth and increased your state or federal estate tax liability? While we currently have a high federal estate tax exemption of $11.4 million per person, changes in the political system could quickly change that exemption! I’m also finding that many people are not aware that the federal limits are scheduled to revert to $5 million per person, adjusted for inflation, in 2026. Minnesota’s estate tax exclusion, right around $3 million per person and without “portability” will catch many more. Having seen the legal gymnastics some people go through when facing the estate tax, and the costly trust-owned life insurance policies some people purchase to offset the tax’s bite, it could be well worth your time and money to consider advanced planning strategies now!

When your company stock hits an all-time high, it’s important to determine if you need to harvest and protect some of those company stock gains to fund future goals—and know you’ll sleep better through inevitable market downturns. Thinking through the intricacies of your company stock exposure, the leverage, legal, time, and tax filters can help strengthen and optimize your after-tax balance sheet, while still leaving plenty of sail to harness positive winds. Financial planning for corporate executives can be particularly complex, and I’ve written on some of those issues here.

As always, if you’d like to discuss your financial situation, feel free to reach me at Scott@Cahillfa.com, or (952) 926-1659. I don’t sell financial products, just advice, service, and peace of mind.