The Executive


Corporate America is trying to do more with less manpower. Accordingly, more is asked of executives today than at any other time in the past. Giving more of yourself to your company means you need to have a partner, a CFO, so to speak, to keep track of your personal business plan. Clients come to us most often for help in the following areas of interest:

– Concentrated Stock Positions

– Equity-Based Compensation

– Regulatory Requirements and Filings

– Company-Specific Trading Policies

– Executive Benefit Planning

Nearly all the executives that have come to us over the years have lacked a disciplined strategy for their equity ownership.  It goes without saying that you want to sell your stock at a high valuation.  Perhaps you need to sell at a certain price – a higher price – to have enough money to accomplish your goals. Or, you might be able to accomplish your goals by divesting all, or a portion of, your stock at today’s price.  KGWP’s focus in this part of the planning process is in helping you determe the value that you require from your equity ownership.  When it comes time to divest, strategies that may be of interest to executives include 10b5-1 Sales Plans, Variable Prepaid Forwards, Equity Exchange Funds, Net Unrealized Appreciation and Charitable Giving strategies.

Equity Compensation has changed a lot over the last decade.  While less prevalent than before, the importance of planning for these income events is just as important today.  There are many factors that go into stock option planning. We analyze the relative valuation of each Incentive Stock Option (ISO) and Non-Qualified Stock Option (NSO),  the tax ramifications of an exercise and the client’s overall risk exposure.  We assist the client in understanding the Value at Risk (VaR) of “letting an option ride.” VaR is determined by taking into account factors such as current price, strike price, time to expiration and forecasted volatility.

Equity Compensation can also come in the form of Restricted Stock*.  RS shares have vesting schedules which prohibit the sale of the stock until the vesting date. Upon vesting, the shares are taxed as income. The executive must pay the taxes either through cash or by selling of some of the restricted shares.  When RS is given to an employee we recommend the executive consider an 83(b) election.  This technique can be very beneficial when the executive is bullish on the stock.  An 83(b) election requires the employee to pay income taxes at the time of the grant and converts any appreciation between the grant date and vesting date into the more favorable long-term capital gain tax structure.  Tax planning is very important where equity compensation is concerned.  Our clients trust us to work with their tax advisor to make certain forward-looking planning is completed.  For example, when a client is already triggering AMT (perhaps because of a RS vesting), it is not uncommon for us to help the client determine what, if any, stock options could be exercised without increasing the taxes owed.

We often recommend sales strategies built around a 10b5-1 declaration. The benefit of this approach is twofold. First, for those who are unable to buy and sell except during pre-determined times in the year, the 10b5-1 plan allows the executive to buy or sell when pre-determined events occur (such as a target price achieved), even if they occur outside the executive’s trading window. Second, the 10b5-1 can help reduce risk for the executive who is privy to insider information. It is our job to help the executive plan for the long term and avoid risks — whether they are market- or trading-related.  If the executive is considered a “control person” we will help them navigate the regulatory requirements, including, but not limited to, Rule 144 filings.

Executive Benefit Planning can come in many forms, such as strategizing on Deferred Compensation.  DC plans offer many benefits but are not without risk in terms of asset ownership but also how plan deferrals impacts other company-sponsored benefits.  Successful financial planning requires the coordination of all corporate benefits and KGWP can help!

* Restricted Stock Units are different from Restricted Stock.  RSU’s are grants of stock with specific vesting values and dates.  No strategy relative to the vesting of RSU’s is available. 




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