In this final episode of our six-part series for tech professionals, we focus on tying together the various aspects of equity compensation. We recap the key points discussed in previous episodes, including ESPPs, RSUs, ISOs, and NQSOs, emphasizing the importance of strategic management to leverage these tools effectively.
We discuss the common pitfalls tech professionals encounter when managing equity compensation on their own, such as significant tax bills from incorrectly selling ISOs and inadequate diversification. Holding onto stock with the hope of future gains, only to see the stock price plummet, is a recurring issue. We stress the importance of understanding the tax implications and maintaining a diversified portfolio to mitigate risks associated with over-concentration in company stock.
Amy highlights that while tech professionals are experts in their fields, they often lack expertise in financial planning, underscoring the value of consulting financial advisors. Using tools like Excel and calendar apps to track vesting schedules and exercise options can help, but disciplined execution is crucial. We recommend leveraging digital tools to manage equity compensation effectively, but also emphasize the importance of human expertise.
Work-life balance is another critical topic. We advise setting boundaries and scheduling dedicated time for financial planning to prevent it from overwhelming personal life. For instance, Amy shares how she and her husband hold regular meetings to discuss financial matters, integrating this practice into their routine to ensure it doesn’t interfere with family time.
Lastly, we encourage tech professionals to balance their involvement in financial planning with delegation to trusted advisors. Staying informed and asking questions about their equity compensation strategies ensures they understand and agree with the advice they receive. We suggest working with advisors who specialize in tech and behavioral finance to align financial strategies with personal goals and risk tolerance.
In conclusion, effectively managing equity compensation requires a blend of personal involvement and professional advice. By staying organized, disciplined, and informed, tech professionals can maximize their financial opportunities while maintaining a healthy work-life balance
Jon (00:03):
Welcome back to ThimbleberryU. I'm Jon “JAG” Gay. I'm joined as always by Amy Walls from Thimbleberry Financial. Amy, always good to be with you.
Amy Walls (00:09):
Jag, always great to talk to you.
Jon (00:11):
And today is the sixth in our six-part series, helping out with tech professionals. We're going to tie our whole series together today talking about equity compensation in life, really a hands-on approach.
So, we're going to recap our journey today, discuss how tech professionals can balance their involvement with equity compensation, but while avoiding some of those common pitfalls of going it alone. So, what can our audience expect from today's episode, Amy?
Amy Walls (00:33):
Yeah, Jag, I think when you said this is kind of a recap, I think that's a really good way to approach this. Throughout our conversation around equity comp, we have delved into various aspects, ESPPs and RSUs, ISOs, and those incentive stock options for anyone just joining us and non-qualified stock options or NQSOs.
And with all of those, we've talked about tax implications, exercise strategies, and some real-life success stories.
And I think the key takeaway that I'm hoping our listeners that have delved into those first five episodes got, is that equity compensation is a really powerful tool when managed strategically.
But just like a game of survivor, it's about strategy. That means careful planning and understanding. There's so many ways that this can go right for people who have it, but there's also so many ways that it can go wrong.
Jon (01:33):
What is it? Survivor? Outwit, Outsmart, Outlast? I forget-
Amy Walls (01:37):
Outwit, outplay, outlast?
Jon (01:40):
Let's go with that. We can google it later.
Amy Walls (01:43):
My seven-year-old has recently gotten into it and we're back at episode two or season two.
Jon (01:51):
Lot of binging that you have on your hands.
Amy Walls (01:54):
Yep. He doesn't want to go in order though.
Jon (01:57):
Way to make it more complicated, buddy. Way to make it more complicated. Alright.
Amy Walls (02:01):
Strategy.
Jon (02:02):
Before we discuss the balance of involvement and delegation Amy, let's talk about some of the pitfalls that tech professionals might encounter when they're trying to devise an equity compensation strategy on their own without the help of a professional.
Amy Walls (02:14):
Obviously as a financial professional who works in the tech space, yeah, it's a plug for getting help. Sure. But the reason, whether it's me or someone else that I believe that help is needed is because of the mistakes that I've seen.
Many of our tech clients have come to us because they ended up with a very big tax bill. Because of how they managed equity compensation on their own.
So, it's that lack of expertise that results in costly mistakes sometimes. So, I mentioned the tax bills. This is when ISOs are sold incorrectly or by accident versus maybe RSUs that were intended to be sold.
Other issues can be holding onto stock, believing hey, it's going to be there when I need it. I don't know what to do with it. And then the stock price tanks and it's no longer “available” (and there are some air quotes going on for our listeners), when it's needed because it's not at the price that the client was expecting it to be at or the investor was expecting it to be at because the price has dropped.
Jon (03:31):
So, “available” is in air quotes. I'm making a note of that. Okay.
Amy Walls (03:34):
Yeah. Other things, as a big topic, inadequate diversification, and failure to consider, again, tax consequences are common issues. And when I say inadequate diversification, what I'm really talking about here is concentration.
Being heavily concentrated in a single holding is having 5% or more of your net worth in that investment. Especially if you are a person in tech getting all of this stock and you've just been holding it kind of in fear, perhaps even of making a mistake may not take much for that 5% to be reached.
And then on top of that, Jag, we have to take into account the fact you work for the company who stock you're holding.
Jon (04:20):
Exactly. And that's something we've talked about for years on this podcast, is diversification and having your assets and your holdings spread out over a wide range of different things.
And so, if you are too heavily invested in the company because of this equity compensation, but to your point, you then add the fact that's where your paycheck is coming from. If something were to go as they say in the cartoons, “horribly awry,” with this company, you could be in a world of hurt because so much of your assets are tied to this one entity.
Amy Walls (04:54):
And that might be bad enough if you are single and responsible for yourself, but if you are the breadwinner for a family with kids, a spouse, or kids, this is especially dangerous. Because you're putting more than just yourself at risk.
Investors may also miss out on valuable opportunities and lack of long-term financial planning strategies going it along. So, a regular conversation that I've had is (and I think it's important for anyone to ask themselves this), would I spend my paycheck on buying my company stock as an investment?
And if the answer to that question is no, then right there holding that stock for any reason probably does not make sense.
Jon (05:47):
Right. And as an employee of the company, you may not know the ins and outs of what's happening in the boardroom per se, but you probably got a pretty good gut feeling as to whether or not you would spend your paycheck investing in this company. I love that point.
Amy Walls (06:00):
So, Jag, I like that you brought that point up. A lot of times employees don't know what's happening in the boardroom, like you said. And they may have a gut feeling, those gut feelings may or may not be accurate.
Jon (06:12):
That’s true. Okay. Yeah.
Amy Walls (06:14):
And so, we do need to be conscious of as we've talked about in several episodes, what our biases are, that may be contributing.
Jon (06:22):
If I zoom out for a second here, Amy, a lot of folks in the tech sector have very specific expertise. They know exactly every single circuit board in a widget, or whatever it ends up being. And so, they may be an expert or a foremost expert in a certain area.
In the vast majority of cases, they are probably not an expert when it comes to this equity compensation. And to your earlier point, this is why you really need to talk to somebody who is an expert in the field.
You may know exactly how to fix a circuit board or how to program code or whatever it is. But you want to talk to somebody who has the expertise in the financial planning field when it comes to this kind of stuff.
Amy Walls (07:05):
And let me take that a step further. I think many of our listeners know, but maybe not all, but my husband works in tech. And in our household, it's a joke that he can Google anything and find the answer.
He will use the same search terms I do. And I swear he has different things that pop up, it is just not fair. We call it “The Mark Effect.” And anytime anyone's struggling, he just goes, “You need me to try,” and boom, he has the answer.
Jon (07:34):
Just a quick point, Amy's husband's name is Mark, it's the “Mark” effect, not the “market” effect. We're not going to confuse terms here.
Amy Walls (07:41):
Yes. And even though he can find information so much easier when he Googles, he doesn't necessarily know how to apply it. And I don't use that as an example of when he's working, but if it comes to something financial, he may not want to ask me in a moment and he will google it and then he'll be like, “Hey, it works this way.” Yeah, no, it doesn't work that way.
And so, I just think that's … you're making a good point, but you can find it like he is great at finding the information, but it's a perfect example where it may not be being fully understood.
Jon (08:24):
I can say. like your husband, what we have in common is that we are both married to very smart women. And I often have the temptation to try to figure something out on my own as opposed to asking my wife. Because I don't want to have to go to her with that tail between my legs.
But it's just like Googling your symptoms when you're sick. You have a headache, you Google it, the next thing you know you're on death’s door. Just because the information is on Google doesn't mean it's accurate and you need to go talk to an expert.
Well, speaking of tech, Amy, you've mentioned tech in previous episodes. How can tech professionals use technology itself to streamline their equity compensation management and avoid some of the pitfalls we've been talking about today?
Amy Walls (09:02):
Yeah, Jag, great question. I think, I don't want to paint things with a really broad-brush stroke, but a lot of people in tech want to use tech to track things or think it should be simple.
Unfortunately, equity comp just isn't simple. But there are some digital tools to track vesting schedules, exercising options, and monitoring equity holdings. In all honesty, within our firm, we use Excel for a lot of this. Simple Excel because the tools sometimes make it harder. And I am a big believer in simplification.
Jon (09:40):
You don't want to have to learn a new platform or new technology sometimes. Makes sense.
Amy Walls (09:43):
Yeah. And with these tools, the real trick is really in execution of equity compensation. Discipline is key. Once you have those spreadsheets, you have it organized. I think calendar apps are one of the best tools you can have. Plugging in dates, repeating dates that you need to go in and sell because they align with when things vest. Or with whatever your strategy is.
And just making sure you have that set and do it like I said, based off of those vesting schedules, which are probably in whatever spreadsheets you've created.
And another piece here is being absolutely certain you know how to navigate your employer's trading software. And if in doubt, rather than moving forward online, calling in to get help and explaining what you want to do, it's an okay thing to do to talk to somebody and get that help to ensure you're placing the trade the way you intend to.
Jon (10:46):
What is that cliche that the only dumb questions are the ones that are not asked? There's no such thing as a dumb question. Yeah. Don't be afraid to ask.
Amy Walls (10:52):
Yep.
Jon (10:52):
Amy, we talk about these tech professionals often they have demanding careers, really long hours. How is it possible to maintain a work-life balance while effectively leveraging this equity compensation and avoiding making decisions emotionally, which we're all prone to doing, whether or not we work in tech?
Amy Walls (11:10):
Absolutely. Well, just as someone who especially working virtually, just has to walk a few feet from the kitchen to start working right at any hour of the day. I'm right there with you thinking work-life balance is crucial.
So, pot calling kettle black, but setting boundaries and prioritizing that wel-lbeing and family time is number one, having your why. Having your why be really present and important.
To allow things like financial things that either may overwhelm and kind of become obsessive or fall away and never happen, it's about setting time to deal with financial planning and equity compensation management.
But it doesn't have to come at a cost to the family or personal time because It's really supporting those things. So, I think I've mentioned it before, I'll just use personal example. My husband and I have a standing Monday night meeting.
And some of these things come up in those meetings. There are certain things on the first Monday of the month that we're going to talk about in those meetings. Other things may pop up in other meetings. But it's a time we have set aside specifically for this that we find really helpful.
Jon (12:37):
I think it's worth putting a finer point on that, Amy, because you have to find the motivation, the why as you said. But also, staying organized. You mentioned Excel, you mentioned calendar apps. Having that time carved out, whether it's on a calendar as a meeting, if my wife has one more meeting, she's going to scream. So, I'm probably not going to put it on a calendar for her.
But knowing that you have that time where you don't get overwhelmed and obsessive over it, but you also don't forget it, and having dedicated time for this and staying organized probably helps you strike that perfect balance between the two.
Amy Walls (13:06):
We definitely do better financially and personally when we carve that time out. I also love that, at least for our older child, when they're around, they get to hear some of it and we get to model having those conversations and taking that time away when they want to go do X and I'm like, “Hey, no, Dad and I need to talk, this is our standing time. This is important for us. This is important for our family.” I value that.
Jon (13:36):
Educating the next generation for finances is a podcast we've probably done before, and we'll probably do in the future. Amy, before we wrap up, what's your advice for tech professionals in balancing active involvement in their financial journey with delegating it to trusted professionals to avoid those pitfalls we've talked about today?
Amy Walls (13:54):
Well, I don't know if there's any perfect right balance, just like in financial planning, there's no one way that's always the right answer… other than people should have a cash reserve.
But I think people in general, tech professionals too should, and “should” is a bad word. But they need to stay engaged and informed about their equity compensation. But also, be willing to delegate.
So, there's a line of I need to do something myself, I can delegate it a hundred percent, I don't even need to know about it, or I can delegate it, but I need involvement in this, I think this is an area where people need to understand.
So, you delegate it to get advice. And so, getting feedback, asking questions, knowing why something is being recommended and why you're acting on that advice is important.
To do that though, I do think it's important because equity comp is so specialized that people work with a financial advisor who has experience, expertise in this space. And can ensure that the strategies someone is using actually aligns with their goals.
Let me say this, Jag, part of the reason for this is there's a lot of places in this arena that we're talking about where someone's view of money and the world matter in determining a strategy.
Earlier we talked about the question of, well, would you buy your company stock from your paycheck? And I said that if the answer to that is no, well then you probably have no reason holding onto that stock at all.
That's an example of what I mean by that. That your view of the world plays a role. And so, somebody who knows this space and also understands behavioral finance and can tie those together, I think is a really valuable resource. And that doesn't need to be me and my team. There are many advisors out there that do that work.
Jon (16:04):
Well, it is worth mentioning that Amy does specialize in the tech sector with the real interest in behavioral finance. So, if one of our listeners does want to come talk to you and your team specifically at Thimbleberry Financial, what are the best ways to reach you?
Amy Walls (16:16):
They can reach us online at thimbleberryfinancial.com or by giving us a call at (503) 610-6510.
Jon (16:26):
Great stuff, Amy. Again, great to wrap up the six-part series, I'd encourage our listeners to go back and listen to the previous five episodes, especially if they work in the tech sector. And we'll talk to you again in a couple weeks.
[Music Playing]
Amy Walls (16:34):
That sounds great, Jag. Look forward to it.
Jon (16:36):
Securities offered through registered representatives of Cambridge Investment Research, Inc. A broker-dealer member of FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc, a registered investment advisor. Cambridge and Thimbleberry Financial are not affiliated.
Discussions in this show should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions.
Securities offered through registered representatives of Cambridge Investment Research, Inc. A broker-dealer member of FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc, a registered investment advisor. Cambridge and Thimbleberry Financial are not affiliated.