In this episode of Thimbleberry U, Jag and Amy Walls from Thimbleberry Financial discuss the unique financial challenges faced by tech professionals, particularly focusing on equity compensation. The episode is the first in a six-part series dedicated to addressing the financial needs of tech professionals.
Amy highlights three major challenges tech professionals face regarding equity compensation: time, knowledge, and access to accurate and up-to-date resources. She emphasizes that tech professionals often lead demanding lives, balancing intense work schedules with personal commitments, which leaves little time to manage personal finances effectively. This is particularly relevant in the context of 2023, which saw significant layoffs and increased work demands in the tech industry.
The conversation then shifts to the importance of knowledge in managing equity compensation. Amy uses an analogy of baking, comparing the complexities of equity compensation to the intricacies of baking a complex recipe. She points out that while some aspects of equity compensation might be straightforward, integrating multiple elements such as various forms of equity compensation, taxation, and investment options can be challenging.
The third challenge discussed is the need for accurate and up-to-date resources. Amy notes that tech professionals, being problem solvers, often rely on internet research or advice from colleagues, which may not always be reliable or applicable to their specific situation. She stresses the importance of seeking professional financial advice to navigate these complexities.
Amy suggests that while there are tools available to manage equity compensation, simplicity is key. She recommends basic tools like Excel spreadsheets and calendar apps, combined with discipline and familiarity with employer-provided documents, to effectively manage equity compensation.
Tech professionals should seek out financial advisors who specialize in equity compensation. She emphasizes the importance of professional advice in navigating the complexities of equity compensation and achieving financial goals.
Jag “Jag” Gay: Welcome back to Thimbleberry U. I am Jag “Jag” Gay, joined as always by Amy Walls from Thimbleberry Financial. Amy, good to be with you.
Amy Walls: Jag, it's great to talk to you.
Jag: In 2023, we did a six-part series regarding the medical profession and folks in that world and the unique financial challenges they face. I know that's one of your specialties at Thimbleberry. The other area of expertise you have is in the tech world. I know you have a lot of clients in that space. In 2024, we're going to do a six-part series on the unique needs of tech professionals, one a month, starting today with episode number one. Where do we start?
Amy: Today, we're going to talk about why this is important. What are the challenges that people in the tech space face, especially around their equity compensation? Because that's one of the factors that overrides people in the tech space and that we find they have the most questions about. It's an opportunity for good, and it can also be a place where things really, unfortunately, don't go right.
Jag: We have touched on this in previous episodes because you work with so many clients in this area, but I know today we're going to focus on three big challenges that folks in the tech industry face regarding the equity compensation. What are those three?
Amy: Time. I don't know these days who doesn't face a challenge with time, but I think in the tech space, that's what we hear consistently from these clients. Knowledge. Then this ties to knowledge, but accurate and up-to-date resources.
Jag: Got it.
Amy: I find all three of those are challenging for folks. Should we dive right into time?
Jag: Yes. Like you said, we all feel like we're facing a time crunch today in 2024, but let's talk about how it relates specifically to the tech world.
Amy: Tech professionals lead pretty demanding lives. They work some long hours. They're processing things in many cases after hours. I know this from my clients, also from my husband. He's never stepping away from work and the things that he's thinking about programming. I get it because I solve problems by going and gardening or doing other things in some cases, but they're balancing often a thriving career, family commitments, and personal interests can be overwhelming. It's just hard to get to those things like your personal finances when all these other things are weighing on you. I think right now in the tech space, 2023 was a lot of layoffs. There's a lot of demands for production at a higher rate and that stress level is weighing on people. I think along with that, we've alluded to it, time. It's a precious commodity.
Jag: Sure.
Amy: There just isn't necessarily enough time for the folks, that I'm talking about here, to dive into the complexities. Yet equity compensation often represents or creates a significant part of their wealth.
Jag: Sure.
Amy: They need to address these challenges in order to make sure they take advantage of the valuable opportunity that they have.
Jag: We're recording this on January 4th. I think back to that dead week between Christmas and New Year's and that time and budgeting that time and having this to-do list of all the things I didn't get to during the year. I didn't get through all of it but got through most of it. That time thing really does play into it. What about the knowledge piece of it?
Amy: It's so important. Let me talk a little bit about our clients. Many of them are foodies.
Jag: Sure.
Amy: I know you can appreciate that.
Jag: Yes.
Amy: interestingly, I know many of them enjoy the Great British Baking Show. All right? I also enjoy the show. I like to bake. There are times when I try something new, something more complex, usually not as elaborate as on the show, and it is a complete mess. There are also times I try small things that I see people do on the show, and it works great. When I try lots of things together all at once, oh, it never seems to work. I share that example not only because our clients are foodies, and I think it's a great analogy, to equity comp. It has the same potential. There are places where it's easy to get certain parts of equity compensation correct but when you're now looking at the whole picture of multiple forms of equity compensation, taxation, you've got a challenge on your hands.
Jag: All these different pieces of it. You've got the sugar, you've got the butter, you've got the eggs. I'm going to further your analogy probably too far here, but I think there's so many different pieces of it. With the butter and the eggs and the flour, and you mess up a ratio or mess up one part of it, the whole thing is shot.
Amy: Absolutely. It gets messier the more pieces you add in. I named a couple of things here, multiple forms of equity compensation, for example. What about endless investment options if you do sell your equity comp?
Jag: Sure.
Amy: Competing goals. There's financial independence or retirement versus college funding versus now helping parents. I realize, Jag, as we dove into this, we haven't defined what equity compensation is. I'm guessing most of our listeners who are interested in this topic know already. Just for a real quick recap, talking about Employee Stock Purchase Plans or ESPP, Restricted Stock Units or RSUs, stock options that come in a couple different versions, non-qualified stock options, and incentive stock options. Of course, things aren't simple with just one form of stock option. Then SARS and phantom stock as well as performance shares also play a role. Now I'll share those last three SARS, and phantom stock and performance shares. Those are not as common as the ESPP, the RSUs, and the two forms of stock options.
Jag: We've covered the ESPPs, RSUs, and stock options in previous episodes and encourage our listeners to go back for more deep dives on each one of those particular topics. Yes, there's so many ingredients and you want the cake to come out or the retirement to come out as it should. The third area you mentioned, Amy, accurate and up-to-date resources. Gosh, this is so important. I know this before you even answer this question.
Amy: Obviously, people in tech, they're smart. They're resourceful. They're problem solvers. Let's just call it what it is. People in tech are problem solvers. However, just like in programming, sometimes solving one problem creates another problem. When I think about accurate and up-to-date resources, and like I said, this ties a little bit to knowledge, it's understanding that the language an employer gives from HR can often be jargon-filled.
Jag: Yes.
Amy: That leaves things open to interpretation in some cases. Internet research as a problem solver is pretty common, but it's not always accurate.
Jag: That's the problem with the internet. [laughs]
Amy: There can be a tendency with doing that research to like resources like Reddit. It's a lot of opinions in many cases versus fact. Then internally, there's the money channels and various Slack channels, for example, or Teams channels, and people who really sound like they know what they're talking about. They may or they may not, and it may not always be consistent. Not knowing who to turn to, not knowing what resources to trust, and especially when among certain circles, it's really easy for myths or rumors to be carried forward on a certain topic, multiple times and you think it's accurate. This is where we see for folks in tech problems arising.
Jag: It's a little bit like old-school word of mouth and new-school word of mouth. You mentioned old school when it comes to colleagues sharing their various opinions on financial matters. Then new school word of mouth, which I would consider like you said, Reddit. There's also TikTok and YouTube and anything you really find by a simple Google search on the internet. Amy, why is it essential for tech professionals to trust financial professionals in managing their equity compensation?
Amy: Any professional should be bringing specialized expertise and a broader perspective to the table. It's really easy in this equity compensation space and issues facing people in tech to get laser-focused on one thing. That's where the next problem comes up. That professional is going to be able to have that broad view to tie different pieces together. They basically have the knowledge and experience to navigate the intricacies of not only equity compensation but how that ties to financial goals and then helping you make informed decisions. The idea of a professional isn't to have them decide for you. It's to have them bring you options and lead you down a path or give you the option of a couple of paths and then helps you stay on that path as long as it's still the right path. It's partnering and helping have the confidence that you're not needing to decipher is this person right or is this person wrong? Because someone knows the space that you are in and what you're trying to accomplish.
Jag: Let me bring an analogy in that will probably hit home for our tech professionals listening. That is a true-to-life example from two days ago, actually. I was updating my website for some stuff for 2024 and I clicked the wrong button somewhere and I wiped out the entire theme on my WordPress site. There was no way to get it back. I tried Googling it. I was getting, how to fix it in 2017, which really wasn't very helpful to me. I panicked. A friend of mine hosts my website for me, and he's an IT and tech expert. I called him, and it took him a few minutes to figure out what to do. He said, "I figured out a way to rewind your website back to the way it was 24 hours ago. Will that solve the problem?" I said, "Yes, absolutely." He did it. I had all my stuff back. My website was all pretty the way I wanted it, and I didn't have to rebuild my website from scratch. I don't know how to fix a website. I know enough about the back end of my website to be dangerous, but I needed a professional with the knowledge and expertise and how to figure out how to fix my exact situation. The same thing you're talking about here.
Amy: Exactly. We don't know what we don't know. A lot of times it can be hard to know when we know enough to be dangerous versus know little enough to not be dangerous because we're going to ask for help. I think in the middle is where we get into the most trouble.
Jag: Understood. Amy, are there tools or technologies that can simplify the management of equity compensation?
Amy: I wish for our tech listeners that I could say yes, and there are some tools, but I'm going to say from a professional standpoint and in conversations with colleagues who also work in the tech space, simple is better. Most of us use basics, an Excel spreadsheet, to keep track of various forms of equity compensation and dates and lots and cost basis and a calendar app. I think of this going back to days of farming for some reason, but a lot of getting equity compensation right is good old-fashioned discipline. It's also being familiar with documents that an employer gives for at least the RSUs and the stock options. Those are called grant letters or grant notices. Different employers call them different things. I'll share that an employer can't actually give the notice unless an employee has signed for it. They can't grant the shares. An employee always signs off, and this document exists. It's maybe a question of where to find it, but it's a contract, which is why it has to be signed, that we're going to give you this many shares or the right to buy this many shares at this price. You have to say, yes, I'm willing to take that contract.
Jag: Got it.
Amy: One of the big challenges is knowing exactly where to find those, and then being able to keep track consistently, diligently of what's happening, which is why I say a good old calendar app and an Excel spreadsheet in certain cases. Now for our clients, we put together a spreadsheet of certain pieces that they keep to make it simpler. Then the last thing I'd say is knowing how to find current lots of your holding shares in your employer's trading platform.
Jag: There you go.
Amy: Not a lot of tech is needed. This can be really simple. It goes down to those old fundamentals that really start with discipline on this one.
Jag: There is irony there in telling tech professionals there's not some super software to do this, and just a little bit of pencil and paper or Excel and a calendar app will work well for you. Amy, how can tech professionals get started on their journey to unlock this equity compensation efficiently?
Amy: First and foremost, I'm going to say seek out professional advice. Of course, I'm a financial advisor, so that's going to make sense that I'm going to say that. There's a number of people, number of advisors that specialize in equity compensation specifically. Find one who does because this isn't something to risk with somebody who doesn't know it. Then schedule a consultation. Hopefully, they're going to talk about your goals, your equity holdings, and any questions or concerns that you have. It should be an easy, stress-free conversation, no matter what mistakes you've made in the past.
Jag: I like that approach. Amy, if one of our listeners wants to come talk to you and your team at Thimbleberry Financial about equity compensation or anything really related to their finances, how do they best find you?
Amy: They can find us online at thimbleberryfinancial.com or by giving us a call at 503-610-6510.
Jag: Seek professional advice so you don't end up with flour and sugar all over your face or egg. Thanks, Amy. We'll talk again soon.
Amy: [laughs] All right, Jag, sounds good.