Equity compensation basics
Equity can build real wealth, but it also creates tax events and concentration risk. This guide explains the most common equity types and the decisions that matter most.
Educational content only. Not individualized financial, tax, or legal advice.
Executives often receive equity before they have a clear plan for it. The result is usually one of two extremes: holding everything indefinitely or selling randomly.
This guide gives you the basics so you can plan intentionally.
Use this guide if:
- you receive RSUs, options, or ESPP
- you want a simple framework for what to track
- you want to reduce tax surprises and concentration risk
The three common equity types (plain language)
RSUs (Restricted Stock Units)
Typically become yours as they vest. Vesting events can create taxable income and concentration if you hold shares.
Stock Options (ISO/NSO)
Options give you the right to buy shares at a set price. Decisions include whether and when to exercise and how to manage expiration timelines.
ESPP (Employee Stock Purchase Plan)
Lets you purchase company shares, often at a discount, through payroll contributions. Decisions include purchase timing and holding or selling strategy.
Key idea: Equity is not just an "investment." It's compensation with rules.
The two executive equity risks to plan for
Risk 1: Tax events
Equity can trigger taxes when it vests, when you exercise, and when you sell.
Risk 2: Concentration
Holding a large amount of company stock can increase risk because your job and portfolio are tied to the same company outcome.
What you should track (simple list)
Track:
- grant date
- vesting schedule
- number of shares or units
- cost basis details (if applicable)
- expiration date (for options)
- blackout windows and trading rules
- your current company stock percentage in overall net worth
When you track these, decisions get easier.
A basic planning sequence (what to do first)
Build your equity calendar (vesting and purchase dates)
Clarify tax triggers for your equity type (high level)
Set a concentration limit that fits your risk tolerance
Create a sell/hold framework (not emotional decisions)
Coordinate with tax-aware planning
Want an equity plan that reduces taxes and concentration risk?
A short call can help you map vesting schedules, tax timing, and a diversification plan that fits your goals.
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Common mistakes
What to do next (follow the pathway)
FAQ
Ready for the decision framework?
Next is a simple decision framework to help you handle RSUs and ESPP consistently.