July 23, 2025 • 16 mins
Equity-based compensation has become an increasingly popular form of compensation in the United States, especially in Tech and high-growth, VC-funded companies.
Joey Fishman is a Senior Advisor at Ritholtz Wealth Management (RWM), where he assists clients with managing their stock, options, and equity compensation. He joins Barry Ritholtz to discuss essential information about earning pay in stock.
Each week, “At the Money” discusses an important topic in money management. From portfolio construction to taxes and cutting down on fees, join Barry Ritholtz to learn the best ways to put your money to work.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:16):
That's the way you do it.
Speaker 3 (00:19):
You play.
Speaker 4 (00:23):
Honey, working, That's the way you do money.
Speaker 2 (00:30):
Money, That's the way you do it.
Speaker 1 (00:34):
Let me tell you, guys, don't.
Speaker 3 (00:37):
Equity based compensation has become an increasingly large part of
the US labor landscape, especially in technology and high growth
venture capital funded companies. I was at a recent employee
benefits conference in Silicon Valley, and I was shocked to
hear from so many corporate benefit managers that a lot
(01:00):
of their employees neglect to capitalize on their stock options
or other types of equity compensation. To help us unpack
all of this and what it means for your compensation,
let's bring in Joey Fishman. He's an expert in equity
based compensation and Ben's previously Portland, Oregon, and his clients
(01:21):
ranging from Seattle and Redmond down to San Francisco and
Silicon Valley. Full disclosure, Joey is the equity compensation expert
at my firm, and he's one of my partners.
Speaker 2 (01:33):
So Joey, let's start with the basics.
Speaker 3 (01:36):
What are the most common types of equity compensation plans
today that companies are offering and how do these differ?
Speaker 4 (01:44):
Thank you so much, Barry. The most comprehensive, the one
that we see the most is restricted stock units, then
followed by non qualified stock option its incentive stock options.
Those three things tend to be the most frequent forms
of equity compensation that we see these days.
Speaker 3 (01:59):
So rsu's ESOPs, what are the difference between this alphabet
soup of Yeah.
Speaker 4 (02:06):
So ESOP actually is the employee stock option plan and
so that can include non qualified stock options or incentive
stock options.
Speaker 2 (02:14):
What are the difference between those two?
Speaker 4 (02:16):
The main difference between the two is that incentive stock options,
if you thread the needle appropriately or correctly, you avail
yourself to long term capital gains tax treatment. Non qualified
stock options are a little bit different where you have
to meet two different thresholds in order to avail yourself
to long term capital gains tax treatment. One basic primary way,
(02:38):
and that is incentive stock options are reserved only for
employees that comes from the treasury account. The non qualified
stock options that's typically given to board members, consultants, other
folks that have a participating activity within the firm itself,
but they're not necessarily an employee.
Speaker 3 (02:56):
I kind of remember a story about a guy who
designs a logo for Facebook and they pay them in
stock and it ends up being worth millions of dollars.
I don't know if that sounds familiar. So look, my
firm is an employer.
Speaker 2 (03:09):
We issue equity participation.
Speaker 3 (03:12):
We have about thirty out of nearly eighty employees or partners.
I understand the advantage of offering equity compensation, but I.
Speaker 2 (03:20):
Want to hear it in your terms.
Speaker 3 (03:22):
What are the advantages of equity versus cash from a
corporate perspective.
Speaker 4 (03:27):
I mean not to sound cliche, but we've all heard
the term that like culture each strategy. That is very
much the case in this endeavor. So like it sets
the tone, the right tone from the beginning. Employees are
incentivized to grow the business, you know, put their heads
down and get after it with less friction between you know,
management and themselves. So they feel like they're active participants
(03:48):
and growing the business and they'll be financially rewarded for
doing So.
Speaker 3 (03:51):
What are the disadvantages from a corporate perspective?
Speaker 4 (03:54):
They are complex to administer. The regulatory environment is kind
of a beast, and you do have to spend money
on compliance to make sure that you're threading the needle
of all the various rules that apply depending on the
various stock plan that you choose to employ.
Speaker 3 (04:09):
So let's say both a company and an employee say, hey,
this equity thing sounds attractive. How do you go about
figuring out what's the right mix of equity and actual
cash compensation? How does this differ from employees at different
levels within the company.
Speaker 4 (04:25):
It's more art than science, and so each company is
going to have its own version of an equity stock plan.
The Nikes of the world, they tend to get folks
that are athletes and like to push themselves. So in
some cases they they'll offer these employees incentive stock options,
which have a lot of leverage upfront. They also have
(04:45):
the ability to choose RSUs or restricted stock units for
folks that want to at least at the end of
the day, guarantee that they're going to have something tangible.
Other firms like Netflix, they give you the option to
determine how much of your actual co compensation that we're
going to give you each year can be dedicated to
buy non qualified stock options. Broadly speaking, you know, oil
(05:07):
and gas typically uses rsu's financials typically use RSA's restricted
stock awards with healthy or juicy deferred compackages. And then
tech is very much reliant on options at the beginning,
and then as the company grows and becomes more established
and switches to RSUs.
Speaker 3 (05:27):
So we're talking about a variety of different ways to
implement an equity based compensation. What does this mean for taxes?
It sounds like each one of these has its own
set of tax ramifications for the employee.
Speaker 4 (05:42):
They do, and it's very hard, it's very challenging to
navigate all of it. It's like playing a game of
financial twister. The goal at the end of the day
is to get yourself available so that any we realize
gains from here on out or long term capital gains
tax treatment because at least there, you know, within the
spirit and intent of the law, you have the ability
(06:03):
or at least some options to beat back that tax liability.
So ideally, like you're getting yourself to that place. You know,
the ones that end up being most punishing, which you know,
relatively speaking, is you know, folks that have non qualified
stock options or ISOs in the incentive stock option case,
they may fall under what's called a MT taxes, which
(06:24):
is it's an incredibly inpent expensive tax that's levied on
folks that is not always recoupable down the road. And
in non qualified stock options, you may just find yourself
completely in ordinary capital gain or ordinary income tax rates.
And you know, in some cases, you know, if you're
realizing a couple million dollars worth of non qualified stock
options and you live in the state of California, at
(06:44):
the end of the day, you're walking home with maybe
fifty cents on the dollar. The needles that have to
be threaded to make yourself available for long term capital
gains tax screaming are hard, but if you can do
it correctly, then the window opens up for your ability
to at least chip away at that tax liability and
keep more of that game. When all of a said and.
Speaker 2 (07:02):
Done, huh really interesting.
Speaker 3 (07:04):
Let's talk about vesting schedules and the difference between a
cliff or a graded vesting. When do these option plans
actually show up is real assets to the employee.
Speaker 4 (07:17):
To the employee, that's good question. Okay, So to the employee,
they have to follow a vesting schedule, and most work
under a four year vesting schedule with a one year cliff,
which simply means that you need to stick around for
the next four years and your shares are going to
vest in equal amounts. However, nothing is going to invest
or vest for the first twelve months. That's called a cliff.
(07:39):
After the cliff is met, the first twelve months is met,
you then get twenty five percent of your shares. From
there on out, for the next thirty six months, you're
going to get quarterly divestitures or vesting of, you know,
a fractional percentage of the total until that remainder period
is up and the equity is all yours.
Speaker 3 (07:56):
So someone who has opted for a high equity portion
of their compensation and their company does really well, and
let's just say they've won, what's the procedures from there?
How do they take full advantage, minimize their taxes and
reduce some of their concentrated wealth in a single holder.
Speaker 4 (08:17):
Here's where things really get complex, and it's going to
depend on if the company is publicly traded or if
they're privately So if they're publicly that's the easier of
the two because there's liquidity when you need it. However,
as an employee, you're going to be subject first after IPO,
assuming that you're going through the process, there's going to
be a six month lock up period where you can't
(08:38):
touch your shares, and so typically, i mean what generally
happens is that the stock is going to sell off.
It's going to get shellacked for the next six months,
and it's going to look terrible and it's going to
feel awful. But eventually, once that six month lock up
period is over and all of the insiders have divested
their shares, then it's put up or shut up time.
So usually, like that month period is really ruling for
(09:01):
a lot of folks to endure. There's there's going to
be trading blackout periods that surround earnings releases. If you're
in the C suite, you're going to need to file
specific forms to make sure that there's no whiff of
insider trading. So there's there's a whole you know, patchwork
of laws and rules that you have to follow in
(09:21):
order to sell these shares. And so it's not as
easy as saying, hey, when it hits this price point,
I'm going to sell everything and just live off the
you know, the interest for the rest of my life.
It's it's not that easy.
Speaker 3 (09:30):
Unfortunately you mentioned private versus public. Obviously it's easy if
the company goes public or if they're purchased in an
M and a transaction. Well, what happens with private companies
where there isn't necessarily a broad, deep market that's very liquid.
Speaker 4 (09:49):
They call these double trigger events. So in a privately
traded market, essentially two things need to occur. One is
you need to vest, so that's the first trigger, and
the second trigger is there need to be a liquidity event.
So if there's no transaction where somebody buy shares or
you know, liquidity exchanges, you're kind of stuck there until
something happens. If at all you could, you know, theoretically,
(10:13):
just have a bunch of network on paper that's captive
and never gets realized because there's just no market for it.
Speaker 2 (10:21):
Really really interesting. But other than that, there really is no.
Speaker 3 (10:25):
Difference between various stock option plans for a publicly traded
company or for a private company.
Speaker 2 (10:31):
It's just what the exit looks like.
Speaker 4 (10:33):
It's mostly the liquidity constraints that are challenging for privately
traded firms and being able to realize that gain within
at least the timeframe that you hope sometimes it's just
not available to you until a flu cappens understood.
Speaker 3 (10:47):
So, what are some of the biggest mistakes you see
that either corporate offerers of equity compensation make or employees
who receive equity compensation also engage.
Speaker 4 (11:00):
On the employee side, over confidence tends to run rampant.
And I say this because like with our firm, like
they're coming to us after already having won the game.
So like the world with which we see is through
survivorship bias, I should say that at the forefront, but no,
they've already wonted, so they're coming to us, and among
the things that they need to immediately wrap their heads
(11:23):
around is the uncertainty of having to navigate the various rules.
There's a degree of overconfidence, which you know has its
own challenges that need to be dealt with, and usually
like through strategic planning and showing them you know, sequence
of risk and how this can all play out, helps
you know, dampen that down. And you know, there's resistance
to diversifying away from you know, what they've attached themselves
(11:44):
to for for so many years. So overcoming those things
is definitely challenging on the On the employers on the
employee side. On the employer side, it's it's the regulatory
needles that have to be threatened. It's a beast. There's
there's this fraud with litigation. Even on the advisory side,
because it involves taxes, you have to be very careful
(12:06):
in how you communicate things and display things so that
you're not giving tax advice when you should be strictly,
you know, relegated to financial advice. And so the employer
is also straddling that very same line. It's very unclear.
Sometimes even attorneys don't want to touch this stuff. So
let's a it's a landmine if you don't know what
(12:27):
you're doing.
Speaker 2 (12:28):
Let's talk a little bit about psychology.
Speaker 3 (12:30):
You know, every employee seems to think their stock is
the next Nvidia, when it could just as easily be
the next Lehman or ge or Enron for all we know.
How do you, as an advisor work with employees at
hot companies letting them understand all of the risks and
(12:53):
potential risks they're looking at.
Speaker 4 (12:55):
At the end of the day, it is considerably less
expensive to lock in your quality of life by diversifying
than it is to maintain a concentrated risk in a
single security. So, and the other way to say that
is that volatility is a tax on returns, and so
once you get to a place where, look, there's thirty
(13:16):
five times your burn rate, none of taxes that are
sitting in your equity comp if you're not de risking
and locking in your quality of life now, you are
missing the opportunity of a lifetime. Getting them to understand
what they don't want to happen and what they want
to avoid is absolutely tantamount. And when you show them
(13:37):
the difference between, hey, it's going to cost you this
much to lock in your quality of life with a
diversified portfolio versus if you continue to maintain this course,
it's going to cost you thirty to forty percent more
to ensure that you're never going to run out of
money again because of the associated volatility with that single security.
Speaker 2 (13:54):
Huh, really interesting.
Speaker 3 (13:56):
Last question. Tell us about the most recent trends you
see in equity compensation. What is going on, especially at
tech companies and high growth firms.
Speaker 4 (14:06):
They are switching to RSUs, which are the easier of
the equity comp forms to administer, and there it's a
very simple process you're going to have a vesting schedule.
It's most likely going to have a one year cliff.
It'll unfold over four years. But you know, in each
portion or each vesting schedule, you will be a lot
of the set of shares. Whatever the value is or
(14:27):
the trading price is at the time at your vesting,
that's what that's what your your your amount is going
to be. There will be taxes owed, but it's it's
considerably easier than having to navigate you know, incentive stock
options and a MT tax or non qualified stock options
and the margin element and all the various tax treatments
that go along with it. And so the bottom line
(14:48):
vary is that everyone's trying to find a way to
simplify all this. You know, after a fifteen sixteen year
bowl market, you know, a lot of the money has
been made in the option space, and now they're they're
settling in for I would say, a more mature way
of distributing income or distributing equity compensation, because with RSUs,
at least at the end of the day, you're going
(15:09):
to have.
Speaker 2 (15:09):
Something really really interesting.
Speaker 3 (15:11):
So to sum up, if you're an employee at a
company that offers you an equity part of compensation. You
should very much explore it. Speak to your financial advisor,
speak to your accountant or tax professional.
Speaker 2 (15:26):
Make sure you understand the risks.
Speaker 3 (15:28):
But if you've won this game, don't hesitate to de risk.
Have a more broadly diversified portfolio. Don't have ninety percent
of your entire net worth tied up in.
Speaker 2 (15:39):
A single stock.
Speaker 3 (15:40):
It's just way too much risky and potentially creates a
lot of downside.
Speaker 2 (15:46):
I'm Barry Rudolfs.
Speaker 3 (15:47):
You're listening to Bloomberg's At the Money. Both married, manymenter
school
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:16):
That's the way you do it.
Speaker 3 (00:19):
You play.
Speaker 4 (00:23):
Honey, working, That's the way you do money.
Speaker 2 (00:30):
Money, That's the way you do it.
Speaker 1 (00:34):
Let me tell you, guys, don't.
Speaker 3 (00:37):
Equity based compensation has become an increasingly large part of
the US labor landscape, especially in technology and high growth
venture capital funded companies. I was at a recent employee
benefits conference in Silicon Valley, and I was shocked to
hear from so many corporate benefit managers that a lot
(01:00):
of their employees neglect to capitalize on their stock options
or other types of equity compensation. To help us unpack
all of this and what it means for your compensation,
let's bring in Joey Fishman. He's an expert in equity
based compensation and Ben's previously Portland, Oregon, and his clients
(01:21):
ranging from Seattle and Redmond down to San Francisco and
Silicon Valley. Full disclosure, Joey is the equity compensation expert
at my firm, and he's one of my partners.
Speaker 2 (01:33):
So Joey, let's start with the basics.
Speaker 3 (01:36):
What are the most common types of equity compensation plans
today that companies are offering and how do these differ?
Speaker 4 (01:44):
Thank you so much, Barry. The most comprehensive, the one
that we see the most is restricted stock units, then
followed by non qualified stock option its incentive stock options.
Those three things tend to be the most frequent forms
of equity compensation that we see these days.
Speaker 3 (01:59):
So rsu's ESOPs, what are the difference between this alphabet
soup of Yeah.
Speaker 4 (02:06):
So ESOP actually is the employee stock option plan and
so that can include non qualified stock options or incentive
stock options.
Speaker 2 (02:14):
What are the difference between those two?
Speaker 4 (02:16):
The main difference between the two is that incentive stock options,
if you thread the needle appropriately or correctly, you avail
yourself to long term capital gains tax treatment. Non qualified
stock options are a little bit different where you have
to meet two different thresholds in order to avail yourself
to long term capital gains tax treatment. One basic primary way,
(02:38):
and that is incentive stock options are reserved only for
employees that comes from the treasury account. The non qualified
stock options that's typically given to board members, consultants, other
folks that have a participating activity within the firm itself,
but they're not necessarily an employee.
Speaker 3 (02:56):
I kind of remember a story about a guy who
designs a logo for Facebook and they pay them in
stock and it ends up being worth millions of dollars.
I don't know if that sounds familiar. So look, my
firm is an employer.
Speaker 2 (03:09):
We issue equity participation.
Speaker 3 (03:12):
We have about thirty out of nearly eighty employees or partners.
I understand the advantage of offering equity compensation, but I.
Speaker 2 (03:20):
Want to hear it in your terms.
Speaker 3 (03:22):
What are the advantages of equity versus cash from a
corporate perspective.
Speaker 4 (03:27):
I mean not to sound cliche, but we've all heard
the term that like culture each strategy. That is very
much the case in this endeavor. So like it sets
the tone, the right tone from the beginning. Employees are
incentivized to grow the business, you know, put their heads
down and get after it with less friction between you know,
management and themselves. So they feel like they're active participants
(03:48):
and growing the business and they'll be financially rewarded for
doing So.
Speaker 3 (03:51):
What are the disadvantages from a corporate perspective?
Speaker 4 (03:54):
They are complex to administer. The regulatory environment is kind
of a beast, and you do have to spend money
on compliance to make sure that you're threading the needle
of all the various rules that apply depending on the
various stock plan that you choose to employ.
Speaker 3 (04:09):
So let's say both a company and an employee say, hey,
this equity thing sounds attractive. How do you go about
figuring out what's the right mix of equity and actual
cash compensation? How does this differ from employees at different
levels within the company.
Speaker 4 (04:25):
It's more art than science, and so each company is
going to have its own version of an equity stock plan.
The Nikes of the world, they tend to get folks
that are athletes and like to push themselves. So in
some cases they they'll offer these employees incentive stock options,
which have a lot of leverage upfront. They also have
(04:45):
the ability to choose RSUs or restricted stock units for
folks that want to at least at the end of
the day, guarantee that they're going to have something tangible.
Other firms like Netflix, they give you the option to
determine how much of your actual co compensation that we're
going to give you each year can be dedicated to
buy non qualified stock options. Broadly speaking, you know, oil
(05:07):
and gas typically uses rsu's financials typically use RSA's restricted
stock awards with healthy or juicy deferred compackages. And then
tech is very much reliant on options at the beginning,
and then as the company grows and becomes more established
and switches to RSUs.
Speaker 3 (05:27):
So we're talking about a variety of different ways to
implement an equity based compensation. What does this mean for taxes?
It sounds like each one of these has its own
set of tax ramifications for the employee.
Speaker 4 (05:42):
They do, and it's very hard, it's very challenging to
navigate all of it. It's like playing a game of
financial twister. The goal at the end of the day
is to get yourself available so that any we realize
gains from here on out or long term capital gains
tax treatment because at least there, you know, within the
spirit and intent of the law, you have the ability
(06:03):
or at least some options to beat back that tax liability.
So ideally, like you're getting yourself to that place. You know,
the ones that end up being most punishing, which you know,
relatively speaking, is you know, folks that have non qualified
stock options or ISOs in the incentive stock option case,
they may fall under what's called a MT taxes, which
(06:24):
is it's an incredibly inpent expensive tax that's levied on
folks that is not always recoupable down the road. And
in non qualified stock options, you may just find yourself
completely in ordinary capital gain or ordinary income tax rates.
And you know, in some cases, you know, if you're
realizing a couple million dollars worth of non qualified stock
options and you live in the state of California, at
(06:44):
the end of the day, you're walking home with maybe
fifty cents on the dollar. The needles that have to
be threaded to make yourself available for long term capital
gains tax screaming are hard, but if you can do
it correctly, then the window opens up for your ability
to at least chip away at that tax liability and
keep more of that game. When all of a said and.
Speaker 2 (07:02):
Done, huh really interesting.
Speaker 3 (07:04):
Let's talk about vesting schedules and the difference between a
cliff or a graded vesting. When do these option plans
actually show up is real assets to the employee.
Speaker 4 (07:17):
To the employee, that's good question. Okay, So to the employee,
they have to follow a vesting schedule, and most work
under a four year vesting schedule with a one year cliff,
which simply means that you need to stick around for
the next four years and your shares are going to
vest in equal amounts. However, nothing is going to invest
or vest for the first twelve months. That's called a cliff.
(07:39):
After the cliff is met, the first twelve months is met,
you then get twenty five percent of your shares. From
there on out, for the next thirty six months, you're
going to get quarterly divestitures or vesting of, you know,
a fractional percentage of the total until that remainder period
is up and the equity is all yours.
Speaker 3 (07:56):
So someone who has opted for a high equity portion
of their compensation and their company does really well, and
let's just say they've won, what's the procedures from there?
How do they take full advantage, minimize their taxes and
reduce some of their concentrated wealth in a single holder.
Speaker 4 (08:17):
Here's where things really get complex, and it's going to
depend on if the company is publicly traded or if
they're privately So if they're publicly that's the easier of
the two because there's liquidity when you need it. However,
as an employee, you're going to be subject first after IPO,
assuming that you're going through the process, there's going to
be a six month lock up period where you can't
(08:38):
touch your shares, and so typically, i mean what generally
happens is that the stock is going to sell off.
It's going to get shellacked for the next six months,
and it's going to look terrible and it's going to
feel awful. But eventually, once that six month lock up
period is over and all of the insiders have divested
their shares, then it's put up or shut up time.
So usually, like that month period is really ruling for
(09:01):
a lot of folks to endure. There's there's going to
be trading blackout periods that surround earnings releases. If you're
in the C suite, you're going to need to file
specific forms to make sure that there's no whiff of
insider trading. So there's there's a whole you know, patchwork
of laws and rules that you have to follow in
(09:21):
order to sell these shares. And so it's not as
easy as saying, hey, when it hits this price point,
I'm going to sell everything and just live off the
you know, the interest for the rest of my life.
It's it's not that easy.
Speaker 3 (09:30):
Unfortunately you mentioned private versus public. Obviously it's easy if
the company goes public or if they're purchased in an
M and a transaction. Well, what happens with private companies
where there isn't necessarily a broad, deep market that's very liquid.
Speaker 4 (09:49):
They call these double trigger events. So in a privately
traded market, essentially two things need to occur. One is
you need to vest, so that's the first trigger, and
the second trigger is there need to be a liquidity event.
So if there's no transaction where somebody buy shares or
you know, liquidity exchanges, you're kind of stuck there until
something happens. If at all you could, you know, theoretically,
(10:13):
just have a bunch of network on paper that's captive
and never gets realized because there's just no market for it.
Speaker 2 (10:21):
Really really interesting. But other than that, there really is no.
Speaker 3 (10:25):
Difference between various stock option plans for a publicly traded
company or for a private company.
Speaker 2 (10:31):
It's just what the exit looks like.
Speaker 4 (10:33):
It's mostly the liquidity constraints that are challenging for privately
traded firms and being able to realize that gain within
at least the timeframe that you hope sometimes it's just
not available to you until a flu cappens understood.
Speaker 3 (10:47):
So, what are some of the biggest mistakes you see
that either corporate offerers of equity compensation make or employees
who receive equity compensation also engage.
Speaker 4 (11:00):
On the employee side, over confidence tends to run rampant.
And I say this because like with our firm, like
they're coming to us after already having won the game.
So like the world with which we see is through
survivorship bias, I should say that at the forefront, but no,
they've already wonted, so they're coming to us, and among
the things that they need to immediately wrap their heads
(11:23):
around is the uncertainty of having to navigate the various rules.
There's a degree of overconfidence, which you know has its
own challenges that need to be dealt with, and usually
like through strategic planning and showing them you know, sequence
of risk and how this can all play out, helps
you know, dampen that down. And you know, there's resistance
to diversifying away from you know, what they've attached themselves
(11:44):
to for for so many years. So overcoming those things
is definitely challenging on the On the employers on the
employee side. On the employer side, it's it's the regulatory
needles that have to be threatened. It's a beast. There's
there's this fraud with litigation. Even on the advisory side,
because it involves taxes, you have to be very careful
(12:06):
in how you communicate things and display things so that
you're not giving tax advice when you should be strictly,
you know, relegated to financial advice. And so the employer
is also straddling that very same line. It's very unclear.
Sometimes even attorneys don't want to touch this stuff. So
let's a it's a landmine if you don't know what
(12:27):
you're doing.
Speaker 2 (12:28):
Let's talk a little bit about psychology.
Speaker 3 (12:30):
You know, every employee seems to think their stock is
the next Nvidia, when it could just as easily be
the next Lehman or ge or Enron for all we know.
How do you, as an advisor work with employees at
hot companies letting them understand all of the risks and
(12:53):
potential risks they're looking at.
Speaker 4 (12:55):
At the end of the day, it is considerably less
expensive to lock in your quality of life by diversifying
than it is to maintain a concentrated risk in a
single security. So, and the other way to say that
is that volatility is a tax on returns, and so
once you get to a place where, look, there's thirty
(13:16):
five times your burn rate, none of taxes that are
sitting in your equity comp if you're not de risking
and locking in your quality of life now, you are
missing the opportunity of a lifetime. Getting them to understand
what they don't want to happen and what they want
to avoid is absolutely tantamount. And when you show them
(13:37):
the difference between, hey, it's going to cost you this
much to lock in your quality of life with a
diversified portfolio versus if you continue to maintain this course,
it's going to cost you thirty to forty percent more
to ensure that you're never going to run out of
money again because of the associated volatility with that single security.
Speaker 2 (13:54):
Huh, really interesting.
Speaker 3 (13:56):
Last question. Tell us about the most recent trends you
see in equity compensation. What is going on, especially at
tech companies and high growth firms.
Speaker 4 (14:06):
They are switching to RSUs, which are the easier of
the equity comp forms to administer, and there it's a
very simple process you're going to have a vesting schedule.
It's most likely going to have a one year cliff.
It'll unfold over four years. But you know, in each
portion or each vesting schedule, you will be a lot
of the set of shares. Whatever the value is or
(14:27):
the trading price is at the time at your vesting,
that's what that's what your your your amount is going
to be. There will be taxes owed, but it's it's
considerably easier than having to navigate you know, incentive stock
options and a MT tax or non qualified stock options
and the margin element and all the various tax treatments
that go along with it. And so the bottom line
(14:48):
vary is that everyone's trying to find a way to
simplify all this. You know, after a fifteen sixteen year
bowl market, you know, a lot of the money has
been made in the option space, and now they're they're
settling in for I would say, a more mature way
of distributing income or distributing equity compensation, because with RSUs,
at least at the end of the day, you're going
(15:09):
to have.
Speaker 2 (15:09):
Something really really interesting.
Speaker 3 (15:11):
So to sum up, if you're an employee at a
company that offers you an equity part of compensation. You
should very much explore it. Speak to your financial advisor,
speak to your accountant or tax professional.
Speaker 2 (15:26):
Make sure you understand the risks.
Speaker 3 (15:28):
But if you've won this game, don't hesitate to de risk.
Have a more broadly diversified portfolio. Don't have ninety percent
of your entire net worth tied up in.
Speaker 2 (15:39):
A single stock.
Speaker 3 (15:40):
It's just way too much risky and potentially creates a
lot of downside.
Speaker 2 (15:46):
I'm Barry Rudolfs.
Speaker 3 (15:47):
You're listening to Bloomberg's At the Money. Both married, manymenter
school
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