What Should You Do With Company Stock? A Tax-Smart Guide to Managing a Concentrated Position
For high earning professionals, executives, and senior leaders in major corporations, this question comes up frequently - and for good reason. Long term incentive plans make up a large proportion of corporate America’s benefit packages, particularly at public companies. Research firm Pearl Meyer’s 2025 survey of 248 organizations showed that 96% of public company respondents and 73% of private for-profit respondents granted some type of long-term incentive compensation awards to their senior executives. Public companies also commonly use more than one equity vehicle by providing stock, options and other performance-based awards together.[i]  The use of these awards provides an excellent way for companies to retain top talent and reward their best employees. For the employees themselves, they are often a central vehicle for wealth creation, going far beyond what typical base and bonus compensation can provide. We often find that when senior leaders accrue a significant proportion of their wealth in their company stock, it usually happens for very good reasons: it may reflect years of leadership, smart decisions, and strong corporate success. The challenge is that year after year, accruing equity can feel like accidentally leaving a faucet running into a sink with a plugged drain: untended for a while, the sink fills to the brim and overflows. After years of toiling an advancing within their company, an executive may find her salary, career, benefits and investment portfolio all part of the same stream, dependent on the same company, without realizing the risks that this accumulation can entail. With that being said, we’d emphasize that a concentrated stock position isn't always a mistake or a problem, especially with appropriate planning and/or risk control (hedging) in place. We think a few questions are worthwhile to help put your company stock in context. Senior leaders should consider the following:
As you think through those questions, you'll next want to get a handle on what you own before deciding whether to hold, sell, hedge, or diversify your company stock. Equity compensation often may look similar on your company’s brokerage statement or benefits portal, but the timing of ownership tax implications and planning decisions vary greatly. The most common types of equity compensation are as follows: Restricted Stock Shares (RSU): RSU's are a promise from your employer to give you shares of the company stock at a future date. Stock grants like these are very common, even for rank-and-file employees. Typically, the entire fair market value is reported as ordinary taxable income on your W2 at vesting. (We also help our clients confirm tax withholding and avoid tax surprises.) From there, any price movement is a capital gain or loss (long or short term, depending on timing of when you sell). Restricted Stock Awards (RSAs) and Performance Stock Units (PSUs) - These awards operate similarly to RSUs, but with a few key differences. RSAs are shares that you own now, issued at grant, and with similar restrictions on sale such as a vesting schedule. RSAs sometimes allow what's known as an 83(b) election which means the holder can elect to pay tax at the grant date rather than future vest date. This can be attractive if the company stock's value is low and you expect substantial appreciation. The obvious risk is if the stock goes down, the taxes paid are not recoverable. PSUs are performance-based shares more frequently directed to senior executives vs. other employees. They are similar to RSUs but typically come with additional hurdles for corporate performance that must be met before a payout occurs. Because they're taxed as income, it can be a useful thought exercise to think of these stock grants as a bonus check from your company because once vested, the employee can usually immediately sell for the full cash value. So, ask yourself: if your employer wrote you a check for the same value your restricted shares are worth, would your first action be to spend it to buy more company stock? If the answer is “no”, then thinking about reducing or hedging the exposure probably makes sense. It can be that simple. Holding the shares for further upside creates yet more concentration, with additional capital gains owed when sold; while if the stock declines in value, this creates a double whammy: you've already withheld taxes at your higher marginal income tax rate but then get less value out of the sale of the stock in the future, even if there are further capital losses. Stock Options - Stock options give the holder the right to buy shares at a set exercise price. For example, an option with a $50 exercise price only has value if the stock price goes above $50. The two main types of options are Non-Qualified Stock Options (NQSO), where the difference between the exercise price and market value is generally taxed as ordinary income exercise and sale. Incentive Stock Options (ISO) on the other hand may receive more favorable tax treatment if certain holding rules are met, but exercising and holding them can trigger alternative minimum tax.
With a solid grasp of your long-term compensation mix and their tax implications, you are better positioned to approach decision making about your total compensation in a systematic way. As a practical matter, Marathon Wealth Advisors will utilize data on the structure award vesting dates, expiration dates, tax triggers, and their expected value and incorporate them into our long-term financial plans. That helps turn equity compensation from a line item into something that you can actually make decisions around. Finding the strongest approach is usually a lesson in discipline rather than trying to call a top or a bottom in a stock price. It's best to decide in advance how much stock you're comfortable retaining, and selling excess shares as awards vest and options exercise. Another consideration is the SEC’s Rule 10b5-1, which are prearranged plans that establish in advance the amount, price, and timing of transactions. This helps take emotions out of the decision making on when to execute. Lastly, while taxes do matter, they should not be the only driver. That's something we emphasize across the board when it comes to investing and estate considerations. Waiting for the precisely optimized tax rate can leave too much wealth exposed to the whims of your company stock price, while selling everything at once may produce an unnecessary spike in your taxes. Hedging strategies can sometimes offer the best of both worlds by managing market risk of your stock, while buying time to effect a transaction to spread out and control tax impacts. It's best to have a thoughtful strategy to coordinate the management of your company stock alongside your financial goals and estimated taxes, with a focus on improved investment results through diversification and risk reduction. |
[i] https://pearlmeyer.com/sites/default/files/knowledge-share/research-report/Looking-Ahead-to-Executive-Pay-Practices-in-2026-Executive-Summary-vF.pdf [ii] https://rpc.cfainstitute.org/blogs/enterprising-investor/2014/diversification Third-party links and references are provided solely to share social, cultural and educational information. Any reference in this post to any person, or organization, or activities, products, or services related to such person or organization, or any linkages from this post to the web site of another party, do not constitute or imply the endorsement, recommendation, or favoring of Marathon Wealth Advisors or Savvy, or any of its affiliates, employees or contractors acting on their behalf. Savvy does not guarantee the accuracy or safety of any linked site. |