CONCENTRATED STOCK

I had lunch with a couple of guys from Bernstein Global Wealth Management, Vice President David Spieske and Director & Principal John Patnaude.  While this is not an endorsement, I believe the Bernstein folks excel at equity research and analyst services, so I readily accepted their invitation to hear their ideas on executives “making the most of their stock-based compensation.”

As I have noted in earlier posts, the equity portion of executive compensation has increased as performance metrics and the length of time spent at a company are utilized to incentivize executives and to justify and rationalize compensation.

I am not at liberty to recap for my readers the private and confidential presentation. What I will say is that executives must plan early and comprehensively to understand their capital needs for retirement,  to determine the extent of their remaining capital, and, then, to invest accordingly.

The first thing to scrutinize is the amount of concentrated stock (or single stock) holdings.  The second thing is to have an appropriate plan for disposition and diversification of your concentrated stock.   Failure to do so could affect where you ultimately end up financially.  Despite an executive’s sentimental feelings about the stock of the company that made her initial fortune, putting all her eggs in one basket, could leave her with a lot of cracked eggs (how is that for a financial metaphor).

I have discussed concentrated stock position strategies in a previous blog postYour stock grants and options do not take care of themselves. In a nutshell, an executive must be continually engaged in managing her equity compensation in order to maximize her returns and protect her assets.

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