Complex corporate executive employment contracts require careful wealth management planning

Casey Bear |

Complex employment contracts, with untraditional benefits packages and a myriad of equity grants and options, are commonplace at the upper echelons of corporate leadership. It is crucial that these employees understand the facets of the contract, can manage the tax and cash flow implications that could be triggered by some elements of the package, and plan for wealth-building events and milestones accordingly.

At Cranbrook Wealth, our investment professionals are seasoned in reviewing corporate employment contracts and setting a wealth management strategy that aligns with your current lifestyle needs as well as family legacy goals. We typically encourage executives with employment contracts to carefully consider the following areas:

1.  Incorporate your income and equity compensation into a balanced portfolio that matches your risk tolerance. A bundle of corporate equity options and/or restricted shares could put you over-allocated in a concentrated, high-risk asset class when your entire portfolio is considered, so make sure you have an investment professional who can see the entire financial picture and help balance your portfolio accordingly.

2.  Prepare for tax liabilities from equity distributions.  Events that earn you equity positions in the corporation, like a bonus paid, vesting of past grants, or an acquisition agreement, can cause serious tax bills in the coming years. We can partner with your CPA to best prepare you for the tax incurred following an equity distribution, vesting, etc.  

3.  Consider the use of a low interest rate portfolio margin loan to bridge cash flow gaps.   Many corporate executives are subject to insider trading policies that include lengthy black out periods, executive stock holding requirements, and other restrictions.  This often results in a lot of “compensation” but, at times, very little “cash”.  In these instances we can bridge those gaps using a low interest rate margin loan against the taxable portion of your portfolio.  These loans have extremely competitive interest rates, require no underwriting, and are completed very quickly with simple paperwork.  Once the equity restrictions are lifted, and the stock is sold, the margin loan can be immediately paid off without consequences.  

If you are a corporate executive whose employment contract includes complex factors, get clarity on your individual financial situation and the implications of those terms by consulting with a Cranbrook Wealth investment professional.