Stock Comp Planning (80/20 Rule)

Simplify the Process by Focusing on What Matters

With stock-based-comp every situation is different, and the details can definitely have a notable impact. That said, in most cases high qualify decisions can be made by focusing on just a few key items (i.e. the 80/20 rule):

(1) What Decisions/Choices Do You Have?

With stock comp, the decision(s) you need to make generally come down to a handful of key choices.

• (1) Should you exercise/buy your options?

• (2) Should you sell your shares/options?

• (3) Or should you wait/do nothing?

(2) What Key Factors Should Be Considered?

Which decision(s) you're focused on impacts the specific key factors at play. But generally, the key inputs will come down to these four factors:

• (1) What is the cost to buy your options (price to buy + taxes owed when exercising)?

• (2) What is your financial plan and alternative use cases/need for cash?

• (3) What is your risk tolerance, and how much concentration risk will/do you have?

• (4) How do you feel about the company's business prospects/do you believe it's a good investment?

(3) Is There a Way to Optimize For Tax?

Optimizing for tax is usually a second-order focus (behind the investment and risk decisions), but it can have a notable impact on your after-tax dollars and definitely should be part of your analysis. Key tax-optimization vectors/areas typically include:

• Can you reduce your income tax (mostly for choices related to NSOs and RSUs)?

• Can you reduce or optimize your AMT tax (mostly for choices relating to ISOs)?

• Can you reduce or optimize your capital gains tax (mostly for choices relating to stock from exercised ISOs/NSOs or vested RSUs/RSAs)?

• Can you reduce or optimize your other taxes (mainly FICA and State taxes)?