RSUs, share options & deferred compensation
Equity compensation can become significantly more complex when an executive works, lives or becomes tax resident in more than one country.
Restricted stock units, share options, deferred bonuses and other long-term incentive awards can create issues around vesting, tax, timing, currency, concentration risk and future liquidity.
Josh Clancey works alongside tax advisers, employment lawyers, reward professionals and other specialists where internationally mobile executives need their equity compensation incorporated into a wider financial plan.
Equity compensation should be planned as part of the client's total wealth
Executive compensation can include:
- restricted stock units
- performance shares
- stock options
- employee share plans
- deferred bonuses
- long-term incentive plans
- carried or equity-linked incentives
- cash-settled deferred awards
These arrangements can become a substantial proportion of the client's wealth.
They may also be tied to the same employer that provides:
- salary
- annual bonus
- pension contributions
- career progression
That can create significant concentration in one employer.
The relevant tax and legal advisers should establish the treatment of the awards.
Financial planning can then focus on what to retain, what to diversify and how the proceeds should support the client's wider objectives.
Common planning areas for internationally mobile executives
Vesting events
A vesting date can trigger tax, create liquidity and materially change the client's investment exposure.
Share options
Options can involve decisions around exercise timing, tax, liquidity and subsequent share-price exposure.
Concentration risk
Executives can accumulate significant employer stock while also relying on the same company for their income.
Cross-border tax
Where services are performed in more than one country, the tax treatment can require specialist allocation and treaty analysis.
Currency
Awards may be denominated in a currency different from the client's future spending.
Retirement planning
Repeated vesting events may become a major source of long-term wealth and can influence when work becomes optional.
Questions to ask when reviewing equity compensation
What awards does the client actually hold?
RSUs, options and deferred compensation should be identified separately.
When do the awards vest or become exercisable?
Timing can affect tax, liquidity and investment decisions.
Which jurisdictions are involved?
Employment history and residence can affect the tax treatment.
What tax will be due at vesting or exercise?
The relevant tax adviser should establish this before the client commits proceeds elsewhere.
How much employer stock will the client hold afterwards?
A vesting event can materially increase concentration risk.
Are there dealing restrictions?
Executives may be subject to blackout periods, insider rules or internal dealing policies.
What does the client intend to do with the proceeds?
Retirement, property, investment, debt repayment and family objectives may all compete for the same capital.
Useful resources for advisers working with executive compensation
Equity Compensation for Internationally Mobile Executives
A focused technical brief covering the financial-planning issues that can arise when executives receive share-based remuneration across jurisdictions.
The Professional Adviser's Guide to International Executive Financial Planning
A broader guide covering compensation, investments, pensions, mobility and long-term wealth planning.
Concentrated Share Positions for International Clients
A useful companion resource where repeated vesting creates a large employer-stock position.
International Executive Checklist
A practical checklist for reviewing compensation, pensions, investments and mobility issues.
The Professional Adviser's Guide to Cross-Border Financial Planning
A wider guide where executive compensation sits within a multi-jurisdiction financial position.
Client Moving Country Checklist
A practical resource where the executive is relocating before, during or after a vesting cycle.
Vesting can turn compensation into an investment decision
Before vesting, an award is primarily part of the client's remuneration package.
After vesting, the client may own a substantial quantity of ordinary shares.
At that point, a different question applies:
Would the client choose to invest this much of their personal wealth in this company today?
If the answer is no, diversification may need to be considered.
The review can include:
- tax on sale
- dealing restrictions
- existing employer exposure
- future vesting
- cash requirements
- retirement objectives
- alternative investments
- currency
- the client's tolerance for concentration
International mobility can make timing more important
An executive may receive an award in one country, perform employment duties across several countries and vest after moving again.
That can create complexity around:
- source-country taxation
- residence-country taxation
- allocation of employment income
- withholding
- payroll
- treaty relief
- reporting
The relevant tax advisers should establish the technical treatment.
The financial plan can then use that analysis to determine:
- how much cash should be reserved
- whether shares should be retained or sold
- what portion can be invested
- how future awards should be incorporated
- whether the client is becoming too dependent on one employer
When should the referral happen?
A referral can be useful where the client:
receives RSUs or share options
is moving country during a vesting cycle
has substantial unvested awards
is approaching a major vesting event
holds significant employer shares
is unsure whether to sell after vesting
has deferred compensation
is approaching retirement
needs to incorporate equity compensation into a wider wealth plan
Have an internationally mobile executive with equity compensation?
If the client needs to understand how RSUs, share options, deferred compensation or employer stock fit into their wider financial plan, an initial discussion can help establish where planning should sit alongside the tax, legal and reward advice.