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Four Things HR Leaders Should Know About Executive Stock Award Programs

Planning an IPO is an extremely exciting time for a company, but one that raises a multitude of new regulatory challenges and considerations for executives. For benefits and human resources leaders, one of the trickiest paths to navigate is the executive stock award program.

These types of awards became popular with tech and internet startups in the early 1990s and continue to be used as a powerful performance incentive tool. While effective and valuable, stock award programs are also complex and come with their own set of rules — both formal and informal.


Here are four things that HR leaders should keep in mind when executing and advising on an executive stock award program, particularly at a company that is about to go public.

This Isn’t Just a Numbers Game

Unfortunately, it can be easy to think about employee stock awards as lottery tickets — a gamble you make on the possibility of future returns. Volatile stock market swings can make it seem like executives or employees are powerless when it comes to their stock’s value. These are popular myths that can damage a program’s effectiveness.

To combat these myths, create an educational program that clearly explains all the important benefits of the stock award program. From a business perspective, be sure to explain how these stock awards can be used to attract the best and brightest talent. From an employee-centric perspective, explain how stock performance is directly impacted by their job performance. Clearly illustrate the earning potential of each executive should they choose to take full advantage of their stock. When doing so, take time to explain how any performance-based metrics like earnings per share or return on equity play into the overall equation, which further illustrates the connection between their daily duties and company performance on the stock exchange.

Once you’ve fully explained how executives have control over the real benefits of your stock award program, it’s critical to tie the conversation to a discussion about their holistic benefits plan. This is key because many executives may focus solely on the current stock price and market fluctuations — meaning they miss out on the “bigger picture” of how this stock adds real value. Remind them that company stock plans require serious planning and a tactical strategy that goes far beyond the stock ticker.

Don’t Let Emotions Steer the Stock Award Ship

Leadership teams have a deeply emotional stake in the business — it’s part of the reason for their organization’s success. But it’s important not to let this emotional investment get in the way of a sound stock investment strategy. Going “all in” on company stock may represent pride of ownership and faith in the organization’s direction, but it can actually be damaging to the executive’s overall financial wellness. Diversification has been a linchpin of wealth management for decades, and for good reason — it works.

Keep in mind that executives may have earned a significant amount of company stock in a variety of ways, like 401(k)s, vested restricted stock awards or employee stock purchase plans. Be sure you look at the total amount of stock executives own and help ensure that their overall portfolio is diversified. This is where partnering with a trusted financial advisor (or opening the lines of communication with the executive’s own financial advisor) might be beneficial. Diversification is key, even — or especially — if you run the business.

Understand the Body Language of Wall Street

One thing many executives forget is that running a public company means there’s now an ever-watchful eye focusing on the ways they handle their equity stake in the business. While private companies have more flexibility when it comes to stock award programs, public companies must contend with more regulations and added oversight from leadership boards, investors and other key stakeholders. One pair of eyeballs that will be on your public company will be Wall Street’s — and Wall Street cares deeply about optics. 

When educating executives about their stock award benefits, it’s important to stress that selling their stock might send dangerous messages. For example, the market might interpret an executive sale of stock as a clear sign of the business’s weakness, signaling to investors that it’s time to sell. Regardless of the overall health of the company, a rapid chain reaction like this can significantly decrease the overall value of the business. Wall Street cares about this type of “body language” and it’s important for HR professionals to educate company leadership so they fully understand the importance of appropriately timing the purchase or sale of stock, and always operate with investors in mind.

So, You’d Like to Sell Your Stock... Now What?

Company stock awards operate differently than other types of stock. There are blackout dates, underwriter lockups, regulatory restrictions and tax implications. For example, nonqualified stock options (NQSOs) are taxed differently than incentive stock options (ISOs), which entitle the recipient to special tax treatment as long they meet established conditions. Some stock awards even qualify for the Special Tax 83(b) Election through the IRS, allowing employees to change the tax treatment of their awards.

This is all to say: It can be quite complex to manage. Work with leadership to craft a programmatic buying and selling strategy. One popular strategy is a 10b5 plan, which allows executives to create a customized plan that allows them to sell their company stock to achieve their personal financial goals. Keep in mind that you don’t need to become an expert in this type of selling strategy. If possible, consider partnering with an independent financial advisor who can meet with executives to discuss why a systematic selling program makes sense. The key to a successful sale comes down to education and careful planning.

Executive stock award programs can be an important piece of a company’s holistic suite of benefits. While complex, they can be an important motivator for those that buy in — incentivizing leadership and creating valuable rewards. With the proper planning, a robust education program and trusted partners on your side, this is a benefit that can create meaningful momentum.

About the Author

Sandy Galuppo Bio Image

Sandy Galuppo is a managing director at Boston Private.

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