Concentration Management

While the ongoing receipt of equity based compensation can create a significant amount of wealth for an executive, it also typically leads to a concentration in employer stock. This concentration often poses the single largest risk exposure on the executive’s balance sheet.

The assessment of this risk is much more nuanced than identifying a target percentage of the executive’s overall balance sheet or a threshold dollar amount that is too much to have in one stock. The concentration risk is much more related to the impact on the executive’s lifestyle if the employer stock position were to decline in value meaningfully.

If the executive can grow the non-employer stock portion of their balance sheet to a level that can generate sufficient income to support their lifestyle, then the issues surrounding concentration risk can be mitigated. Additional factors, including mandated ownership levels, insider trading regulations and pressure from shareholders and board members must be incorporated into the assessment of risk and development of a plan to reduce the risk over time.

Executive Consulting of Raymond James has a depth of knowledge in concentration management and is uniquely positioned to assist with the benefits and risks associated with concentrated equity.