Not all employee pay is created equal.
In this case, we aren’t talking about total compensation, but more importantly how that compensation is provided.
We’ve found from working with many executives over the years that it is not uncommon for performance bonuses, stock options, and other variable incentives to make up 25% to 75% over their total pay.
This income variability from year to year makes financial planning and cash flow management more challenging than a more structured salary-based position. An executive could receive a large bonus or valuable stock grant one year, then see much less compensation the next year.
While base salaries stay relatively stable, fluctuations in variable pay determine an executive’s total compensation. But it’s difficult to predict how incentive pay will change when switching jobs or different performance from year to year.
Financial Advisors Can Help Optimize Variable Pay
This unpredictable compensation structure is where a financial advisor can provide tremendous value to executives.
Advisors can analyze an executive’s variable pay over time and across different jobs. This helps identify the optimal mix and structure of short-term and long-term incentives. They can also provide advice on exercising stock options and restricted stock at the right times while minimizing taxes. Guidance on tax-optimized vesting and exercise strategies ensures executives maximize their incentive pay earnings.
In addition, advisors can help smooth out cash flow by developing plans to save bonus pay outs and manage income gaps between years.
For executives navigating frequent job changes, having an advisor evaluate and compare variable pay components in job offers is invaluable. They can help executives negotiate and structure optimal compensation packages. Partnering with an advisor can also help executives maximize lifetime earnings while minimizing taxes.
Reaching Long-Term Goals
Ultimately, managing variable compensation enables an executive to stay focused on big picture goals. An advisor can evaluate career earnings to date and then map out strategies to meet retirement, family legacy, and other wealth management goals.
While pay in these types of positions pay may rise and fall from year to year, your long-term financial plans can remain on track with professional guidance.
Dealing with this type of compensation and need some guidance? Don’t hesitate to contact our team at Diener Money Management for help.