You Have Equity Compensation, Now What?

Charlotte Jones is a Principal & Senior Wealth Advisor at Compound. She taps into her product management background from her work in tech to advise Directors of Product on their wealth management, guiding them through financial planning, equity, and tax planning.   

Your company gave you equity. But they probably didn’t give you tools for managing it.

That’s not unusual. For VPs and C-level execs, equity management support tends to come with the territory, either as a company perk or because senior employees have better access to financial guidance.

At the director and senior IC level, you often get the grants and a login to your equity admin, like Carta and Shareworks. Tools are available, but they’re not there for long-term financial planning.

The hard truth? Equity compensation isn’t something that takes care of itself. Yes, it’s a benefit, but really it’s an investment opportunity in an asset. The asset is your company.

And, like any investment, it requires active management. Your grants vest, you may get new ones layered on, valuations grow, exercises are taxed and without a system to track it all, you can lose sight of how much of your financial life is tied to one company’s performance.

That’s why it’s important to build a system to manage it before it becomes a problem to solve.

Key Takeaways: 

• Build a tracking system for your grants and vesting schedules.

• Keep an eye on your equity concentration so you’re prepared to take action. 

• Set up yearly check-ins to assess your exercise timing for tax efficiency, and whether your equity strategy aligns with your life.

Why Equity Compensation Feels Safer Than It Is

Equity compensation is an investment opportunity — potentially a meaningful one. But most people don’t think about it that way, at least at first. An equity grant vests over a few years, and it sits in the background as a distant reward while you focus on the job you were hired to do.

And even when people do start paying attention, they don’t approach it the way they would any other investment.

You work there and you believe in the company. You know things an outside investor doesn’t. So the risk feels lower than if you were buying stock on the public markets. It’s easy to have an emotional attachment, and let the belief that the company is going places override your attention to any risk.

But that’s the mistake. Conviction isn’t the same as safety. And, as the valuation climbs, it’s likely that much of your net worth will be concentrated in a single asset — your company. 

The Good News: Equity Comp is Manageable

Managing your equity doesn’t require constant attention. Startup life has a natural rhythm, and you should set up annual touchpoints that align with that.

Here’s a useful anchor: your company is required to update its 409A valuation — the independent assessment of what your shares are actually worth — at least once a year, and after every funding round. That means your equity picture is changing whether you’re paying attention or not. An annual check-in on your end means you’re not caught off guard.

Once your equity passes the 5% mark, you should start to think about concentration risk. Once it gets to 10%, you need a plan. 

Between that, your 401k, and your income, you’ve got a lot of eggs in one (company) basket. The concentration risk runs deeper than most employees realize.

Most people also wait for an exit event to figure out your plan. That can often be too late to take advantage of meaningful strategies that may no longer be available.

When you do review your equity annually, you should investigate:

• Your total financial exposure with the company
• Exercise timing, with regard to tax implications and concentration
• Whether holding or diversifying aligns with your goals 

We’ve developed a simple framework for evaluating your position. Plus, our advisors are here to help. They’ve helped high earners navigate equity decisions at Figma, Anthropic, Plaid, and more. 

A Simple System for Managing Your Startup Stock

Step 1: Create Your Equity Tracking System

You’ll likely receive ISOs (incentive stock options) or NSOs (non-qualified stock options) that vest over time. Typically, it’s a one-year cliff for the first 25% vest, with the rest vesting over the next 3 years.

You might get more grants over time — whether as bonuses, or through a promotion — which would have different strike prices and vest across a similar 4-year schedule, but likely won’t be aligned with other grants.

That’s where it can become easy to lose track of what’s vesting when, what type of option it is, and what the strike price is. 

Within the first year of getting a grant, create a spreadsheet with your vesting schedule. Your spreadsheet should list each grant, its vesting schedule, and when shares become exercisable. Track grant date, total shares, vesting cadence, strike price, and what percentage has vested to date. 

Once you start exercising, also track the fair market value at exercise and, if you sold any, the price you sold for. You'll need that information for your tax return, and your equity platform isn't always reliable about including it in their reports.

If you’re using an equity management platform (like Carta or Shareworks) then you’ll likely find much of the information you need to start your tracker in your personal equity page. 

Step 2: Establish Your Portfolio Concentration Baseline 

Once a year, take a look at your portfolio — it’s easiest if all your investments are in one place (like the Compound dashboard). That way, you can look at your 401k, personal brokerage accounts, any previous company stock, and your current equity grants all at once. 

Calculate what percentage of your total investable assets are tied to company stock to see where you stand. You don’t need to make decisions yet — you’re creating a baseline for the future, so you know when you may want to act. 

You're not just calculating a portfolio percentage — you're seeing the full picture of how much of your financial life depends on one company. Your income, your 401(k), and your equity are all in the same place. Until you look at it all together, it's easy to underestimate how exposed you are.

Step 3: Evaluate Exercise Timing Against Tax Strategy

Your exercising should be based on tax efficiency and cash on hand. 

If you exercise while share value is low, you lock in a favorable cost basis for future capital gains calculations, potentially saving significant taxes if the stock appreciates.

If your stock plan permits it, you can exercise before your shares are fully vested, when the fair market value is equal to or close to the strike price. This is called a Section 83(b) election. You're locking in your basis at its lowest point, but you have to file the election with the IRS within 30 days.

But exercising early also comes with risk while the company is still private and any liquidity or exit event is still in the future.

Treat it like an investment decision. Some people may be more willing to spend the cash exercising to lock in future gains. Or some may have more money they can spend without impacting their day-to-day finances.

Others may feel more conservative, or just not have the cash at hand. That’s worth planning for too.

Also pay attention to your tax bracket. If you expect your income to be lower in a given year, that can generally be a good window to exercise more shares and keep your tax bill down. Keep in mind that ISOs and NSOs are taxed differently at exercise, so the specifics of that timing decision will depend on your situation. An advisor can help you think through the right window.

One more thing worth keeping in mind: until you exercise, your options are theoretical. They're not part of your portfolio yet. Exercising is the moment they become a real asset — and a real decision.

Step 4: Align Diversification Decisions With Your Life Stage and Risk Tolerance

Consider connecting with an advisor if you haven't already. They can help you work through these personal decisions through a financial lens that considers your unique life circumstances. 

For example: If you're married with young children and your spouse has lower or no income, holding 15% of your portfolio in your employer's stock is a much higher risk than if you were single without dependents. Or say you're planning to buy a house in three years — maintaining high equity concentration could jeopardize your down payment.

Every year, check in: Has your concentration crossed 5% (time to start monitoring) or 10% (time to act)? What major life expenses or goals are on the horizon in the next 2-5 years? How stable does the company feel, and what's your honest assessment of its prospects? 

When you answer these questions, you’re able to take action, whether that’s selling a portion to rebalance, holding steady, or exploring hedging strategies.

Financial Clarity That Enables Career Freedom

When your equity management is systematized, you’re able to make career decisions more easily. You won’t feel trapped by unvested grants, you won’t be rattled by volatility, and you’ll think of equity as compensation, not a loyalty test.

That last part matters. Startups run on belief, and there’s nothing wrong with that. But when you’re heads-down building something you care about, it’s easy to lose sight of the fact that equity is compensation. 

The company is paying you for work you've done, and that compensation is yours to invest in line with your lifestyle and goals. Diversifying or managing your equity isn't disloyalty. It's applying your compensation to fund your future.

When you manage it that way, with a clear financial lens, you can see much more clearly when it’s time to move on — either when a company no longer fits your career goals or when the handcuffs aren’t enough to keep you there. (We often see high earners from Big Tech making moves to more sustainable, high-impact roles.)  

Your company is making business decisions about equity grants, and you should make equally clear-eyed decisions about how those grants impact your life. That’s how you take charge of your future. 

If you want to evaluate your current concentration risk, take a look at our dashboard. 

FAQs

When should I start worrying about equity concentration risk?

Start monitoring when your company equity reaches 5% of your total investable assets. Once it hits 10%, you should actively consider diversification strategies.

Should I exercise my stock options as soon as they vest?

It depends on your tax situation and available cash. Exercising when share value is low locks in a favorable cost basis for future capital gains. However, if you need to immediately sell shares to cover the exercise cost, you'll pay short-term capital gains taxes. If you have cash for a "cashless exercise," you can hold shares for long-term capital gains treatment, which is more tax-efficient.

How do I know if I'm holding too much company stock?

Consider your circumstances: Are you married with dependents? Does your spouse have income? Do you have major expenses coming up? If you're the primary earner with dependents or need liquidity soon, even 10-15% concentration may be too risky.