Give Me 7 Minutes, I’ll Tell You Everything About Equity Compensation

Episode TL;DR

Equity compensation can be one of the most powerful wealth-building tools you’ll ever receive as a leader—if you understand how it works and how it’s taxed. In just a few minutes, Dan Pasone walks through the major types of equity (ISOs, NSOs, RSUs, ESPPs, performance shares, SARs/phantom stock) and what actually matters for your decisions.

You’ll learn the key tax rules, when to exercise or sell, and how to keep your company stock from quietly becoming 40–50% of your net worth. The goal: turn confusing grants in your HR portal into a clear strategy that builds options and reduces stress, instead of surprise tax bills and concentration risk.

Key Takeaways

Equity is more than a bonus—it’s part of your balance sheet. Stock options, RSUs, ESPPs, SARs, and performance shares all behave differently, and each has its own tax timeline. Treat them as part of your overall wealth plan, not as lottery tickets.
ISOs, NSOs, and RSUs have very different tax rules. ISOs can qualify for long-term capital gains if you meet the holding periods but can trigger AMT. NSOs are usually taxed as ordinary income at exercise. RSUs are taxed as ordinary income at vesting, whether or not you sell.
Vesting, exercise, and sale are separate decisions. Every grant goes through grant → vesting → exercise/release → sale. The smartest strategy often involves planning those stages over multiple tax years instead of reacting when shares show up in your account.
Concentration risk is real. Letting your company’s stock quietly grow to 30–50% of your net worth can undo years of work if the stock drops. Dan generally suggests capping employer stock at roughly 10–20% of your net worth and using excess gains to diversify.
Questions at offer and exit time are critical. “What happens if I leave?”, “How long do I have to exercise?”, “Can I early exercise and file an 83(b)?” are all high-impact questions that can save you serious money and increase your flexibility.
A phased strategy beats all-or-nothing decisions. Thoughtful plans—like staged ISO exercises, sell-to-cover on NSOs, or same-day sale of RSUs to manage risk—can convert complex equity into a diversified portfolio and life options like career changes or a vacation home.

Key Moments

00:00 – The opportunity and problem with equity compensation. Why equity can be a powerful wealth builder—and why most leaders aren’t using it strategically.
00:41 – The risk of “no plan.” Dan explains how unplanned grants lead to surprise tax bills and missed opportunities.
01:06 – The equity compensation white paper. Free deep-dive resource with checklists, tax strategies, and negotiation tips.
01:28 – What counts as equity compensation? Overview of options, RSUs, ESPPs, SARs/phantom stock, and performance shares.
01:57 – ISOs: incentive stock options. How they work, when they’re tax-favored, and why AMT modeling matters.
02:20 – NSOs: non-qualified stock options. Ordinary income at exercise, payroll taxes, and later capital gains.
02:43 – RSUs: restricted stock units. Why tax is due at vesting, not sale—and why same-day sales often make sense.
03:32 – ESPPs, performance shares, and SARs. How discounts, lookbacks, and performance goals affect value and taxes.
03:55 – The life cycle of a grant. Grant → vesting → exercise/release → sale, and why each stage needs its own plan.
04:18 – Pro tips for common awards. Timing ISO exercises, using sell-to-cover, and planning ESPP holding periods.
04:42 – The concentration risk problem. How company stock can creep up to 30–50% of net worth without you noticing.
05:12 – Case study: $500K of unexercised ISOs. A phased exercise and diversification plan that unlocked life goals.
05:56 – Key questions to ask about your grants. Early exercise, 83(b), post-termination exercise windows, and more.
06:23 – 83(b) election basics and risks. Why paying tax early at a low value can be powerful—but must be planned.
06:47 – Using equity strategically as a founder or employer. How equity design affects hiring, retention, and liquidity.
07:07 – Final call to action. Download the white paper, subscribe, and submit your equity questions.

Episode Summary

In this episode, Dan Pasone gives a fast but comprehensive tour of equity compensation for executives and business leaders who know their real earning power goes far beyond their W-2. He starts by naming the problem most high performers face: they’re granted options or RSUs, feel great in the moment, and then get blindsided later by complex tax rules, confusing portals, and fear of making a six-figure mistake.

Dan defines equity compensation as non-cash pay tied to company performance and walks through the most common structures. ISOs (incentive stock options) can receive favorable long-term capital gains treatment if holding periods are met, but they can trigger AMT if exercised without a plan. NSOs (non-qualified stock options) are more flexible in who can receive them but are taxed as ordinary income at exercise, which can create a large taxable event. RSUs (restricted stock units) are straightforward—you’re taxed at vesting on the value you receive—yet that simplicity hides a key risk: the stock can fall post-vest, leaving you taxed on a value you no longer have on paper.

He then covers performance shares, SARs and phantom stock, and ESPPs with discounts and lookback features. Dan explains the four-stage life cycle that every award goes through—grant, vesting, exercise/release, and sale—and how tax treatment and risk change at each step. He shares pro tips such as exercising ISOs in lower-income years to manage AMT, using sell-to-cover for NSOs, selling RSUs promptly to reduce downside risk, and planning ESPP holding periods for tax efficiency.

Most importantly, Dan highlights concentration risk: how company stock can creep up to 30–50% of an executive’s net worth if left unmanaged. He generally recommends capping exposure around 10–20% and using excess gains to fund a diversified portfolio and big life goals. Through a case study of a client with $500,000 in vested ISOs, he shows how a phased exercise and diversification plan turned static grants into a real-world upgrade in lifestyle and flexibility. He closes with high-impact questions to ask about your current and future grants, the role of 83(b) elections, and an invitation to download Tailored Wealth’s full equity compensation white paper to go deeper.

Full Episode Transcript

DAN: You’re a high- earning executive or business leader, and by now you’ve probably realized that your income is about a lot more than just your paycheck. Equity compensation can be one of the most powerful wealth-b buildinging tools available if you understand how to use it strategically. But here’s the problem.

DAN: Most professionals don’t. They get handed a grant of stock options or RSUs and feel excited in the moment only to end up overwhelmed by tax surprises, fine print, or fear of making the wrong move. Maybe that’s you. Maybe you’ve got a grant sitting in your HR portal right now and you’re not even sure what it’s worth or what taxes you’ll owe when it vests.

DAN: And without a plan, you risk leaving big value on the table or worse triggering a tax bill that you never even expected. I’m Dan Pasone, founder of Tailored Wealth, and we help executives and business leaders to optimize wealth. And that starts with making equity compensation work for you, not against you. Before we dive in, I want to make sure that you have access to our full equity compensation white paper.

DAN: It breaks down these concepts in detail and includes planning checklists, tax strategies, and grant negotiation tips. And you can grab it for free using the link below this video. All right, let’s talk about what you actually need to know about equity compensation. Equity compensation is non-cash pay that gives you some form of ownership or exposure to your company’s success.

DAN: That could be stock options, RSUs, ESPPS, SARS, Phantom stock, or performance shares. Companies use equity to preserve cash, retain top talent, and align incentives. If you’re an earlystage startup, you might get options. If you’re a public company, it’s likely RSUs or ESPPS. Now, let’s break down the most common types and what to look out for.

DAN: ISOs or incentive stock options are available only to employees. They can qualify for long-term capital gains tax if you hold them for at least one year after exercise and 2 years after grant. But watch out for the AMT, the alternative minimum tax. We’ve seen executives blindsided by AMT because they don’t model their exercise strategy carefully.

DAN: NSOs are non-qualified stock options, and they can go to employees, contractors, or board members. They’re taxed as ordinary income at time of exercise, which can lead to a big surprise if you’re not ready. You may also owe payroll taxes. And if you hold after exercising, future gains could qualify for long-term capital gains if planned properly.

DAN: RSUs are restricted stock units and are probably the most common award at public companies. They’re simple. You receive actual shares once they vest and you pay ordinary income tax on the value at vesting, not when you sell. That’s where people get tripped up. You could owe taxes on a stock worth a 100K today, but if it drops to 60K before you sell, you’re still taxed on 100K.

DAN: That’s why same day sales strategies are often wise. Performance shares are often used for executives and require that the company hits performance goals to vest. SARS or Phantom stock provide cash value based on stock performance, but no actual equity in the company. And then there’s ESP, the employee stock purchase plan.

DAN: You buy shares at a discount using payroll deductions. And if your company offers a look back feature, you often get the stock at the lower of two different price dates, often done on a quarterly basis. That can boost your return significantly. But the holding period is really important for taxes. Now, let’s talk life cycle. Every equity award goes through a few phases.

DAN: grant, which is when you receive the award. Vesting, which is usually done over three to four years, sometimes with what’s called a one-year cliff. Exercise or release. With options, you choose when to exercise. With RSUs, it’s automatic. And sale. This is when you finally realize the value. And the tax strategy is different at every stage.

DAN: Here are a few pro tips. Exercise ISOs during low income years to reduce AMT impact. Use sell to cover with NSOS to handle withholding. Sell RSUs immediately if you want to minimize downside risk. And for ESPs, plan your holding period to get capital gains treatment. But here’s where most people miss the mark.

DAN: They don’t integrate equity into their broader financial plan. and they let their company’s stock grow to 30, 40, even 50% of their overall net worth without realizing the risk. We generally recommend capping your concentrated stock exposure to 10 to 20% of your overall net worth. Use gains from your company’s stock to fund other priorities like building a diversified portfolio, funding a new business, or creating passive income streams.

DAN: Let me give you a quick example. One client recently came to us with 500,000 invested ISOs. They hadn’t exercised a single share because they were afraid of the tax hit. We built a phased exercise plan that minimized AMT, captured gains over multiple tax years, and converted equity into a diversified investment plan.

DAN: That shift allowed this executive to step into a new role and buy a vacation home. Not because they were guessing, but because they had a strategy. And that’s what equity compensation should do. Create options, not stress. If you’re reviewing an offer, negotiating a package, or thinking about your next move, this stuff matters. Ask the right questions.

DAN: What happens if I leave before my equity fully vests? How long do I have to exercise my options after leaving? Can I early exercise or get an 83B election? If you’re granted stock options that allow for early exercise, you might be eligible for an 83B election. This means that you choose to pay taxes on the shares now at the low value rather than later when the shares have likely appreciated.

DAN: It can be a powerful move to start the long-term capital gains clock early and reduce future tax liability, but there are risks. So, make sure you consult with a professional before filing. These questions can save you thousands and reshape your entire comp trajectory. And if you’re a founder or business owner issuing equity, get strategic about how it impacts hiring, retention, and liquidity.

DAN: Equity compensation isn’t one-sizefits-all, but when it’s understood and aligned with your goals, it can be one of the most powerful wealth tools that you have. Download our equity compensation white paper in the link below. And if this video helped, hit like and subscribe so that more high-income professionals can finally get control over their equity.

DAN: And drop your questions in the comments. And also, let me know what topic you’d like me to tackle next. Thanks for watching. I’m Dan Pasone and I’ll see you in the next

Resources & Citations

Frequently Asked Questions

What’s the real difference between ISOs and NSOs for executives?

ISOs (incentive stock options) are generally available only to employees and can receive favorable long-term capital gains treatment if you hold the shares at least one year after exercise and two years after the grant date. They can, however, trigger AMT if exercised in large amounts without planning. NSOs (non-qualified stock options) are more flexible—companies can grant them to employees, board members, and contractors—but the spread at exercise is typically taxed as ordinary income, often with payroll tax. For both, any additional gain after exercise may be taxed at capital gains rates if you hold long enough.

Why do RSUs feel so simple but create surprise tax bills?

RSUs are mechanically simple: you receive actual shares when they vest, and the fair market value at vesting is treated as ordinary income. The catch is that your tax bill is based on the value at vest, even if the stock price falls afterward. That’s why many executives choose a same-day sale or at least sell a portion at vest to cover taxes and reduce downside risk, especially in volatile sectors.

How much of my net worth is “too much” in company stock?

There’s no perfect number for everyone, but many planners start raising red flags when your employer’s stock climbs above roughly 10–20% of your investable assets. Above that range, a single negative event—a bad earnings report, regulatory issue, or leadership change—can have an outsized impact on your total wealth. A common approach is to set a target cap, then use future vesting and exercises as opportunities to regularly trim and diversify.

What is an 83(b) election and when might it make sense?

An 83(b) election applies when you receive stock that is subject to vesting (often via early-exercised options or restricted stock). By filing an 83(b), you elect to pay tax now on the current fair market value instead of at vesting, starting your long-term capital gains clock earlier. This can be powerful if the stock is low-value and you’re confident in the company’s trajectory. But if the stock falls or never appreciates, you may prepay tax on value you never fully realize—so you should only file after careful analysis with a tax professional.

I’m joining a new company—what should I ask about the equity package?

At minimum, ask about the type of equity (ISOs, NSOs, RSUs, performance shares, ESPP), the vesting schedule and cliffs, post-termination exercise windows, whether early exercise and 83(b) are available, and how often new grants are considered. It’s also smart to ask how the company has historically handled liquidity events (IPOs, tender offers, secondary sales) and what education they provide around taxes and planning so you aren’t left to figure it out alone.

Do I really need an advisor just for my equity compensation?

You might, depending on the size and complexity of your grants. Once the value of your equity crosses into six- or seven-figure territory—or represents a large chunk of your net worth—the stakes of getting AMT, withholding, timing, or diversification wrong can be high. A good advisor doesn’t just explain the forms; they help you integrate equity with cash flow, taxes, retirement, and goals so each vesting or exercise decision moves you closer to your version of a rich life.

Disclaimer

The information in this video and on this page is for educational and informational purposes only and is not intended as, and should not be construed as, individualized investment, tax, or legal advice. Equity compensation rules, tax laws, and holding period requirements are complex and subject to change.

Before exercising stock options, selling company shares, filing an 83(b) election, or making any other decision related to equity compensation, you should consult with a qualified financial professional and a licensed tax advisor who understand your specific grants, employer plan documents, and overall financial situation.

Related Episodes & Resources

Next Steps

If your equity grants feel like a black box—or a ticking tax time bomb—you don’t have to guess your way through them.

Go deeper on your specific grants: Download the full equity compensation white paper from Tailored Wealth (linked above) and use the checklists to map out your ISOs, NSOs, RSUs, ESPP, and performance shares.
Turn complexity into a clear plan: Visit Tailored Wealth to explore how a personalized equity and tax strategy can convert your grants into long-term freedom instead of short-term stress.