Turning Paper Wealth into Real Wealth
A C-suite executive was sitting on millions in equity compensation. Without a plan, most of it would go to the IRS.
Category
Equity Compensation
Client Profile
COO, Publicly Traded Tech Company
Portfolio Value
$8M+ in Equity Awards
Tax Savings
$1.1M+ Over Three Years
01
The Situation
A Chief Operating Officer at a publicly traded technology company came to us with a compensation package that had accumulated over eight years into a complex web of equity awards:
45,000 unvested
Across multiple grant dates
30,000 vested
Unexercised, strike prices $28–$95
15,000
Approaching expiration
$1.2M balance
Deferred compensation plan
6 years
Shares accumulated, complex basis
On paper, the equity was worth over $8 million. But the executive had no coordinated plan for when to exercise, when to sell, or how to manage the tax consequences. Her previous advisor's guidance: "Sell when it vests and diversify." That single sentence, applied blindly, would have cost her over $1 million in unnecessary taxes.
02
The Challenge
Each type of equity compensation has different tax treatment, different timing considerations, and different risks:
RSUs
Trigger ordinary income at vesting — statutory withholding (22%) often falls far short of actual tax owed at higher brackets, creating a surprise bill every vesting date.
ISOs
Offer potential long-term capital gains treatment but trigger AMT at exercise — holding period requirements create concentration risk.
NQSOs
Generate ordinary income at exercise — exercising a large block in a single year can push income into the highest federal and state brackets.
Deferred
Creates a ticking clock — distributions are taxed as ordinary income and cannot be deferred indefinitely.
ESPP
Complex cost basis calculations that most CPAs handle incorrectly.
Without coordination across all five types, each decision made in isolation creates unintended consequences elsewhere.
03
Our Approach
We built a multi-year equity compensation strategy that coordinated every award type against the executive's total income, tax situation, liquidity needs, and long-term financial goals.
Year 1
Immediate Actions
- Exercised the expiring NQSOs before they became worthless, timing the exercise to a quarter where other income was lower
- Began systematic ESPP share sales with proper cost basis tracking
- Modeled AMT exposure for ISO exercises across multiple scenarios
Year 2
ISO Strategy
- Built an "AMT budget" — calculating exactly how many ISOs could be exercised each year without triggering AMT liability beyond recoverable credits
- Exercised ISOs in tranches across two tax years, locking in long-term capital gains treatment while keeping AMT manageable
- Coordinated ISO exercises with RSU vesting dates to smooth total taxable income
Year 3
Diversification and Deferred Comp
- Began structured diversification of accumulated company stock into an individually constructed portfolio
- Initiated deferred compensation distributions timed to coincide with a planned sabbatical year (lower income)
- Gifted the lowest-basis ISO shares to the executive's donor advised fund, eliminating embedded gains entirely
Ongoing
Continuous Monitoring
- Every RSU vesting event is pre-modeled for tax impact 30 days in advance
- Supplemental tax payments are calculated quarterly to avoid underpayment penalties
- Overall company stock concentration is monitored against a target maximum of 20% of net worth
04
The Result
Over three years:
$1.1M+
Tax savings vs. uncoordinated sell-at-vesting approach
Zero
Permanent AMT cost — all liability within recoverable credits
65% → 20%
Company stock concentration reduced
$180K
Saved on deferred comp via sabbatical-year timing
Built
Diversified, tax-efficient portfolio around executive's goals
Forward
Plan in place for every future vesting and grant event
05
The Broader Lesson
Equity compensation is often the largest wealth-building opportunity in an executive's career — and the most mismanaged. Generic advice like "sell and diversify" ignores the reality that timing, sequencing, and coordination across award types can save seven figures over a career.
At Vaquero, we don't treat equity compensation as an afterthought. We treat it as the core planning opportunity it actually is.
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Unlocking a Concentrated Stock PositionThis case study is provided for illustrative and informational purposes only. It is intended to demonstrate the firm's advisory experience, planning process, and investment philosophy under specific circumstances. It does not represent the experience of any specific client. The information presented is not intended as investment, tax, or legal advice and should not be relied upon in making investment decisions. Actual client experiences and results will vary. Past performance is not indicative of future results, and past results do not guarantee future outcomes. Investing involves risk, including possible loss of principal. Advisory services are offered through Vaquero Private Wealth, Ltd., an SEC Registered Investment Adviser. Registration does not imply a certain level of skill or training. This content should not be construed as personalized investment advice, an offer to buy or sell securities, or a recommendation regarding any investment strategy.