Good Financial Reads: What You Need to Know About Equity Compensation

Want to make sure you are taking advantage of all the benefits your employer has to offer? The concept of an Employee Stock Purchase Plan (ESPP) may have come up during salary negotiations, in your offer of employment letter, in chats with your colleagues, or listed in your employee benefits package.

If you work at a tech company, there’s a good chance you’re eligible to participate in an employee stock purchase plan (ESPP). These plans typically allow you to buy company stock at a discount in the range of 5% to 15%. 

Participating in these plans can provide a nice boost in your wealth-building journey. In this month’s article, we’ll discuss the basics of an ESPP along with a few strategies.

Is equity compensation part of your employee benefits package? With acronyms like RSU, NSO, ESPP, ISO, and ESOP, yours might seem more like alphabet soup than a benefit. Sure, you have the documents from human resources, but you might still be wondering what it is and how it works. 

Equity compensation comes in many forms, and offerings can differ not only from company to company but also from employee to employee. 

Many of my clients originally reach out to me because they have a lot of company stock and don’t understand what it is or when to sell it. They are aware they lack “diversification,” but don’t know what to do about it—or if diversification is a big deal at all.

Meanwhile, the stock keeps going up, so there doesn’t seem to be a problem to fix. Until, of course, it stops going up. That’s usually when we make contact.