If you can afford to defer a portion of your compensation, it may be worth doing so for as long as you can. If a deferred compensation package is not available, then executives must consider other strategies for tax-intelligent diversification. Lee suggests that executives considering a sale of their company stock first look at shares they own outright that have the highest tax basis, because selling those shares would have the least tax consequences. She believes that executives should generally postpone selling their options until near expiration. The problem of guarding against a decline in stock price is particularly perplexing for executives who are considered insiders at their companies, notes Lee.
Securities law prohibits insiders from hedging their positions.
We work closely with our financial-planning clients' internal counsel to ensure they do not violate any laws. Lee notes that executives whose financial objectives include the purchase of a second home may have another alternative for diversifying their assets. That is because many companies that otherwise frown on their executives selling company stock will look the other way when the proceeds are used to finance a residence. Many companies find it politically acceptable to dispose of stock to purchase primary or secondary residences. By selling company stock to purchase the residence, then immediately going to your banker and securing an interest-deductible mortgage on the property, you can ultimately use the cash to invest in a more diversified portfolio.