7-Step Framework for Equity Decisions

Equity compensation can be a result of many successful careers, potentially representing a significant portion of overall net worth. We partnered with Bruce Burrows, Managing Director Wealth Management to highlight some of the considerations that employees should think about for their equity awards. But the steps that turn an employee stock purchase plan into wealth requires planning to help realize life goals.

Part One is a seven-step framework1 to help connect plans to dreams through informed decisions... Kind of a focused variations of Socrates’ ancient injunction to “Know thyself!”

1. Values

What does money mean?

There's no right or wrong answer, but each person needs to know what’s important to them.

Excitement of Investing

Thrill of Growth

Family Security (5, 10, 25 years)

TIP: Be true to financial values such as ability (or not) to take on risk and plan from there.

2. Goals

What are the employee’s personal and professional goals—and risks—over the immediate, short and long terms?

Emergency Fund:

3 – 6 months of living expenses

Short Term:

Second Home
Gifts to charity

Long Term:

Retirement goals
TIP: Plan for and understand the impact on goals with a liquidity event. Be aware of possible black-out periods.

3. Relationships

Who else is part of the journey?

A holistic plan for equity compensation recognizes that life is shared with others.

Immediate or Extended Family
Charity or Religious Affiliations
TIP: Relationships evolve or shift a bit as time goes on, remember to update the plan accordingly.

The best advice for reaching lifetime goals is to plan.
Trying to play catch up doesn't work as well.

Bruce Borrows | Managing Director Wealth Management

4. Assets

What’s the location and allocation of various asset buckets, beyond the employeestock purchase plan?

Assets may be in retirement plans, college funds or real estate. It may be in stocks, bonds or cash. It may be in taxable, tax deferred or tax-exempt accounts.

Where Are
the assets?
How Does Equity Compensation Fit In?
What Type of Returns Are Required to Meet Goals?
How Will That Change Over Time?
TIP: Effective decisions require a comprehensive financial picture.

5. Advisors

Who can help make the right decisions as part of the employee financial journey?

Professionals can not only help prepare the overall plan, but also help make adjustments along the way.

Tax Advisors
Financial Advisors
Legal Advisors
TIP: Not just for complex planning decisions, professional resources also help with basic overall equity compensation understanding.

6. Portfolio Process

What process works best, given time, career and other constraints as part of decision-making to achieve life goals?

Understand from the outset what makes most sense, such as checking in:


And decide on the scope to focus on for each portfolio check in:

Concentrated Equity Position
Complete Diversified Portfolio
TIP: Decision making at the best possible time for diversifying could potentially mitigate some risk to help meet overall goals.

7. Interests

What are the employee’s interests and how are they likely to change over time?

As equity compensation grows, this can become an important part of the overall plan.

Physical Activites
TIP: Gifting strategies, for example, become particularly important for equity with a low cost basis.

“Your values and goals will determine when you want to sell or when you want to diversify your equity holdings.”

Bruce Borrows | Managing Director Wealth Management

An Evolving Foundational Framework

As career, family and goals evolve, these seven considerations will shift. So will a good plan. But understanding exactly what equity compensation offers, how it connects to overall wealth and life, and what the framework is for decisions along the way—even without perfect adherence—helps lead to fewer unprepared reactions and potentially better outcomes.

Get in touch with Morgan Stanley at Work to learn how Morgan Stanley’s Equity Award Analysis tool helps further frame some of these important decisions.