Masters in Business: At The Money – Getting Paid in Company Stock

Release Date: July 23, 2025

In this episode of Bloomberg’s "Masters in Business," host Barry Ritholtz delves into the intricate world of equity-based compensation with Joey Fishman, a seasoned expert in the field. As companies increasingly offer stock options and other forms of equity to attract and retain talent, understanding the nuances of these compensation packages becomes essential for both employers and employees. This comprehensive discussion unpacks the types of equity compensation, their advantages and disadvantages, tax implications, vesting schedules, and the psychological factors influencing employee decisions.

1. Introduction to Equity-Based Compensation

Barry Ritholtz opens the conversation by highlighting the rising prevalence of equity-based compensation in the U.S., particularly within the technology and high-growth venture capital-funded sectors. He shares insights from a recent employee benefits conference in Silicon Valley, noting that many employees fail to capitalize on their stock options and equity packages effectively.

2. Types of Equity Compensation

Joey Fishman explains the most common forms of equity compensation:

• Restricted Stock Units (RSUs)
• Non-Qualified Stock Options (NQSOs)
• Incentive Stock Options (ISOs)

“The most comprehensive or the one that we see the most is restricted stock units, then followed by non-qualified stock options and incentive stock options.” [03:35]

Barry further clarifies:

“The main difference between the two [ISOs and NQSOs] is that incentive stock options, if you thread the needle appropriately or correctly, you avail yourself to long term capital gains tax treatment.” [04:07]

3. Corporate vs. Cash Compensation

When discussing why companies opt for equity over cash compensation, Joey emphasizes the cultural and financial incentives:

“They set the right tone from the beginning. Employees are incentivized to grow the business, feel like active participants, and are financially rewarded for their contributions.” [05:43]

However, he also points out corporate challenges:

“They are complex to administer. The regulatory environment is kind of a beast.” [05:46]

4. Determining the Right Mix of Equity and Cash

Joey describes the balancing act companies face in offering equity and cash:

“It's more art than science. Each company is going to have its own version of an equity comp stock plan.” [06:16]

Different industries adopt varied approaches:

• Tech companies often start with stock options and transition to RSUs as they mature.
• Oil and gas sectors typically prefer RSUs.
• Financial firms lean towards restricted stock awards (RSAs) with deferred compensation packages.

5. Tax Implications of Equity Compensation

Navigating the tax landscape is a significant challenge for employees. Joey outlines the complexities:

“The goal is to get yourself to a place where realized gains receive long-term capital gains tax treatment.” [07:33]

He warns of potential pitfalls:

• ISOs may trigger Alternative Minimum Tax (AMT), which can be costly.
• NQSOs might result in ordinary income tax rates, significantly reducing net gains, especially in high-tax states like California.

“In non qualified stock options, you may just find yourself completely in ordinary capital gain or ordinary income tax rates.” [07:45]

6. Understanding Vesting Schedules

Joey explains vesting schedules, typically a four-year period with a one-year cliff:

“After the cliff is met, you then get 25% of your shares. From there on out for the next 36 months, you're going to get quarterly vesting of a fractional percentage.” [09:08]

7. Selling Equity: Public vs. Private Companies

Barry discusses the differences in liquidity between public and private companies:

• Public Companies: Easier to sell shares post-IPO, subject to a six-month lockup period which often sees stock prices dip.

  “You're subject first after IPO... there's a six-month lockup period where you can't touch your shares.” [10:09]

• Private Companies: Require double-trigger events (vesting and a liquidity event) to realize gains, often leaving employees with illiquid assets.

  “If there's no transaction where somebody buys shares or liquidity exchanges, you're stuck until something happens.” [11:22]

8. Common Mistakes in Equity Compensation

Joey identifies prevalent errors made by both employers and employees:

• Employees: Tend to be overconfident, resulting in insufficient diversification of their investment portfolios.

  “Overconfidence tends to run rampant... resistance to diversifying away from what they've attached themselves to.” [12:51]

• Employers: Struggle with the complexity of administering equity plans and navigating regulatory requirements, often risking legal complications.

  “It's a landmine if you don't know what you're doing.” [13:00]

9. Psychological Factors and Risk Management

Addressing the psychological aspect, Joey stresses the importance of diversification to mitigate risks associated with concentrated stock holdings:

“Volatility is a tax on returns. Locking in your quality of life by diversifying is less expensive than maintaining a concentrated risk.” [14:46]

He urges employees to recognize the risks of holding too much equity in a single company, regardless of its current success.

10. Recent Trends in Equity Compensation

Joey observes a shift towards simpler equity compensation forms like RSUs, which are easier to administer and more straightforward for employees to understand:

“Everyone's trying to find a way to simplify all this. RSUs are considerably easier than navigating ISOs and NQSOs.” [15:58]

He notes that after a prolonged bull market, companies are moving towards more mature and less volatile methods of distributing equity.

Conclusion

Barry Ritholtz wraps up the episode by emphasizing the importance of employees understanding their equity compensation packages. He advises:

“Explore it. Speak to your financial advisor, speak to your accountant or tax professional. Understand the risks. De-risk and diversify your portfolio.” [17:00]

By doing so, employees can maximize the benefits of their equity compensation while mitigating potential financial pitfalls.

This episode serves as an invaluable resource for anyone navigating the complexities of equity-based compensation, offering expert insights and practical advice to make informed financial decisions.