Mastering Equity Compensation: A Wealth Guide for High-Achieving Women in STEM 👩🏽‍🔬👩🏻‍💻🧬

For those high achieving women in STEM – mastering your equity compensation is imperative as a tool for building your wealth.

As we know, in recent years, women in STEM (Science, Technology, Engineering, and Mathematics) fields have made significant strides in breaking barriers and advancing in their careers. However, despite these achievements, challenges persist—especially when it comes to understanding and managing equity compensation. As companies use equity compensation as a tool to attract and retain top talent, it is recommended that women in STEM be capable of navigating equity compensation complexities to best contribute to their long-term financial well-being.

This blog will explore the fundamentals of equity compensation, the unique challenges women in STEM face, and the opportunities available to them in managing their financial futures with confidence.

Understanding Equity Compensation

Equity compensation is a form of non-cash payment that companies offer employees, often in the form of stock options or restricted stock units (RSUs). This form of compensation provides employees with a stake in the company and serves as both a reward and an incentive to remain with the company over time.

The most common types of equity compensation include:

• Restricted Stock Units (RSUs): These are company shares granted to an employee, which vest over a specific period. Upon vesting, employees typically owe taxes on the value of the shares received.

• Incentive Stock Options (ISOs): These stock options allow employees to purchase shares at a fixed price. They offer potential tax advantages but often come with complex and specific requirements in terms of exercising your rights.

• Non-Qualified Stock Options (NQSOs): Unlike ISOs, these options do not offer the same tax benefits and are taxed as regular income upon exercise.

• Stock Appreciation Rights (SARs): Employees receive the value of stock price increases over time without having to purchase shares.

• Employee Stock Purchase Plans (ESPPs): These plans allow employees to buy company stock, often at a discount.

Understanding which type of equity compensation you have is the first step in making informed financial decisions.

Challenges Women in STEM Face with Equity Compensation

While equity compensation provides financial growth opportunities, women in STEM often encounter unique challenges in fully leveraging it. These include:

1. Lack of Transparency and Education

Very often, employees receive little to no guidance on how their equity compensation works. Understanding vesting schedules, tax implications, and investment strategies requires financial literacy that many individuals may not possess when they first receive equity grants. Further, there are innumerable tech platforms granting you access to option information. Very often, these platforms are opaque, and not easy to manage or understand.

2. Negotiation Hurdles

Women historically negotiate their salaries and compensation packages less frequently, and often less aggressively, than men. In fact, many people are unaware that you can and should negotiate your equity compensation package at the same time you’re negotiating your actual salary. A failure to negotiate can lead to lower equity grants and fewer long-term financial benefits. Without advocacy during hiring and promotion discussions, many women receive less equity compensation than their male counterparts.

3. Taxes and Implications of Poor Planning

Equity compensation comes with significant tax considerations. RSUs, for example, are taxed as ordinary income upon vesting, often at a default 22% rate—which may be too low, leading to tax surprises. Without proper planning, employees can face unexpected tax burdens. Equity compensation is often one of the most challenging parts of the financial plans of our clients. And without a true understanding of how your unique compensation package works, those without a team of wealth and tax advisors miss important planning opportunities in terms of tax savings and long-term growth in wealth.

4. Over-Reliance on Employer Stock

We see this often. Many employees hold onto too much company stock, leading to a lack of diversification in their investment portfolios. We have corporate exposure through our employment engagement. And when we also build concentrated positions of employer stock, often this overexposure can be risky, particularly if the company's stock underperforms.

5. Life Events Impacting Equity Compensation

Marriage, divorce, disability, or death can affect equity compensation holdings. Women must ensure they understand their rights and plan accordingly for these potential life changes. Planning opportunities during life events are often overlooked and then missed completely.

Opportunities for Women in STEM to Maximize Equity Compensation

Despite these challenges, women in STEM can take proactive steps to maximize their equity compensation and achieve long-term financial security. Here’s how:

1. Advocate for ALL of Your Compensation, including your equity compensation

·       Negotiate equity grants as part of your total compensation package.

·       Understand your vesting schedule and push for terms that work in your favor.

·       Request written agreements that clearly define your equity compensation terms.

2. Educate Yourself and Seek Expert Guidance

·       Learn key financial terms related to stock options and RSUs.

·       Work with a wealth and tax advisor to create a strategy for managing your equity compensation.

3. Take Control of Your Equity Holdings

·       Know your rights regarding equity compensation in cases of job transition, disability, or divorce.

·       Establish a system for tracking vesting dates and potential tax liabilities.

·       Plan ahead for tax payments to avoid unexpected financial burdens.

4. Diversify Your Investment Portfolio

·       Avoid putting all your financial eggs in one basket by overinvesting in your company’s stock.

·       Use your equity compensation strategically to diversify your assets and reduce risk.

5. Invest with Confidence

·       Leverage long-term capital gains tax advantages where possible.

·       Make informed decisions about when to sell or hold company stock.

Incorporate your equity compensation into a broader financial plan that includes retirement savings and other investment vehicles.

Final Thoughts for Women in STEM with equity compensation who face both complex challenges and exciting opportunities.

By understanding the basics, advocating for fair compensation, and taking proactive steps to manage their equity holdings, they can build wealth and secure their financial futures. Investing time in financial education, seeking expert guidance, and making informed decisions will empower women to navigate the complexities of equity compensation with confidence.

If you’re a woman in STEM navigating equity compensation, take charge of your financial future today. The more knowledge and control you have, the more effectively you can turn your equity compensation into a powerful tool for long-term wealth and success.

Let’s work together to build a future where women are not just included—but leading.

💪🏽 Go women!