RSUs and Concentration Risk: Executive Decision Framework

RSUs can be a great benefit. They can also quietly turn into a problem you do not notice until the wrong day.

Here is the pattern we see over and over:

• Your company stock does well

• You hold because it feels smart and loyal

• The position grows into a big chunk of your net worth

• Then one of two things happens

• The stock drops hard and your plan changes overnight

• Or the stock keeps rising and you feel trapped because selling feels like a mistake either way

This is concentration risk. It is not about being pessimistic. It is about not letting one company decide your whole financial life.

Charles Schwab puts a simple threshold on it:

“Generally, holding more than 10-20% of your company stock can put your portfolio at risk of overconcentration.”

This article gives you a client facing, plain English framework for equity compensation planning. You will learn:

1. How RSUs actually work and how they are taxed

2. Why concentration risk is bigger for executives than most people realize

3. A simple decision framework for whether to hold or sell

4. A practical sell and diversify plan that reduces regret

5. The tax and cash flow mistakes that cause avoidable surprises

If you want the service page version, start here: Executives and Equity Compensation

If you want the process we use to coordinate taxes, cash flow, and investments, see Private Banking and Strategic Tax Optimization

What RSUs are, in plain English

An RSU is a promise of company shares that becomes yours when it vests.

Two important points:

• You do not own the shares at grant

• You own the shares at vesting

At vesting, you receive shares or the cash value of shares depending on the plan.

Fidelity describes it this way: after you satisfy the vesting requirement, the company distributes shares or the cash equivalent.

That vesting date is the key moment for taxes and decisions.

The Clarity Sweep: how RSUs are taxed at vesting

Most people get confused because RSUs feel like an investment, but at vesting they behave like income.

Here is the simple version:

• When RSUs vest, the value is typically treated as ordinary income• Your employer withholds some shares to cover taxes

• You end up with the remaining shares in your account

This leads to the first common executive mistake:

Mistake: thinking the withholding is the full tax bill

Withholding is often not enough, especially for high earners, people with bonuses, or people in high tax states.

What happens next:

• You hold the shares

• April arrives

• Your tax bill is bigger than expected

• You blame the RSUs, but the real issue was planning and withholding

This is why we treat equity comp as part of strategic tax optimization, not as a random bonus.

What concentration risk really is

Concentration risk is when one stock has too much influence over your outcomes.

It usually shows up in three ways:

1. Portfolio riskA single stock drives your results more than the market does.

2. Career riskYour income is tied to the same company.

3. Timing riskYour vesting, bonus cycles, and potential layoffs can line up with stock declines.

Executives get hit with all three at once.

This is why holding a large employer stock position is not the same as holding a large position in a random company. It is more correlated to your life than you think.

The So What Sweep: what changes if you take concentration seriously

If you build a plan early, you gain:

• Better control over taxes

• Better control over risk

• Less emotional decision making during market stress

• A clearer path to diversify without feeling like you are betraying your company or your past decisions

If you ignore it, you usually end up making decisions under pressure.

Pressure decisions are expensive.

A private banking style decision framework for RSUs

Forget complicated models for a moment. Use these four questions.

Question 1: What job is this company stock supposed to do

Is it:

• Long term growth you can afford to hold

• A future goal fund (home, tuition, liquidity event, sabbatical)•

A safety buffer

• A legacy asset you want to keep

If you cannot name the job, you are not investing. You are defaulting.

Defaulting is how concentrated positions happen.

Question 2: If you received cash instead of shares at vesting, would you buy this stock today

This is the cleanest mental reset.

Because economically, holding vested RSUs is the same as choosing to buy and hold company stock with your own money.

If you would not buy it with cash today, it is hard to justify holding it just because it arrived as RSUs.

This question removes the “free money” feeling and replaces it with a real decision.

Question 3: How big is the position relative to your total wealth

Use simple thresholds. You do not need perfection.

A practical guideline:

• Under 5%: usually manageable

• 5% to 10%: pay attention, make a plan

• 10% to 20%: concentrated, needs active rules

• Over 20%: high concentration, high urgency

Schwab’s 10 to 20% range is a useful trigger for action.

Also consider concentration relative to liquid investments, not just total net worth including home equity.

Question 4: What happens to your life if the stock drops 30% in six months

Do not answer emotionally. Answer mechanically.

• Does it change retirement timing

• Does it change the ability to buy a home

• Does it change how secure you feel about your job

• Does it create a tax issue• Does it change your willingness to take career risk

If a decline would meaningfully change your plan, you are overexposed.

The Prove It Sweep: a simple example

Let’s say you have:

• $900,000 of invested assets (taxable, retirement, Roth combined)

• $250,000 of company stock from vested RSUs and prior grants

That is about 28% concentration ($250,000 divided by $900,000).

If the stock drops 30%, that position becomes $175,000.

That is a $75,000 hit to your invested assets, before any broader market movement.

Now add career risk:

If a company downturn causes both a stock drop and job instability, you get hit twice.

This is the part people underestimate.

A practical sell and diversify strategy that reduces regret

Most executives do not need a heroic plan. They need a boring plan they can follow.

Here are three simple approaches, in plain English.

Option 1: Sell at vesting (the clean default)

Rule: When RSUs vest, sell most or all shares immediately, then reinvest into a diversified plan.

Why it works:

• It prevents concentration from building

• It turns equity comp into planned wealth building, not accidental stock picking

• It simplifies taxes and cash flow planning

If you still believe in the company, you can keep a small “belief” slice. The key is putting a cap on it.

Option 2: Keep a capped position and sell the rest

Rule: Keep company stock up to a set percent of your investable assets. Sell anything above the cap.

Example caps:

• 5% cap for conservative households

• 10% cap for moderate households

• 15% cap only if you knowingly accept concentration risk and you can afford it

This creates a system:

• Stock rises, you trim• Stock falls, you stop trimming• Your risk stays bounded

Option 3: Sell on a schedule (if emotions are your enemy)

Rule: Sell a fixed dollar amount or fixed share amount each month or quarter.

This helps when:

• You freeze up and do nothing

• You feel you must “time it right”

• You need a plan that runs without constant decision making

This is not about maximizing price. It is about reducing the chance you never sell.

The Specificity Sweep: where the money goes after you sell

Selling is not the full plan. Reinvesting is.

A clean reinvest plan usually ties to:

• Your long term investment allocation

• Your cash reserves and short term goals

• Your retirement contributions and tax planning

• Any concentrated risk elsewhere (real estate, business equity)

This is where private banking coordination matters. Your reinvestment plan should fit your whole balance sheet, not just your brokerage account.

Tax planning realities executives need to know

1) Withholding may be too low

RSU withholding is often a flat rate or plan default. Your actual marginal rate may be higher.

If you get large vesting events, you may need:

• additional withholding

• estimated payments

• a planned cash reserve

2) Holding shares after vesting creates a second tax layer

At vesting, you already recognized ordinary income.

After vesting:

• If the stock goes up, you may owe capital gains tax when you sell

• If the stock goes down, you carry the loss

This matters because some people think “I already paid tax, so I should hold.”

You paid tax on income. You did not prepay the future capital gains tax.

3) Tax strategy is year by year, not one decision

Equity compensation planning is a repeating calendar:

• vesting schedule

• bonus cycle

• open trading windows

• blackout periods

• projected income

A good plan maps these in advance and avoids December panic.

This is also why we connect it to wealth stewardship, not just one year’s taxes. /wealth-stewardship

Common mistakes executives make with RSUs and company stock

Mistake 1: letting the position “become” concentrated

No one chooses to wake up with 30% in company stock. It happens slowly.

The fix is a cap or an automatic sell rule.

Mistake 2: treating company stock like a loyalty badge

You can believe in your company and still diversify.

Diversification is not disloyalty. It is basic risk management.

Mistake 3: ignoring the double correlation

Your paycheck and your stock are both tied to the same place.

If the company has a rough year, both may decline.

Mistake 4: failing to plan for taxes during big vesting years

If you have a large vesting year plus bonuses, you can blow through brackets and trigger side effects like Medicare surcharges later in retirement.

Even if you are far from Medicare, big income spikes can still create avoidable tax friction now.

Mistake 5: waiting to sell until after the stock drops

This is the classic sequence:

• stock rises, you hold

• stock drops, you freeze

• stock drops more, you sell

• you promise you will diversify next time

A rules based plan prevents that pattern.

A simple executive RSU plan you can actually follow

Here is a practical process that works for most people.

Step 1: Build your equity comp calendar

List the next 12 to 24 months:

• vesting dates

• expected share amounts

• blackout windows

• bonus timing

• expected income range

Step 2: Pick your concentration cap

Choose a percent and write it down.

If you want a clean starting point, 10% is often a useful action line.

Step 3: Decide your default sell rule

Common defaults:

• Sell at vesting

• Keep up to the cap, sell the rest

• Sell on a monthly schedule

Step 4: Decide where proceeds go

Tie this to your broader plan:

• build or maintain your cash reserve

• fund retirement accounts

• invest into a diversified allocation

• plan for taxes

Step 5: Review twice a year

You do not need constant tinkering. You need scheduled review.

This is what keeps the plan consistent even when markets are not.

The Heightened Emotion Sweep: what this fixes in real life

A good plan reduces three common feelings executives carry quietly:

• The fear of selling too early

• The fear of holding too long

• The stress of not knowing what to do each vest

You replace those with:

• rules you can defend• fewer surprise tax bills• less dependence on one company for your future• better control over big decisions like retirement timing and lifestyle changes

That’s the real benefit. Not a perfect trade. Less regret.

The Zero Risk Sweep: what this does and does not promise

This framework aims to:

• reduce concentration risk

• improve tax awareness around equity compensation

• make diversification more repeatable and less emotional

It does not:

• guarantee better returns

• guarantee you will never feel regret

• predict your company’s stock price

• eliminate all tax complexity

It simply reduces avoidable risk and makes the decision process cleaner.

Next steps checklist

If you want to tighten your RSU and company stock plan, start here:

1. List all company stock and RSU exposure (vested and unvested)

2. Calculate concentration as a percent of investable assets

3. Choose a cap (5%, 10%, or a number you can live with)

4. Choose a default sell rule for vesting events

5. Confirm whether withholding is sufficient for your marginal rate

6. Decide where sale proceeds go (cash, taxes, diversified investments, goals)

7. Build a simple calendar for vesting and blackout periods

8. Review twice a year and after major compensation changes

If you want help building a clean plan that coordinates taxes, cash flow, and reinvestment, start here:

• Executives and Equity Compensation

• Strategic Tax Optimization

• Schedule a private intro

Closing thought

Equity compensation is a wealth building tool. It should not turn into a single company bet you never meant to make.

The best executive plans are simple: clear caps, clear sell rules, and a reinvestment plan that fits your life.

If you want a private intro to map your equity compensation and build a diversification plan you can actually follow, schedule here.