Executive stock ownership guidelines: how an officer diversifies without falling short

The costly habit of treating your whole stake as locked

Many officers assume every company share must be held until retirement. The guideline only sets a floor. Anything above it is yours to manage, and in the example later in this article, $600,000 above the floor sits in a single stock by default.

Put a number on the cost. If the stock fell 30%, an idle $600,000 excess would lose $180,000 (0.30 × $600,000). That is money the policy never required at risk.

Mariner Wealth Advisors treats diversification as the evidence-based default, backed by long-term research rather than forecasts about one stock. The floor is the only part the company actually requires. Our concentrated stock planning service covers the wider picture.

How do you calculate the excess above your ownership requirement?

Multiply your base salary by the policy multiple, total the holdings your policy counts, and subtract. At a $500,000 salary and 5x, the requirement is $2,500,000. Whatever counted value remains above that line, less a cushion, is the part you can consider diversifying.

The policy is usually summarized in the proxy statement, and the full text sits with HR or the general counsel's office.

Mariner Wealth Advisors uses a cushion of 10% of the requirement, which is $250,000 here. A modest price drop then doesn't push you under the floor.

The rule we apply: sell only what exceeds your requirement plus that cushion, measured under your policy's own counting rules, and take it from long-term, high-basis lots first.

• Step 1: multiply base salary by the multiple. $500,000 × 5 = $2,500,000. If the policy uses a share count, convert it at the policy's measurement price.
• Step 2: read the definition of counted shares. Look for owned shares, 401(k) or ESPP shares, unvested time-based RSUs, and whether options or performance shares are excluded.
• Step 3: find the measurement rule (current price, average price or a fixed date) and the compliance deadline, often several years from appointment.
• Step 4: subtract the requirement from counted holdings, then hold back a cushion.

A hypothetical example: Sofia's last two years as COO

Hypothetical: Sofia is 61, two years from retiring as COO of a regional insurer. She is widowed, earns a $500,000 salary and faces a 5x guideline, so 5 × $500,000 = $2,500,000 is required. Her policy counts $2,100,000 of owned shares, $700,000 of company stock in her 401(k) with a $90,000 basis, and $300,000 of unvested time-based RSUs. That totals $3,100,000, a $600,000 excess. Keeping a $250,000 cushion leaves $350,000 to sell.

Look at the first row of the table. The same holdings are a $400,000 shortfall under a narrow policy and a $600,000 excess under a broad one.

Selling 401(k) shares inside the plan triggers no tax, but it affects a separate net unrealized appreciation decision, which has its own page on this site. Don't sell those shares before reading it.

Which shares should you sell first, and why does the lot matter?

Sell long-term, high-basis lots first, because the basis decides how much gain you realize. In Sofia's case, a $350,000 RSU lot with a $300,000 basis realizes $50,000 of gain. The same value from old shares with a $50,000 basis realizes $300,000.

Tell the broker which lot you are selling when you place the trade. Without that instruction, the default is first in, first out, and the first shares out are typically your oldest ones with the lowest basis.

Check holding periods too. RSU lots vested within the past year are short-term, so the highest-basis lot isn't always the cheapest to sell.

Save low-basis shares for charitable gifts or for heirs. Before Mariner Wealth Advisors proposes a sale, it prepares a lot-by-lot schedule showing each lot's gain and holding period. Every trade still has to fall inside an open trading window or run under a 10b5-1 plan, which we cover separately.

Selling the excess or holding it: what each costs

Selling costs tax and a public filing. Holding costs concentration. Which cost weighs more depends on your basis and on how big the stock is next to everything else you own.

We would rather sell the excess in planned tranches than wait for a better price, because nobody reliably forecasts a single stock.

• Selling, pros: less single-stock risk, cash for other uses, and a choice of tax lots.
• Selling, cons: realized capital gains, a public Form 4 filing, and the shares are gone if the stock rises.
• Holding, pros: no tax now, a buffer above the floor, and a signal of confidence some boards value.
• Holding, cons: your whole stake rides on the company that also pays your salary and bonus, and a later sale may fall into a blackout.

How Mariner Wealth Advisors adjusts for age and portfolio size

Earlier in a career, raises reset the requirement. A move from $500,000 to $600,000 salary at 5x adds $500,000 to the floor, so keep a larger cushion if a promotion is likely.

Near retirement, the guideline usually ends when you leave. Some companies impose post-departure holding periods, so check the policy before planning the first sale after your last day.

If company stock dominates your total wealth, sell more of the excess and sell it sooner. If it is a minor holding, you can let tax-lot timing set the pace.

All investing carries risk, and you can lose money you put in. A diversified portfolio can also decline. Diversification spreads the risk across many holdings; it does not eliminate it.

Mistakes to avoid, and a checklist to catch them

The mistake that costs the most is selling the excess without specifying lots. Under the broker's default, the oldest shares with the lowest basis go first. In Sofia's case, that means a $300,000 gain where a $50,000 gain was available.

If a price drop puts you below the floor, most retention rules don't make you buy more. They usually require holding a share of future net vested shares. Check your own wording.

One limit applies to all of this: policies differ by company, so the counting rules, cushion and lot order here are illustrations. If you are below your guideline, inside a blackout or hold material nonpublic information, none of it can be used until those constraints clear.

• Letting the broker default to FIFO: in the example it adds $250,000 of realized gain ($300,000 instead of $50,000).
• Selling counted shares just before a price drop: you can end up under the floor and bound by a retention rule.
• Skipping pre-clearance with the general counsel's office: the trade can be voided.
• Checklist: policy multiple and measurement rule written down.
• Checklist: list of counted share types.
• Checklist: current counted value and cushion amount.
• Checklist: lot list with basis and holding period.
• Checklist: next open trading window and pre-clearance contact.

What to do this week if you're above the guideline

Three tasks fit in an afternoon. Then bring the questions below to your advisor.

Mariner Wealth Advisors works with executives across the country by video and phone. To take the next step, send a request through the contact form on this website.

• Find the guideline in the latest proxy, or ask HR for the full policy.
• Request a lot-level cost basis report from the stock plan administrator.
• Calculate requirement, counted holdings and cushion on one page.
• Ask an advisor: which of my shares count, and at what price?
• Ask: how much can I sell and still clear the floor after a 10% drop?
• Ask: which lots realize the least gain?
• Ask: should sales run through a 10b5-1 plan or open windows?
• Ask: how does a raise change next year's number?