ESS: The trouble with having all your financial eggs in your employer’s basket

Executives who hold all or a significant proportion of their wealth in their executive share scheme (ESS) may find themselves with all their financial eggs in their employer’s basket to their financial detriment should company share prices go south.

If your ESS represents the majority of your wealth, it is important to understand the risks and implications associated with a fall in share price and reduced dividends, particularly if it was to coincide with job loss or retirement.

Many executives work in pressurised and demanding environments and by their own admission, do not have the time necessary for making well considered financial decisions, especially when it comes to their ESS.

Lack of time, which is further compounded by the innate complexity of ESS is in my experience the most common reason why executives fail to harness the full benefits of their salary package – income and share scheme.

Not being fully across the detail of ESS compliance and vesting timeframes, often results in tax problems which I’ve written about previously, while an undiversified investment portfolio ‘top heavy’ with your ESS can have significant impacts on your cashflow and lifestyle affordability as well as your future financial security and wealth.

Executives with company share schemes that represent a large proportion of their wealth run the risk of having their entire financial world tied to the performance of the company they work for. This includes having their income limited to just one source, and their financial independence and lifestyle affected for better or worse, depending on the share price and the dividends they earn.

If you’re in this position, a fall in share price or dividend decrease could have significant negative impacts on your cash flow.

Further, have you considered what would be the outcome if a drop in share price coincided with a reduction of income or if your role was made redundant and you were no longer employed?

This situation would undoubtedly result in lower or no employment income, possibly lower dividends paid or a situation where you were forced to sell shares in a market which might be depressed at the time, making the proceeds from the sale  to recoup cashflow, really depressing!

Unfortunately, it is all too common for executives to have hundreds of thousands or several million dollars in both vested and unvested shares making up an investment portfolio without diversity.

ESS can be a double-edged sword that offers great reward and opportunity for personal prosperity, but when it represents the greater portion of your wealth, it can put you at the mercy of the company’s performance, and that can create significant risk to your future prosperity.

Next Steps:
Achieving appropriate portfolio diversity will involve reviewing your ESS situation, considering opportunities for selling parcels of shares in context of tax implications and using the proceeds for other investments or purposes that might include off-setting non-deductible debt.

While you can opt to do nothing, it is important to understand and accept, that the impacts of volatility on share price affecting your ESS may cause significant compromises to your lifestyle now, achieving goals that may include buying property or items such boats and cars, your plans for retirement and the financial legacy you may wish to leave family members.

Deciding to act now, especially if share prices are strong, will mean that when the inevitable downturn occurs the impact on your overall wealth position will be less damaging or at least within your expected financial tolerance.

To learn more about ESS financial management and share portfolio diversity, please contact James Marshall on +61 (0) 7 3007 2080 or email

To learn more about James, visit this link.

Executive Strategies is a specialised information hub for executives and senior managers who may have founded their own business or who work for growing private, ASX listed companies or government businesses. Its purpose is to provide access to specialist advisers and information that addresses the often-complex issues affecting their personal prosperity.

Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth ABN 54 139 889 535 AFSL 357306. This advice is general and does not take into account your objectives, financial situation or needs. You should not act on it without first obtaining professional financial advice specific to your circumstances.

*Please note: For advice and services relating to this matter that are not offered under the Fortnum Private Wealth AFSL, in accordance with our collaborative advice model, when required, such matters are referred to appropriately qualified professionals.