If your pay stub or offer letter includes letters like RSU, ESPP, NSO, or ISO, you already know the feeling: equity compensation can read like alphabet soup. And for many employees — especially in tech and at fast-growing companies — that equity is one of the largest and least understood parts of their total pay.
On this episode of the Tall Oaks Podcast, Branden DuCharme, CFP® sat down with equity compensation specialist Mark Cecchini, CFP® to translate the whole landscape into plain English. Below is a practical walkthrough of what they covered, from how each type of equity works to the tax traps that catch people off guard — and the behavioral side of holding a big concentrated position.
This article is a general summary for educational purposes and is not personalized investment, tax, or legal advice. See the full disclosure at the end.
First, what “equity compensation” actually means
Equity compensation is simply being paid in company ownership instead of — or alongside — cash. As Mark explained, it shows up in very different places: employer stock inside a 401(k) menu, restricted stock units at a public company, or options at a startup that’s years away from an IPO. The startup world, he noted, tends to hold the most complexity, because a company can be anywhere from a friends-and-family raise all the way through to post-IPO.
The important reframe up front: most equity comp is compensation first. The strategy comes later.
RSUs: the most common form (and the most misunderstood moment)
Restricted stock units are the most common form of equity comp, and among the simplest to receive — you typically don’t elect into them the way you sign up for a 401(k); they’re just part of your package. You get a grant, it follows a vesting schedule (a common one is a 25% one-year “cliff,” then monthly or quarterly vesting out to about four years), and for most public-company employees you’re taxed at ordinary income on the value when the shares vest.
Here’s the misconception Mark flagged as the single biggest one: after your RSUs vest, you do not have to hold the shares for a year to get a tax break. You already paid ordinary income tax at vesting. From that moment, your cost basis is set, and it’s as if you bought that stock brand new that day.
Which leads to the reframe Branden called the whole point of the conversation:
If you had the cash today, would you buy your company’s stock at this price? If the answer is no, the tax decision is already behind you — you might as well sell and redeploy. If the answer is yes, because you believe in the company, then holding is a legitimate choice.
Mark added a useful nuance for advisors and employees alike: the industry has often been too binary about this — “always sell everything immediately” versus “hold it all.” For most people, the answer lives somewhere in between: sell some to reduce concentration, and keep some if you genuinely believe in the upside.
Single vs. double-trigger RSUs. Some RSUs (common at late-stage private companies) require two things before they’re taxable: time-based vesting and a liquidity event. Mark used Stripe as an example — an employee could be fully time-vested for years, but not owe tax until a later liquidity event triggered it. The trade-off: waiting can mean years of appreciation taxed as ordinary income rather than capital gains.
ESPPs: often the closest thing to free money
An Employee Stock Purchase Plan lets you set aside part of your paycheck over a contribution period to buy company stock, usually at a discount (15% is common) — sometimes off a “look-back” price that can make the deal even better. As Mark put it, for employees who can afford the temporary reduction in take-home pay, a good ESPP can be about as close to free money as equity comp gets, because of that built-in discount.
On taxes, the key distinction is qualifying vs. disqualifying dispositions, which determines how much of your gain is treated as ordinary income versus capital gains. Many brokers (Mark used the example of an NVIDIA employee at Charles Schwab) will actually label your lots as qualified or not once you dig into the account.
NSOs: your classic stock option
Non-qualified stock options (NSOs, sometimes written NQ) give you the right to buy shares at a set strike price (also called the exercise price). If your strike is $5 and the shares are worth $10, that $5 difference is your “spread” — and for NSOs, the spread is ordinary income when you exercise.
Mark laid out the three main ways to exercise at a public company:
Cashless exercise — exercise and sell everything the same day; you walk away with net cash, not shares.
Sell-to-cover — sell just enough shares to cover the exercise cost and taxes, and keep the rest as shares.
Exercise and hold — pay the exercise cost and taxes out of pocket so you keep every share.
Why exercise early? Because once you exercise, the clock can start on long-term capital gains treatment for future appreciation. Wait too long, and a large spread can create a big ordinary-income tax bill later. But — as Mark cautioned — exercising and holding means putting your own capital at risk in a company that isn’t guaranteed to succeed. Many startup options famously expire worthless. It is, at its core, an investment decision: do you want to be a private investor in your own employer?
The $0 basis mistake to watch for
One recurring, expensive error: when equity comp shares are sold, brokers sometimes report a cost basis of zero (or “missing”). If you already paid tax at vesting or exercise, your basis is not zero — and letting that error stand means paying tax twice on the same money. Both Branden and Mark stressed keeping your documentation and making sure your CPA knows the correct basis so it’s captured on the return. If you have any real complexity, work with a CPA who genuinely understands equity comp — the relevant forms (like Form 3921 for ISO exercises) are easy to miss.
ISOs and the AMT: the most complex corner
Incentive stock options look like NSOs on the surface — strike price, fair market value, number of options — but they carry a special wrinkle. The spread between fair market value and strike (the “bargain element”) is a preference item for the Alternative Minimum Tax (AMT).
In plain terms: everyone runs a parallel AMT calculation at tax time. Usually your regular federal tax is higher, so you never notice. But exercising ISOs can push you into AMT territory, creating a tax bill on a gain you haven’t actually cashed in — sometimes called phantom income.
A few things Mark clarified that most people get wrong:
AMT often isn’t lost money. What you pay in AMT typically becomes a credit you can recoup in future years when you’re back to paying regular federal tax. A small hit might come back the next year; a very large one could take many years to fully recover.
The rules keep changing. Mark noted the One Big Beautiful Bill (passed July 2025) reduced the AMT exemption amount and adjusted phase-out levels, making AMT more likely for some ISO exercisers — meaning timing an exercise around a tax-law change can matter.
The classic ISO horror story: an employee exercises and holds right before an IPO to start the capital-gains clock, pays a big AMT bill on the paper value — and then the stock falls hard after the lockup. The tax bill is real; the liquidity to pay it isn’t there. (Mark cited Blue Apron’s rough post-IPO performance as the kind of scenario where this happened.) Borrowing to cover that tax — through 401(k) loans or non-recourse loan programs — is especially dangerous, because there’s no guarantee it works out.
The newest frontier: Profits Interest Units (PIUs)
Mark highlighted an unusual structure gaining attention, closely associated with OpenAI: profits interest units. In the setup he described, employees are essentially K-1 partners, file an 83(b) election at grant when the value is zero, put up no out-of-pocket capital, and — if they hold for the required period — can get capital gains treatment on the whole thing. In his words, it’s about as favorable as equity comp gets for an employee. It’s worth noting this is a specialized structure; other companies’ PIUs vary by entity.
Liquidity events: tender offers, direct listings & IPOs
Getting shares is one thing; turning them into money is another. Mark walked through the main paths:
Tender offers — internal buybacks or investor purchases that let employees sell some shares before an IPO. Great chances to take chips off the table.
M&A — an acquisition can create a windfall of cash or acquirer stock.
Direct listings — Mark noted Coinbase used one; a key difference is there’s typically no lockup, so employees could sell on day one.
Traditional IPOs — usually carry a lockup (often 180 days), and increasingly a staggered lockup schedule, as seen with the SpaceX IPO. Anthropic’s eventual IPO, he speculated, may look different again given its scale.
The part nobody warns you about: the behavioral side
This is where the conversation got real — and where the episode opens. Mark described employees who watched a position swing from, say, $20 million to $15 million in a matter of days as the market repriced their company stock in real time. When your net worth is highly concentrated and repricing every minute, the emotional weight is enormous.
Two behavioral traps stood out:
Anchoring bias. Once you’ve seen your holdings hit a peak number, every level below it feels like a loss — even if you’re still far ahead of where you started. As Mark warned, you can’t anchor to the highest value you ever saw, because it can vanish in a handful of trading sessions.
FOMO and comparison. Some employees are genuinely terrified of selling and then watching a coworker they see every day end up worth twice as much. That fear drives real decisions.
Mark’s antidote isn’t just financial hedging (options, collars) — it’s emotional hedging: sell some when it makes sense for your plan, and then hope you’re “wrong,” because being wrong means the shares you kept did great. And underneath all of it sits the essential question: how much is enough for you and your family to be comfortable for the next several decades?
Building a plan around “enough”
Branden shared how he frames it in retirement planning. Start with the ideal outcome — not the fantasy best case, but the lifestyle you actually want to sustain. Identify the assets needed to cover that baseline, and structure them to tighten the range of outcomes. Then treat the rest — the concentrated growth position — as a kind of “right-tail hedge”: longer-term upside that’s wonderful if it works and survivable if it doesn’t.
The power of this approach is that it dissolves a lot of the FOMO. Once your “enough” is genuinely covered, taking some chips off the table isn’t fear — it’s the plan working. And if the remaining position runs? Great. If it crashes? You’re still fine.
As Mark put it, diversifying doesn’t mean stuffing the money under the mattress. You can still invest aggressively — just spread across multiple companies and asset classes instead of one company with one mission and one “key-man” risk. Because no company — not even a $3 trillion one — is immune from a black swan.
The takeaway
Equity comp isn’t as complicated as the acronyms make it look — but the stakes are high, and the mistakes are expensive. Understand what you actually hold, know when you’re taxed, keep your basis documentation straight, and don’t let a peak number on a screen drive your decisions. Most of all, define what “enough” looks like for you, and build the plan around that.
Have equity compensation you’re trying to make sense of? Mark Cecchini, CFP®, CCFC, is Director of Wealth Solutions at Quadrant Capital, where he specializes in equity comp for tech founders, employees, and executives. Learn more at quadcapco.com or connect with Mark on LinkedIn.
Prefer to talk through how your equity fits your broader financial plan? Reach out to the team at DuCharme Wealth Management, or listen to the full conversation on the Tall Oaks Podcast — available on YouTube and everywhere you get your podcasts.