Executive compensation plans have become increasingly complex over the last decade, with companies seeking the right balance of guaranteed vs. performance-based pay to appease both stakeholders and company leaders. Today’s compensation plans may include a combination of a base salary, annual incentives, long-term incentives, equity, benefits, severance and more.

And while this new wave of comp plans has short-term implications, it also creates unique and often complex wealth management and investment planning needs that corporate executives must address to ensure their futures. Unfortunately, the demands of their jobs rarely allow executives the time to continually monitor and manage their accounts and make informed decisions that will maximize their pay.

As compensation structures continue to evolve, the need for executives to lean on advisors to understand their options and put a strategic plan in place will only increase. There are four fundamental elements that should be central to any planning strategy.

Recognize and manage exposure to your company

Companies want their executives invested for the long-term – a holdover mindset resulting from the Dot-Com Era, when flexible stock options encouraged tech execs to boost their company’s share price long enough to vest their personal shares.

Today, it’s common for a significant portion of an executive’s compensation package to be tied to equity or long-term performance awards. There has been a noticeable shift towards restricted stock, which distributes compensation according to a vesting plan often tied to length of time with the company or performance milestones.

Additionally, many executives will surpass holding requirements and elect to invest even further to show long-term confidence in their company. And while it is important to portray assurance in the firm’s future and leadership, it’s critical to take a step back and diversify your own portfolio. Examine your financials through the lens of key life events – marriage, retirement, children attending school – to develop strategy that will provide both regular cash flow and an appropriate payout for retirement.

Actively monitor and manage your plan

Maintaining a clear and accurate view of your vested assets is essential for long-term planning. If your stock awards are on a vesting schedule over a five year period, where 20 percent vests each year, it can be easy to take a “set it and forget it” approach. But it’s important to sit down annually to revisit how much of your stock has vested, how much is unvested, the value of that stock and the future tax consequences.

This is also a good time to evaluate where you stand in relation to any holding requirements. For example, if you are locked into a holding requirement at the time your stock vests, and are therefore unable to sell your stock to meet the tax liability of those awards, you’ll need to have a plan to cover those taxes with available cash.

Optimize your deferred compensation payout

It’s important to weigh both tax strategies and cash flow needs when determining how your deferred income should be distributed. Mapping out your anticipated income in retirement is the first step.

Recently, an executive in his early 60’s came to Wescott with six months to go until his retirement. His compensation plan was already established, but he needed guidance in determining the most beneficial payout options. He had been contributing to a deferred compensation plan for years, and had the option to withdraw in a lump sum, over 10 years, 15 years, etc.

We knew he would begin receiving his required minimum distributions from his retirement account at age 70.5. He had significant savings, so his RMDs would provide ample cash flow. We decided to bridge the gap between when his earned income ended and his RMDs begin by distributing funds from his deferred compensation plan over the next nine years, which would provide enough cash flow to maintain his lifestyle throughout retirement.  Furthermore, this would allow this income to be taxed at a lower tax bracket than he was subject to during his working years or he will likely be subject to once his RMDs begin.

Connect the various parts of your financial life

By working with a financial advisor with expertise in executive compensation, you can unite all components of your complex financial life. An experienced advisor will start a relationship with your company’s financial and benefits reps to ensure you can see how your entire compensation package comes together.

However, too many executives wait until they are nearing retirement to seek out an advisor. In many cases, they may make elections on the payout of their pension or retirement plan without understanding the entire picture – which impacts their cash flow, tax liability and ultimately their desired lifestyle in retirement.

By engaging a financial advisor early in their career, or several years in advance of retirement, executives can maximize their compensation package and better plan for their future.