3 Executive Compensation Pitfalls Women Should Avoid

Senior business leaders are often so busy managing the demands of their jobs that they risk missing out on opportunities to maximize their finances. Executive compensation and benefits packages can be extremely complicated and frequently require additional time and expertise to understand. And for women in senior leadership positions, the impact of these issues can be even more pivotal, given their additional financial and career challenges. These challenges include:

• The gender pay gap. American women earn 82 cents for every dollar men earn,¹ one of several factors that underscore women's need to manage their money proactively.

• Leadership gap. Women make up over 46% of the American workforce but only 29% of senior-level positions²—with even smaller representation among women of color.³

• Increased mental load. Working women typically shoulder a disproportionate mental load,⁴ balancing home responsibilities alongside ambitious career goals. While caring for kids or aging parents, female professionals often relegate their financial planning to the back burner.

In light of these challenges, executive women in particular may not have the time, awareness, or expertise to prioritize their investment strategy or financial planning, leading to costly pitfalls. Women stand to lose upwards of $1 million in earnings throughout their careers due to the gender pay gap alone.⁵ In this blog post, we’ll highlight common executive compensation pitfalls that are especially crucial for women in leadership, along with strategies to avoid them.

Pitfall #1: Not Understanding Your Total Compensation

It’s critical to take the time to understand the various components that make up your executive pay and benefits. Prioritize knowing how much you’re earning today, what portion of your income is guaranteed vs performance-based, and whether your total compensation is in line with the market rate for your role. Armed with this information, you’ll be in a better position to make key decisions, negotiate promotions, and create a plan to achieve your financial goals.

Executive compensation can include:

• Salary

• Bonus

• 401(k) match

• Profit sharing

• Deferred compensation

• Restricted stock units (RSUs) or restricted stock awards (RSAs)

• Non-qualified stock options (NQSOs or NSOs) and/or incentive stock options (ISOs)

• Employee stock purchase program (ESPP)

• Plus a host of other benefits such as remote work, flexible work hours, paid caregiving leave, professional development reimbursement, and a technology budget.

To avoid this pitfall, carefully review your plan summary documents and RSU/option grant award letters immediately upon receipt. If you don’t understand what you’re reading, research the key terms and reach out to a trusted and financially savvy friend or family member. Keep summaries and signed documents in a secure location where you can easily reference your benefits and relevant timelines when needed. Speaking with a financial advisor who has experience advising clients with executive compensation plans can help ensure you’re asking all the right questions—even the ones you didn’t know to ask.

Pitfall #2: Failing to Make Time-Sensitive Decisions

Even with a clear understanding of the full breadth of compensation, executives may overlook key decision points, which are often time-sensitive. Here are a few scenarios to consider and tips for how you can manage them:

• Overconcentration. Concentrating wealth in a single company, including salary and employer stock, can pose risks, especially when there’s market or company volatility.

  • Know your RSU and options vesting schedules and plan ahead so you’re not forced to make sudden decisions without a strategy. 

  • Create an intentional selling plan. A financial planning professional can help you determine which restricted stock or options you should consider selling first and assess the impact of donating some shares for philanthropic and tax purposes.

  • Consider limiting your exposure to any one company’s stock, including your employer’s stock. Advisors often recommend capping such exposure at 5-10% of your portfolio.

• Holding requirements. Your seniority and position at the company may impose holding requirements and other restrictions on selling employer stock.

  • Review your plan documents or consult with your HR team to determine if you need to own a certain number of shares or dollar equivalent.

  • Understand any restrictions on when and how many shares you can sell.  A 10b5-1 plan may allow senior executives to sell shares during certain blackout periods. It’s critical to understand how to complete this paperwork properly. Note: the paperwork and signatures from your legal department may be required weeks or months in advance.

• Deferred compensation participation. While an attractive, tax-advantaged growth option, the money in this account becomes vulnerable if your employer goes bankrupt.

  • If you choose to participate, work with a professional to discuss how much you should defer, outline tax-smart payout options, and create a diversification plan.

  • Monitor election dates—typically annually during an open enrollment period—to make an informed decision to avoid leaving money on the table.

• Impacts to your benefits if you leave. Long before exiting your company, be sure to understand what will happen to your compensation and benefits if you leave.

  • Take note of deadlines for any actions, such as buying your stock and awards, so you don’t lose any benefits. For example, many plans require that stock options must be exercised within 90 days of leaving a company.

  • If you decide to buy your stock or awards, estimate how much money you’ll need for the purchase and save accordingly. Know the tax impact and other risks associated with exercising options and holding the shares of a private company.

Pitfall #3: Not Maximizing Tax Savings and Negotiation Opportunities

Once you have an understanding of compensation benefits and the key decision points, optimizing your existing resources becomes more manageable. From tax planning to negotiations for compensation and promotions, it’s critical for women to be aware of the decisions impacting their compensation's value so they can proactively manage their wealth. Here are some strategies to think about:

• Tax optimization. Tax withholding, deferred compensation payouts, 83(b) elections, purchasing employee stock, timing of RSU and option sales, and other decisions can significantly impact your tax liability. A financial advisor can help you understand how and when to seize tax opportunities and avoid overpaying taxes when possible.

  • Work with a tax professional to determine how each of these actions may affect taxes and create a tax-wise strategy that aligns with your overall financial plan.

  • Understand the differences in taxation between RSUs and options so you know which to hold or sell based on your short- and long-term financial needs and your expectations about the company’s performance.

• Informed negotiations. A thorough understanding of your financial and non-financial compensation, coupled with industry benchmarks, can help inform job and salary negotiations.

  • Determine how you’ll measure compensation success for your current life stage. For some women, non-financial benefits, such as flexible hours and extended maternity leave, may be essential ingredients for their optimal benefits package.

  • If making a career change, assess how much you need to be paid by another company to match your current earnings. If you’re making a temporary or permanent downshift in responsibilities or work hours, develop a plan to cover any gaps in salary or benefits to reach your goals.

  • Avoid having emotionally charged compensation discussions while going through significant life events, such as childbirth or extended caregiving responsibilities.

Tips to Avoid Common Executive Compensation Pitfalls

These strategies for avoiding common pitfalls require regular maintenance. Checking in and monitoring over time are critical. Here are additional tips for improving the overall management of your executive compensation in a sustainable way:

Be proactive. Be your own best advocate by actively educating yourself about your compensation. Doing so can result in a significantly larger nest egg for your future. 

• Stay informed about industry standards. Speak to mentors and knowledgeable friends and research online to compare competitive pay packages based on your industry, position, and life stage.

• Alleviate your mental load. Learn how to prioritize personal and professional duties to lessen invisible labor. Fair Play: A Game-Changing Solution for When You Have Too Much to Do (and More Life to Live) by Eve Rodsky is an excellent resource for categorizing, delegating, and discussing shared domestic responsibilities with your partner or spouse.

• Partner with a financial advisor who can offer comprehensive wealth advice; evaluate your pay package, job offers, and new awards; and design a plan that integrates your executive compensation into your overall financial strategy.

Continually monitor. Be aware of key dates and identify potential clerical errors by continually monitoring and understanding your compensation and benefits.

• Learn to read your pay stub and tax documents, monitor your contributions and elections, and identify your vesting and grant dates. 

• Get familiar with your investment custodian portal for easy access and navigation, especially if multiple interfaces exist for different benefits. 

• If available, leverage document repository services offered by your financial advisor to stay organized with signed documents and critical dates.

In summary, a thorough understanding of executive compensation among women leaders can help narrow the gender pay gap and achieve short- and long-term goals. By being proactive, understanding key decision points, and optimizing existing resources, women professionals can confidently approach their finances, negotiations, and life transitions.

The scenarios and tips we outlined for avoiding pitfalls relate to many situations women professionals may face. Every executive, irrespective of gender, can benefit from the guidance of a financial advisor and individualized plans that maximize their pay and financial success. At Quantum, we empower female professionals to navigate complexities with education, personalized wealth strategies, and collaboration. To learn more about executive compensation, visit our website to read our article, “RSUs: Understand and Maximize Their Benefit for You.” And contact our team if we can help develop a plan that reflects your goals and dreams.

Sources: 

1. Pew Research Center. “Gender pay gap in U.S. hasn’t changed much in two decades.” Pewresearch.org. Mar. 1, 2023. https://www.pewresearch.org/short-reads/2023/03/01/gender-pay-gap-facts/#:~:text=The%20estimated%2018%2Dcent%20gender,cent%20gap%20four%20decades%20earlier

2. Catalyst. “Pyramid: Women in the United States workforce.” Catalyst.org. Feb. 7, 2023. https://www.catalyst.org/research/women-in-the-united-states-workforce/

3. Zippia. "25 Women In Leadership Statistics [2023]: Facts on the gender gap in corporate and political leadership." Zippia.com. Jun. 8, 2023, https://www.zippia.com/advice/women-in-leadership-statistics/

4. The New York Times. “Why unpaid labor is more likely to hurt women’s mental health than men’s.” Nytimes.com. Sept. 30, 2022. https://www.nytimes.com/2022/09/30/upshot/women-mental-health-labor.html

5. CBS News. “​​Women lose out on $900,000 in earnings in their lifetime due to pay gap.”Cbsnews.com. Mar. 14, 2023. https://www.cbsnews.com/news/equal-pay-day-women-900000-in-earnings-losses-where-its-worst/

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