One of the biggest problems executives have is a lack of time to set their own houses in order, Even those that have financial expertise don’t tend to take care of their own personal business. . It’s like the classic plumber with a leaky sink. This is especially true with executive stock options.
A big risk for executives is that they don’t think about how to exercise their options appropriately. Many exercise when they need the cash. Instead, they ought to be considering the stock’s possible growth or the amount of time until expiration.
Often people doing either one of two things, they either need money for a major purchase so they exercise options, or they are going to wait to the last minute until the options are about to expire. The answer is to get executives to think more strategically about their options—consider tax ramifications with other income and avoid waiting until the last minute to exercise, which could mean being forced to exercise at the current price, however good or bad it is.
Diversification is also obviously a huge problem for corporate executives, whose portfolios are often concentrated with a single stock. But it’s a sensitive topic for them, since selling out of positions is often the prudent course financially, but not always good for public relations.
It’s especially a problem for the top executives at a company. They are often under the microscope if they sell a stock or exercise an option. It’s public knowledge and viewed negatively by the public who wonder if the CEO is selling because there’s a problem.
Getting the advice of an unbiased financial advisor who integrates stock option exercise with an over-all investment plan is very often the best answer.