I grew up in upstate New York, and I’ve always been a New York Giants fan. Odell Beckham Jr. is a player I’ve followed even after he left the Giants, so I’m excited he will have the opportunity to play in the upcoming Super Bowl for the Los Angeles Rams.
Recently, I was surprised to read about a financial decision he made. When he became a free agent in November, Odell decided to be paid his $750,000 salary in bitcoin. After bitcoin’s recent plummet in January, and after taxes, the news report estimated he will net approximately $35,000 from his contract with the Rams for the entire year.
Fortunately, Odell’s previous contracts with the Giants and Cleveland Browns paid him tens of millions of dollars – so he may have seen the risk as minimal.
But Odell’s situation has some interesting implications for executive compensation.
Many Executives Face Similar Decisions
Executives, especially when they change jobs, often get a chance to negotiate their compensation. In some cases, they can take a signing bonus in company stock instead of cash. Or, they can take a bonus that is split over a couple of years, assuming they stay with the company long enough to collect.
At some companies, executives are also given a choice about how to receive their long-term incentive award. For example:
- They can take stock options. If the company’s price rises, there can be major upside here, though the stock could also drop, causing the options to be worthless.
- Restricted stock. As long as the stock has any market value whatsoever, an executive will receive some value if they stay at the company long enough for the stock to vest.
- Performance-based restricted stock. If the company meets the goals required, the executive could receive a payout of 100% to 150% or more of their original grant based on the company’s stock price when the award cycle ends. But it can also be worth $0 if the company does not hit its performance targets.
Some Rules of Thumb to Consider
So, what is the right choice?
Many executives take long view, which means using these long-term equity awards to meet their retirement or college savings goals, as well as help cover expenses in retirement.
If there is a choice of all three – stock options, restricted stock and performance-based restricted stock – I like a combination of all three, split into one-third each. This, in essence, is a diversified portfolio of company stock plans that doesn’t place all the pressure on the stock market or …….