By Harry Prabandham · Updated September 27, 2026
Equity Compensation
Executive Compensation, Understanding the Full Package
Executive pay combines salary, bonus, equity, deferred compensation, and severance, each with its own tax timing, vesting terms, and risk.
Executive Compensation, Understanding the Full Package
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The short answer
- An executive package usually includes base salary, an annual bonus, long-term equity, deferred compensation, benefits, and severance terms.
- Each piece pays at a different time, with different tax treatment and different conditions that can cause forfeiture.
- Comparing offers on base salary alone, or on headline equity value, can badly misstate what the package is worth.
- The useful measure is expected after-tax value, adjusted for vesting, performance conditions, and company risk.
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Full Guide
The short answer
- An executive package usually includes base salary, an annual bonus, long-term equity, deferred compensation, benefits, and severance terms.
- Each piece pays at a different time, with different tax treatment and different conditions that can cause forfeiture.
- Comparing offers on base salary alone, or on headline equity value, can badly misstate what the package is worth.
- The useful measure is expected after-tax value, adjusted for vesting, performance conditions, and company risk.
How should equity and bonuses be valued?
- Long-term incentives may be RSUs, stock options, or performance shares whose payout depends on metrics like revenue or total shareholder return.
- Private-company equity carries liquidity and valuation risk that a public-company grant does not.
- Signing bonuses and make-whole grants often carry repayment clauses if you leave within a set period.
- Bonus and equity income is supplemental wages, withheld federally at 22%, or 37% above $1 million, which may be below your actual rate.
How does nonqualified deferred compensation work?
- Section 409A plans let you defer pay into a future year, usually by electing before the year the pay is earned.
- Payout timing is fixed at election, such as separation or a set date, and later changes face strict rules.
- Deferred amounts are an unsecured promise; if the employer becomes insolvent, you are a general creditor.
- Plan failures under 409A can make deferred amounts immediately taxable, plus a 20% additional tax and interest.
What happens in a change of control?
- Agreements may accelerate vesting or pay cash on a sale, sometimes only if you are also terminated (double trigger).
- Section 280G applies when change-of-control payments reach three times your average pay over the prior five years.
- Above that line, the excess over one times that base amount faces a 20% excise tax, and the company loses its deduction.
- Some agreements cut payments to avoid the excise tax, others do not; the difference can be meaningful.
Clawbacks, SERPs, and perquisites
- SEC Rule 10D-1 requires listed companies to recover incentive pay from executive officers after certain accounting restatements.
- Supplemental executive retirement plans, or SERPs, add retirement benefits above qualified-plan limits.
- SERPs are nonqualified, subject to 409A, and carry the same employer credit risk as other deferred compensation.
- Split-dollar life insurance and other perquisites have their own tax rules and should be read closely.
Which tax questions matter most for executives?
- Deferring pay into lower-income years, such as early retirement, can reduce the rate on that income.
- Federal law bars states from taxing certain nonqualified retirement payments to nonresidents if paid over at least 10 years.
- Equity earned while living in California can remain taxable there even after a move.
- Terms are most negotiable before signing; structure and protections can matter as much as the total.
Key takeaways
- Look at the full package, not just salary, and value each piece after tax and after forfeiture risk.
- Deferred compensation trades tax timing for credit risk and rigid payout rules.
- Change-of-control terms, 280G, and clawbacks can shift outcomes sharply in an acquisition or restatement.
- Rubric Advisors does not give legal advice or prepare tax returns; review agreements with an employment attorney and CPA.
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