# At The Money: Buying into the Ownership Society

An episode of [Masters in Business](https://invisiblenetwork.ai/podcast/730188152), 27 Aug 2025, 17 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/4e4cd910-40a1-4619-a5f3-ae2b0012ffff/17b683ae-ad6f-4186-b21a-b34600f36773/audio.mp3?utm_source=Podcast&in_playlist=5873a3cb-298f-40bc-b71f-ae2b0013000d

How would you like to move from Labor to Capital? You can, by shifting some of your compensation from cash to equity. There are some tricky tax rules to learn, but potentially big gains to be had. Each week, “At the Money” discusses an important topic in money management. From portfolio construction to taxes and cutting down on fees, join Barry Ritholtz to learn the best ways to put your money to work. See omnystudio.com/listener for privacy information.

## Transcript

[0:02] Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
[0:25] Speaker 2: How would you like to become part of the ownership society.
[0:29] Speaker 2: It's complicated with lots of moving parts, rules, regulations, and taxes,
[0:35] Speaker 2: but if you do it right and get a little lucky,
[0:38] Speaker 2: there are potentially big gains to be had. To help
[0:42] Speaker 2: us unpack all of this and what it means for
[0:44] Speaker 2: your compensation, Let's bring in Joey Fishman. He's an expert
[0:48] Speaker 2: in equity based compensation and Ben's Oregon his clients from
[0:52] Speaker 2: Seattle and Redmond down to San Francisco and Silicon Valley
[0:56] Speaker 2: and full disclosure. Joey is the equity compensation expert at
[1:00] Speaker 2: Redults Wealth Management and is also one of my partners.
[1:04] Speaker 2: So let's start Joey from the employer perspective. What does
[1:09] Speaker 2: a firm like RWM get out of equity compensation for
[1:13] Speaker 2: its senior employees and partners.
[1:16] Speaker 3: It sets the tone from the beginning and incentives as
[1:20] Speaker 3: long as their property aligned. It puts everybody in the
[1:23] Speaker 3: right position to help push the firm forward and help succeed.
[1:27] Speaker 2: So let's drill down to some of the most important
[1:30] Speaker 2: aspects of this. Obviously, if you're either offering stock options
[1:35] Speaker 2: or any form of equity compensation that's going to be
[1:38] Speaker 2: less expensive than using cash. That's obvious. But what about
[1:42] Speaker 2: attracting talent, retaining talent, and then getting all the horses
[1:47] Speaker 2: pulling in the right direction.
[1:49] Speaker 3: That's a really good question, and I think a lot
[1:51] Speaker 3: of it depends on the individual industry with what you're
[1:53] Speaker 3: working in. So you know, for years, over the last
[1:57] Speaker 3: you know, run up to the bull market of the
[1:59] Speaker 3: less fifteen years, there was a huge demand for coders
[2:03] Speaker 3: and people in the tech world, and so if you
[2:05] Speaker 3: could fog a mer, you were offered, you know, one
[2:07] Speaker 3: hundreds of thousands of incentive stock options to come join
[2:10] Speaker 3: this or that tech company to help build them out.
[2:13] Speaker 3: In the banking world, you know, RSAs or restricted stock awards,
[2:16] Speaker 3: was a different form of equity that suited better that
[2:19] Speaker 3: industry just because of the way which cash flows came in,
[2:22] Speaker 3: and RSUs seem to be the better approach for the
[2:25] Speaker 3: oil and gas industry. There is a lot of volatility
[2:28] Speaker 3: in that market, but there's also a lot of stability,
[2:29] Speaker 3: and so rfcus tend to work really well in that environment.
[2:33] Speaker 2: So you mentioned banking. In the space we work in
[2:37] Speaker 2: wealth management, it seems like it's very much bifurcated. Some
[2:41] Speaker 2: companies very much embrace it. Other firms don't really pay
[2:45] Speaker 2: much attention to it. What do you see in this
[2:48] Speaker 2: space for equity based compensation?
[2:50] Speaker 3: I mean, if you want to keep your employees around,
[2:52] Speaker 3: you're going to incentivize them accordingly, They got to get paid.
[2:56] Speaker 2: Is is that why we seem to have sort of
[2:58] Speaker 2: a prisoner exchange at the big wirehouses. They go from
[3:02] Speaker 2: MERYLLL and Morgan to Ubs to Goldman and back. They
[3:05] Speaker 2: take a big cash check in front as opposed to
[3:09] Speaker 2: a long term back end equity version of this. I'm
[3:13] Speaker 2: just I never really thought about it that way, but
[3:15] Speaker 2: that seems to be what happens in parts of the industry.
[3:19] Speaker 3: You hit the nail on the head exactly so by
[3:23] Speaker 3: giving or by allowing us to be share share owners
[3:26] Speaker 3: of the firm, there's no incentive us for us to
[3:29] Speaker 3: be lured away by someone else offering us a huge
[3:31] Speaker 3: check just to move for the next couple of years.
[3:33] Speaker 2: What about different employees at different levels of the companies?
[3:37] Speaker 2: We have founders, partners, employees, and for lack of a
[3:42] Speaker 2: better word, probationary employees. What does this look like in
[3:46] Speaker 2: all fields, not just wealth management.
[3:48] Speaker 3: Once you get to the executive letter a level excuse me,
[3:51] Speaker 3: the pay package changes, and so it may not just
[3:56] Speaker 3: be NSOs or ISOs. They're going to add in what's
[4:00] Speaker 3: called psuser performance stock units. So after you meet a
[4:03] Speaker 3: predetermined threshold that's part of your agreement or part of
[4:06] Speaker 3: your contract, you'll be granted X number of additional shares.
[4:10] Speaker 3: They too have their own tax treatment. But we're seeing
[4:14] Speaker 3: now that it used to be more reckless to banning.
[4:17] Speaker 3: We're just going to sign and grant you shares each
[4:19] Speaker 3: year as part of your equity refresh. Now it's a
[4:21] Speaker 3: little bit more of performance stock unit compensation where it's
[4:25] Speaker 3: put up a shut up, show us that you're worth
[4:26] Speaker 3: the compensation before we're actually going to be granted to you.
[4:29] Speaker 2: Let's talk about profit interest, which has been something that
[4:33] Speaker 2: I've noticed a lot more of over the past five years. Hey,
[4:37] Speaker 2: you're joining a company with a billion dollar valuation. If
[4:40] Speaker 2: the company is sold for anything over that, and you
[4:42] Speaker 2: have a profit interest, you participate, but you don't have
[4:46] Speaker 2: to pay in and there's no initial tax penalty for this.
[4:51] Speaker 2: Tell us about profit interests back.
[4:53] Speaker 3: Appreciation rights is maybe in line with what you're discussing.
[4:57] Speaker 3: There's something also called phantom stock to if phantom stock
[5:00] Speaker 3: is not used that much anymore because the tax liability
[5:04] Speaker 3: associated with it is so severe if you get caught
[5:06] Speaker 3: on the wrong side. But stock appreciation rights is more
[5:09] Speaker 3: aligned with what you're discussing here, which is we're not
[5:12] Speaker 3: granting you or giving you shares per se. But what
[5:15] Speaker 3: we're doing is we're going to give you whatever appreciation
[5:18] Speaker 3: takes place between now and the next date. And let's
[5:22] Speaker 3: say we're going to give you one thousand shares. We're
[5:24] Speaker 3: going to assume that you have one thousand shares now
[5:27] Speaker 3: if it's trained to ten bucks a share, and if
[5:29] Speaker 3: it increases to fifteen dollars a share, well, the net
[5:32] Speaker 3: to you is the equivalent of five thousand dollars because
[5:35] Speaker 3: you know we've given you that stock appreciation.
[5:37] Speaker 2: Right, Let's talk about winners versus losers. You mentioned the
[5:41] Speaker 2: banking industry. We were talking about technology previously. You and
[5:45] Speaker 2: I have talked about oil and gas. How common or
[5:49] Speaker 2: rare are the modest winners and how rare are the
[5:54] Speaker 2: you know, lottery tickets like in Netflix or an Nvidia.
[5:58] Speaker 3: A really really good thing to wrap your head around
[6:00] Speaker 3: so at the end of the day, it's about four
[6:02] Speaker 3: percent of stocks are responsible for the vast majority of
[6:05] Speaker 3: market returns. So four percent of stocks. Of that, roughly
[6:10] Speaker 3: eighty percent of employees sell their shares immediately after they best.
[6:14] Speaker 2: Really, so that is shocking to me.
[6:17] Speaker 3: Yeah, So think about, like, think about what has to
[6:20] Speaker 3: happen in order for you to you know, hit it
[6:23] Speaker 3: out of the park. You have to join early enough
[6:25] Speaker 3: to get a meaningful amount of equity. You got to
[6:27] Speaker 3: stay long enough at least four years to vest all
[6:29] Speaker 3: of your equity, and like God willing knock on wood,
[6:32] Speaker 3: you're getting equity refreshes each year as part of your bonus.
[6:36] Speaker 3: You need to exercise at the right time to avoid
[6:39] Speaker 3: you know, tax traps. If it's ISOs, it's a MT
[6:42] Speaker 3: tax that you have to navigate around. If it's NSOs,
[6:45] Speaker 3: it's ordinary income that has to be navigated with. Over time,
[6:49] Speaker 3: is more liquidity events or funding rounds happen, your ownership
[6:52] Speaker 3: stake is going to be deluded, but hopefully the firm
[6:54] Speaker 3: is getting more valuable. And then finally you have to
[6:57] Speaker 3: wait until there's an actual liquidity event. And if it's
[7:00] Speaker 3: a publicly traded firm or a firm that went iPod,
[7:03] Speaker 3: it's six months after that IPO. Even if it's fully vested,
[7:06] Speaker 3: do you then have access to it? So it's kind
[7:09] Speaker 3: of like winning the lottery, but you don't. Yeah, there's
[7:12] Speaker 3: ambiguity in terms of when you can sell in it,
[7:14] Speaker 3: what price you can sell it, So there's always going
[7:16] Speaker 3: to be that fluctuation and price. The rarity amongst the
[7:19] Speaker 3: winners is much much lower, I think than most people realize.
[7:23] Speaker 3: And you know, going back to Michael Musson's book of
[7:26] Speaker 3: Skill and Luck and Business and Investing, like this is
[7:30] Speaker 3: a great example of what it takes to find yourself
[7:33] Speaker 3: in the right place, to have the skill to be there,
[7:36] Speaker 3: and then to also be lucky enough to thread all
[7:39] Speaker 3: of the needles that need to be navigated for you
[7:41] Speaker 3: to win.
[7:42] Speaker 2: I'm genuinely shocked to hear that eighty percent of employees
[7:46] Speaker 2: sell their stock immediately after vesting. Why wouldn't they want to?
[7:50] Speaker 2: Is it just that I'm risk embracing and I want
[7:53] Speaker 2: to go on the ride, and other people have mortgages,
[7:56] Speaker 2: kids and bills and they just want to take the cash.
[7:59] Speaker 3: I think it goes back to four percent of stocks
[8:02] Speaker 3: responsible for the vast majority of returns. The other way
[8:04] Speaker 3: to say this, or another way to look at the
[8:06] Speaker 3: markets is that sixty three percent of stocks are losers
[8:10] Speaker 3: throughout the course of their lifetime. So the vast majority
[8:14] Speaker 3: of stocks at IPO or the vast majority of equity
[8:16] Speaker 3: grants that are given, turns out to really be buckus
[8:19] Speaker 3: in the end.
[8:20] Speaker 2: Buck gus in the end. So let's talk about some
[8:23] Speaker 2: of the rules that govern this. They're kind of fascinating. First,
[8:29] Speaker 2: there was a big rule change in the nineteen nineties
[8:32] Speaker 2: under the Clinton administration for executives where they were capped
[8:37] Speaker 2: at a relatively low amount of compensation in cash, and hey,
[8:44] Speaker 2: they had to participate by being equity owners. That worked
[8:49] Speaker 2: out really well for senior management, didn't it.
[8:52] Speaker 3: It did. What took place then is the original goal
[8:56] Speaker 3: was to put a ceiling on executive compensation and the
[9:01] Speaker 3: output that actually occurred. So they allowed incentive stock options
[9:05] Speaker 3: to flourish at that time and as long as it
[9:08] Speaker 3: fell under as long as that option contractor that grant
[9:11] Speaker 3: fell under the auspices of being incentive, So you needed
[9:14] Speaker 3: to work or prove yourself to be incentivized to be
[9:17] Speaker 3: gifted that option, then you would be eligible for a
[9:20] Speaker 3: much more favorable tax treatment and avoid those laws that
[9:23] Speaker 3: went into place.
[9:24] Speaker 2: And then there were some rule changes following the dot
[9:27] Speaker 2: com implosion. What took place in the two thousands that
[9:30] Speaker 2: affected employee equity compensation.
[9:33] Speaker 3: Among the main challenges is the requirement that each year
[9:37] Speaker 3: an independent valuation take place through the process of what's
[9:40] Speaker 3: called a four to nine to A. So what that
[9:43] Speaker 3: means is that the company itself can't just pull out
[9:46] Speaker 3: of its tush whatever valuation they expected to be. Instead,
[9:49] Speaker 3: it has to be verified by a third, independent, third party.
[9:52] Speaker 3: The other thing is that equity now vests upon a schedule,
[9:56] Speaker 3: so there are a number of backdating scandals that took
[9:59] Speaker 3: place in the late nineties early two thousands. Apple Steve
[10:03] Speaker 3: Jobs was even famously and started one of them. And
[10:06] Speaker 3: so there's a much more stringent set of rules as
[10:09] Speaker 3: it governs equity compensation. The main ones to take away
[10:13] Speaker 3: from obviously the four nine A and that going forward,
[10:16] Speaker 3: no forms of equity compensation can be given below market value.
[10:20] Speaker 3: It has to be at least in one hundred percent
[10:22] Speaker 3: of market value, or if you're an insider or an executive,
[10:25] Speaker 3: it has to be a one hundred and ten percent
[10:26] Speaker 3: of current market value.
[10:28] Speaker 2: Huh really interesting. What about some of the crazier tax stories.
[10:31] Speaker 2: I know you've regaled me with all sorts of wild
[10:36] Speaker 2: scenarios that take place. What are some of the wacky
[10:39] Speaker 2: attempts to circumvent taxes that have led to bad outcomes?
[10:43] Speaker 3: Everyone knows the term like who you hang out with
[10:46] Speaker 3: is who you become. It depends on the socioeconomic demographic
[10:49] Speaker 3: with what you're hanging out with, you know. But right now,
[10:52] Speaker 3: like making the rounds as conservation easements, these are a
[10:56] Speaker 3: tax scheme to help absolutely gut your tax liability on
[10:59] Speaker 3: the ordinary side. The IRS has put a stop to it.
[11:03] Speaker 3: And basically I think how they work these days is
[11:05] Speaker 3: that for every dollar that you would put into a
[11:07] Speaker 3: conservation easement, I believe twenty cents goes towards litigation over
[11:10] Speaker 3: the next eleven years on your behalf. So it's not
[11:14] Speaker 3: for the fainthearted. They don't materialize in the way that
[11:17] Speaker 3: they promise. So that's among the main things where people
[11:19] Speaker 3: really get themselves in trouble. And I will say, like,
[11:22] Speaker 3: if you find yourself on the wrong side of a
[11:24] Speaker 3: conservation easement, the tax bill that's going to be jammed
[11:28] Speaker 3: down your throat is going to be so insane you'll
[11:31] Speaker 3: regret having done it in the first place.
[11:33] Speaker 2: So you sound very conservative when it comes to tax
[11:37] Speaker 2: schema that aren't approved by the IRS. Let's talk about
[11:41] Speaker 2: one that the IRS has already blessed. The QSBS. Tell
[11:46] Speaker 2: us about what that is and how does that work.
[11:49] Speaker 3: That is the gold standard so qsbs or qualified small
[11:53] Speaker 3: business stock essentially is the new rules actually just change
[11:58] Speaker 3: with the big beautiful bill. But what it does is
[12:01] Speaker 3: that if the company or the industry with which you
[12:03] Speaker 3: work in, if you are issued shares and as long
[12:06] Speaker 3: as you hold it for a certain time period, then
[12:09] Speaker 3: all of the games are entirely tax free. So there
[12:12] Speaker 3: are situations where folks come to us and they they've
[12:16] Speaker 3: been at the company for ten years, they've had this
[12:18] Speaker 3: stock for ten years, their cost basis is fifteen cents,
[12:21] Speaker 3: and now it's trading at thirty five or forty dollars,
[12:24] Speaker 3: and so the first ten million is entirely tax free
[12:28] Speaker 3: at the federal and the state side. So like in
[12:30] Speaker 3: the California example, you know, is opposed to walking away
[12:34] Speaker 3: with you know, fifty forty eight cents on the dollar,
[12:37] Speaker 3: when all of a sudden and done. You know, you're
[12:39] Speaker 3: walking with one hundred cents on the dollar on the
[12:41] Speaker 3: first ten million dollars worth of gains.
[12:43] Speaker 2: Really really interesting. One of the things that we talked
[12:46] Speaker 2: about with private companies is often a lack of a
[12:49] Speaker 2: liquidity event for some time in the future. But a
[12:52] Speaker 2: lot of these small startups, especially in technology, they're venture funded.
[12:58] Speaker 2: You have the seed round, the A round, the B round.
[13:02] Speaker 2: How significant are dilution issues for employees or if this
[13:06] Speaker 2: goes public, it doesn't matter. It's just money, money, money.
[13:10] Speaker 3: Well, ideally you're not having a down round when you're
[13:13] Speaker 3: raising cash. If you are, then the odds of your
[13:16] Speaker 3: is hose working out tend to be slim to nil.
[13:19] Speaker 3: But typically in the startup spaces you want as many
[13:23] Speaker 3: option contracts as you can because if this thing ends
[13:26] Speaker 3: up being a runner or ends up being something magnificent,
[13:29] Speaker 3: the leverage factor is just so enormous that it's well
[13:34] Speaker 3: worth it. You know, the vast majority of these companies
[13:37] Speaker 3: end up crumbling. Carter does a really good job of
[13:40] Speaker 3: the regulatory work that's required behind the scenes for the
[13:43] Speaker 3: startup space, and so I say, over the last probably
[13:46] Speaker 3: five or six years, they've been one of the greatest
[13:49] Speaker 3: improvements in this space and helping like the broader investor
[13:54] Speaker 3: class or employees that have access to this stuff have
[13:57] Speaker 3: a much better understanding of what is a very very
[13:59] Speaker 3: complicate in seat of personal finance.
[14:02] Speaker 2: And for people not familiar with KARTA, they're the ones
[14:04] Speaker 2: who track the entire cap table from seed investments to
[14:08] Speaker 2: ABCD round. They know everybody that owns every last Yare
[14:13] Speaker 2: you get a sense of exactly what the value of
[14:16] Speaker 2: your holding is, at least relative to the most recent round.
[14:20] Speaker 2: Last two questions, let's talk about common mitigation strategies. What
[14:25] Speaker 2: should an employee or an employer be doing to make
[14:29] Speaker 2: sure that the compensation structure is fair and that everybody
[14:33] Speaker 2: involved pays their legitimate but minimal taxes.
[14:38] Speaker 3: So, if you're an employee, I've never seen a plan
[14:41] Speaker 3: where this wasn't the case. But if your employee, the
[14:43] Speaker 3: company is responsible for withholding taxes on your behalf whenever
[14:47] Speaker 3: you exercise, if there's taxes owned that exercise, and whenever
[14:50] Speaker 3: you sell the shares or that's a tender offer, So
[14:54] Speaker 3: the company itself is responsible for withholding taxes. Where things
[14:58] Speaker 3: can go sideways is that the company is only required
[15:01] Speaker 3: to withhold the statutory minimum, which is twenty two percent
[15:04] Speaker 3: or twenty four percent. Most folks, like if you're having
[15:07] Speaker 3: a big payout, are in the thirty five to thirty
[15:09] Speaker 3: seven percent federal tax space, so you'll find yourself under withheld.
[15:14] Speaker 3: So it's important that you work with the CPA or
[15:16] Speaker 3: advisor to figure out exactly what your tax liability is
[15:18] Speaker 3: on that distribution.
[15:19] Speaker 2: So final question, we've been talking very judiciously about all
[15:25] Speaker 2: the risks and all the downsides and how circumspect you
[15:28] Speaker 2: need to be about this. But obviously equity compensation has
[15:33] Speaker 2: been really attractive going back to the nineteen nineties. How
[15:38] Speaker 2: advantageous can these be? Not in an Nvidia, Microsoft, Netflix
[15:43] Speaker 2: sort of way, but just in a good, solid company
[15:46] Speaker 2: that has fairly reasonable results over the course of your
[15:50] Speaker 2: employment there.
[15:51] Speaker 3: It is fantastic any additional cash flow that you can
[15:54] Speaker 3: capture that you can then add to your financial plan
[15:57] Speaker 3: to help reinforce your quality of life as a.
[15:59] Speaker 2: Great Thanks Joey. This has been really interesting. So to
[16:03] Speaker 2: wrap up, if you have an opportunity to become part
[16:06] Speaker 2: of the ownership society, understand what you're getting into. It's complicated.
[16:12] Speaker 2: There are a lot of moving parts. There are rules
[16:14] Speaker 2: and regulations and taxes, but if you do it right
[16:18] Speaker 2: and you get a little bit lucky, there are enormous
[16:22] Speaker 2: potential upsides to be had over and above your employment
[16:27] Speaker 2: cash compensation. I'm Barry Ridolts. You're listening to Bloomberg's At
[16:33] Speaker 2: the Money

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