Maximizing Your Executive Compensation: A Guide to RSUs, Stock Options, and ESPPs in the A&D Industry

Congratulations. You just moved from Individual Contributor to Manager or Director.

Along with the new title and the larger team, you likely noticed a shift in how you are paid. Your base salary bump might have been smaller than expected, but your offer letter included a new section: Long-Term Incentive (LTI) Awards.

Welcome to the world of Executive Compensation.

For many professionals in the Aerospace & Defense sector, this is where the real wealth opportunity lies. However, it is also where the complexity explodes. Instead of a simple W-2, you are now juggling vesting schedules, grant dates, and strike prices.

Here is a breakdown of the Big Three equity vehicles you will encounter and how to maximize them without exposing your family to unnecessary risk.

Restricted Stock Units (RSUs)

RSUs are the bread and butter of modern compensation. They are essentially a cash bonus paid in company shares.

How they work:

• Your company grants you a set dollar amount (e.g., $50,000) in shares, which vest over time (usually 3 or 4 years).
• The Upside: They typically retain value unless the stock goes to zero. Unlike stock options, they are rarely underwater.
• The Tax Reality: When RSUs vest, the IRS treats it exactly like a cash bonus. You generally owe Ordinary Income Tax on the full value of the shares the day they hit your account.

The Strategy: Transfer the Risk

We often see directors holding vested RSUs for years because they believe in the company's backlog.

The Test: If your company gave you a $50,000 cash bonus today, would you take that cash, log into your brokerage account, and buy $50,000 of your company stock?

If the answer is no, and it usually is, you should consider selling your RSUs immediately upon vesting and diversifying into a global portfolio.

Employee Stock Purchase Plan (ESPP)

If your company offers an ESPP, it is often one of the most efficient wealth-building tools available.

How it works:

You contribute a portion of your paycheck into a fund. Every six months, the company uses that cash to buy company stock for you at a discount.

The Lookback Advantage:

Many A&D plans include a Lookback feature. This means they buy the stock at a 15% discount off the price at the beginning of the period or the end of the period, whichever is lower. This creates a structural advantage where you purchase equity below market value with very little effort.

The Strategy: The Flip

Don't use the ESPP as a long-term holding tank. Use it as a cash-flow machine.

• Many investors choose to participate to the max that their cash flow allows.
• As soon as the shares are purchased, they evaluate selling them immediately to mitigate single-stock risk.
• You capture the discount and seek to move the cash into your diversified investments.

Stock Options (NSOs & ISOs): The Leverage

Stock Options are less common at legacy Prime Contractors today but are standard in New Space startups and tech-forward defense firms.

How they work:

You are given the right, but not the obligation, to buy company stock for a specific Strike Price.

The Leverage: If your Strike Price is $10 and the stock goes to $50, the leverage can provide significant upside potential. If the stock stays at $9, your options are worthless.

The Strategy: Exercise Logic

Options are complex because they expire. You have to decide when to buy.

• Incentive Stock Options (ISOs) have special tax treatment if held for specific durations, potentially qualifying for lower Capital Gains rates.
• Non-Qualified Stock Options (NSOs) are taxed as income when you exercise.

Managing options requires a proactive Exercise Schedule to help keep you from letting valuable equity expire or trigger a massive Alternative Minimum Tax bill by exercising too much at once.

The Danger: Double Jeopardy

Why do I talk so much about selling and diversifying?

Because as an A&D executive, your financial life is already heavily concentrated.

• Your Income: Comes from the company.
• Your Healthcare: Comes from the company.
• Your 401(k) Match: Depends on the company.

If you also keep 50% of your net worth in company stock, you are playing a dangerous game. If the company loses a major government program, you could face layoffs (income loss) and a stock crash (net worth loss) on the same day.

Summary

Executive compensation is a powerful accelerant for your net worth, but it requires active management. It is not just found money; it is a complex asset class that requires a tax-aware strategy.

If you have a stack of unvested grant letters and don't know what they are worth or when they vest, let's map them out in a Launch Pad session.