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  • Writer's pictureJohn J. Diak, CFP®

From Stock Options to PTO: Factors to Evaluate Before Changing Jobs


From Stock Options to PTO: Factors to Evaluate Before Changing Jobs

If you’re considering changing jobs or pivoting careers, you’re not alone. In the past few years, trends such as The Great Resignation, Quiet Quitting, growing salary transparency, and the rise of remote work have reshaped the job landscape. American workers are on the move, employment revolution shows no signs of slowing down.


High-earning professionals with in-demand skills, in particular, are taking a fresh look at where they stand. Maybe you can relate. Whether you're craving more family time, longing to pursue a hidden passion, or hunting for lucrative opportunities to battle inflation, choosing a new career path is a hefty decision that can greatly impact your financial health.


Perhaps you're stuck in a work environment that’s undervaluing your contributions. Maybe you’ve learned that your role will be impacted by economic shifts or technological advancements. Or you might be intrigued by the buzz around job hopping for a salary boost. Whatever your reason for exploring a change, it's essential to stay level-headed and not let emotions guide your choices.


Before making your next move, assess potential gains and losses objectively. Your motivations matter, but understanding the potential financial implications of your decision from all angles is important.


Your paycheck is just one piece of the puzzle; here's a closer look at other factors to consider.


Evaluating Stock Options


When you're thinking about changing jobs, don't overlook the stock options you already have or the ones that potential employers might offer. Evaluating various factors associated with stock options will enable you to move forward in a way that aligns with your long-term financial goals. Here are a few key considerations:


Equity Grant


Begin by understanding the equity grant you currently hold and the potential for future growth. Take into account the number of shares or options you have been granted, as this will directly impact your potential financial gains. Be sure to consider any restrictions or limitations on exercising these options.


Vesting Schedule


Take a close look at your stock options' vesting schedule. This schedule maps out the timeline over which you gain ownership of the granted shares or options. Understand your current vesting status and how long you must wait before you can fully exercise the options. Typical vesting schedules range from three to five years, with some offering accelerated vesting under specific circumstances. This information is what you’ll need when checking into the potential financial benefits tied to your stock options. Patience can be a virtue here.


Company Performance & Valuation


Investigate the performance and overall financial health of your current employer or the company you are considering joining.


Do your research. Check the company's financial health, market position, competitive landscape, and recent news events affecting its business outlook. Appraise key financial metrics such as revenue growth, profitability, and market share. Analyze the company's industry position, competitive advantages, and potential for future success. A thriving company with robust growth opportunities might suggest a higher potential value for your stock options.


Tax Implications


Understand the tax implications associated with exercising or selling your stock options. Different tax rules and rates may apply based on factors such as the type of options and the timing of exercising them. If held for more than one year after exercising (and two years from the granting date), Incentive Stock Options (ISOs) are taxed at the long-term capital gains rate. Non-Qualified Stock Options (NQSOs) are generally taxed as ordinary income when exercised, with any subsequent appreciation in value subject to capital gains taxes when you sell the shares. Consult with a tax professional to determine the tax impact and potential strategies to optimize your tax liability.


By thoroughly assessing these aspects of stock options, you can make an informed decision about your potential financial gains or losses. Ideally, you should always consult with a financial advisor or wealth manager, like Oatley & Diak, LLC, who can provide personalized guidance based on your unique circumstances and goals. This will pursue the most advantageous decisions regarding your stock options during your career transition.


Evaluating Pension Plans


Pensions aren't as common as they used to be outside of government jobs, but if your current or future employer offers one, tread carefully. Pension plans can significantly impact your financial goals and retirement planning. Take the following factors into account:


Type of Pension Plan


Different companies may offer either a defined benefit (DB) or defined contribution (DC) pension plan, each with its own unique structure and benefits.


Defined Benefit


These traditional pensions provide a specific monthly income in retirement based on your salary history and years of service. Compare the stability and generosity of the defined benefit plan offered by your current employer with what's available with potential employers.


Defined Contribution


In these plans, such as 401(k)s, employees contribute pre-tax dollars into an investment account, often with potential employer-matching contributions. Rank the investment options and potential growth of your defined contribution plan at both your current and potential employers.


Vesting Schedule


The vesting schedule determines when you’re eligible to receive the company-contributed funds in your pension plan. Consider whether you are close to achieving full vesting at your current job and how starting from scratch at the new company would impact your eligibility for these funds.


Portability Options


If you switch jobs before retirement, it is crucial to assess the portability of your pension assets. Determine how easy it is to transfer assets from one plan to another or roll them over into an Individual Retirement Account (IRA). Note that while some defined benefit pensions may not be portable, defined contribution accounts typically allow for rollovers without penalties.


Differences Between Companies


Compare the pension plans offered by your current and any prospective employers, paying attention to contribution rates, investment options, and plan fees. A close examination can help you determine which plan better suits your goals. Seeking the advice of a financial advisor can provide valuable insights and guidance throughout this evaluation process.


Analyzing 401(k) Benefits


For most future retirees, 401(k) benefits offered by your employer are a vital consideration. Understanding the vesting schedule and potential matching contributions will help you make an informed decision about your financial future. Weigh the following points:


Vesting Schedules


Consider the vesting schedule, which determines when you fully own the employer-contributed funds in your 401(k) plan. While some companies provide immediate vesting, others may require you to work for a certain period before you become fully vested. Comparing the vesting schedules between your current and potential employers will help you understand how they differ and how they may impact your retirement savings. This knowledge is vital in assessing the value of the employer's contributions to your overall retirement target.


Potential Matching Contributions


Examine the potential matching contributions offered by each employer. Many companies match a percentage or dollar amount of their employees' contributions, although policies can vary significantly. Try to understand each company's matching policy and take note of any differences that could affect your overall retirement savings strategy. Understanding the matching contributions available to you will help determine the maximum benefit you can receive by participating in the 401(k) plan.


Tips for Evaluating 401(k) Plans


Research: Gather information on the 401(k) plans of both your current and potential employers. Contact the respective HR departments or plan administrators to obtain the necessary details.


Analyze: Determine how long it would take for you to become fully vested with each employer based on their respective vesting schedules. This analysis will give you a clear picture of the timeline for gaining ownership of employer-contributed funds.


Compare: Compare the potential matching contributions offered by both companies. Take into account any differences in vesting schedules and matching policies. This comprehensive comparison will help you understand the financial benefits associated with each plan.


Consult: Discuss your findings with your financial advisor to gain additional insights and determine the best course of action for your unique situation. A financial advisor can help you measure the impact on your retirement savings and provide guidance tailored to your specific financial goals.


By understanding the differences in 401(k) benefits between your current and potential employers, you can make a decision that fortifies your retirement savings — a crucial component of your future financial well-being.


Comparing PTO Policies


It's also important to compare the PTO policies of your current and potential employers. Look at vacation time, sick leave, flexibility, holidays, and personal days as well as family and medical leave to weigh potential opportunities. Remember that a generous PTO policy can greatly contribute to job satisfaction and work-life balance. But if the employer claims to offer “unlimited PTO,” be sure to find out what this really means at that specific company and how it factors into your total compensation package.


Vacation Time


Start by comparing the number of vacation days offered at each company. Consider how the vacation days offered may change with seniority or years of service. Additionally, research whether unused vacation days roll over from year to year or if there is a "use-it-or-lose-it" policy in place.


Sick Leave


Sick leave policies can also vary widely between companies. Some organizations offer separate sick leave banks while others combine all PTO into one pool for employees to use as needed. It's important to know how many sick days are available per year and any restrictions on their usage, such as requiring documentation for extended absences due to illness.


Weighing Flexibility


Look at the flexibility of each company's PTO policy when making comparisons. Do they allow remote work during illnesses? Can you take half days instead of full days?


Holidays & Personal Days


Don't forget about holidays. Check which public holidays are observed by each company and if personal days are included within their PTO package.


Family & Medical Leave

Look into each company's policies regarding family and medical leave, such as maternity or paternity leave, and any provisions for extended time off due to personal or family health issues.


Taking the time to thoroughly compare PTO policies between your current employer and prospective employers can help you make a measured decision about a potential job change. Remember that a generous PTO policy can significantly contribute to your overall job satisfaction and work-life balance — factors that are just as vital as salary when sizing up new opportunities.


Are you ready for a change?


Changing jobs can feel intimidating, but don't neglect your future by making a hasty decision. Remember, the grass is not always greener on the other side — but sometimes it just might be.


When it comes to stock options, follow the money; look at the company's financial health and potential for growth. For pension plans, do the math. Understand vesting schedules and payout structures to make sure you're getting the best deal. When analyzing 401k benefits, be discerning. Look for matching contributions and investment options that fit your needs. And, don't forget about work-life balance — comparing PTO policies is a must to make sure you have time for yourself. Finally, consult with a financial advisor, like Oatley & Diak, LLC, who can help you navigate these complex considerations to align your career transition with your long-term financial and lifestyle goals.


SOURCE

https://www.cnbc.com/2023/01/13/96percent-of-workers-are-looking-for-a-new-job-in-2023.html


John J. Diak, CFP® is the Principal & Client Wealth Manager at Oatley & Diak, LLC in Parker, Colorado. He assists clients through many difficult lifestyle changes such as business downturns, retirement planning, divorce, the death of a spouse, and family estate issues among others. Oatley & Diak, LLC is a family-run registered investment advisory (RIA) firm that provides clients with investment management and financial planning services in a hands-on, intimate environment. Learn more about them at oatleydiak.com.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.


This material was prepared by Crystal Marketing Solutions, LLC, and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate and is intended merely for educational purposes, not as advice.


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