Executive Compensation 101: What You Really Need to Know About ISOs and RSUs

by Alex LaRosa|February 13th, 2026

First, What Are ISOs and RSUs?

RSUs (Restricted Stock Units)
You receive shares of your company stock over time, usually tied to a vesting schedule. Think of it as a delayed bonus, except it comes in stock, not cash.

ISOs (Incentive Stock Options)
You’re granted the option to buy company stock at a specific price. But it’s not automatic — you choose when to exercise (buy) and when to sell.

Who usually gets them?

  • RSUs: High-performing employees, typically VPs and directors, often at larger public companies.

ISOs: Executives, early-stage employees, and founders typically in start-ups or high-growth private firms.

3 Common Mistakes Executives Make

  1. Treating equity like “free money”
    It’s not just a bonus. It’s a piece of your compensation that needs to be managed like any other asset.
  2. Ignoring tax timing
    Especially with ISOs, your decision to exercise it triggers complex tax consequences, including AMT (Alternative Minimum Tax). We will discuss this in a future post.
  3. Letting company stock take over your portfolio
    Earning your salary and holding most of your net worth in the same stock is a risk for your financial future

FAQ: What You Need to Know About RSUs

If you have RSUs, here are some smart questions to ask:

  • Should I sell them as soon as they vest?
    In many cases, yes. Especially if you don’t want your financial life tied too closely to your employer’s stock performance.
  • What are the tax implications?
    RSUs are taxed as ordinary income and show up on your W-2 when they vest. But watch out: your employer typically withholds only 22% for federal tax, and if you’re in a higher bracket (you probably are), you could owe more come tax time.
  • When should I sell?
    We worked with a client at Merck who wanted to renovate a bathroom. He forgot he had RSUs until we reminded him. He sold it and the stock paid for the project. RSUs are real money, not just “company stuff.”
  • What if my stock is down?
    In 2025, Merck stock dropped 40%. For clients sitting on RSUs, this was an opportunity from a tax standpoint. They could sell it at a loss which meant two things: one, they would not incur capital gains tax, and two, they get the chance to reinvest it in a more diversified way into one of Blue Bell’s strategies (or the S&P 500)

ISO Planning Is Not DIY (And Here’s Why)

With ISOs, timing is important and mistakes can be costly.

Some common questions we hear from you:

  • “Should I exercise now or wait?”
  • “What happens if the stock drops after I exercise?”
  • “What if I leave the company?”

Here’s the process, simplified:

  1. Grant – You receive the option to buy shares at a set price.
  2. Exercise – You choose to buy the shares, typically by paying cash. This triggers potential AMT liability.
  3. Sell – You eventually sell the shares, ideally qualifying for long-term capital gains.

When you exercise, you may owe tax that year, even if you haven’t sold the stock.

We help you build a game plan so that you’re not hit with surprise tax bills or locked into a stock that no longer fits your goals.

When Should You Talk to a Financial Advisor?

You should reach out if:

  • You’re changing jobs or planning to retire
  • Your company is heading toward an IPO or acquisition
  • Your stock has dropped and you’re unsure what to do
  • You’re planning a big expense (home, renovation, helping kids)
  • You’ve lost track of what equity you actually have (this is more common than you think)

Equity compensation isn’t one-size-fits-all. It should be integrated into your full financial picture, along with taxes, retirement planning, and cash flow.

We’ve worked with clients across industries from big pharma like Merck to tech startups  to make the most of their compensation, without taking unnecessary risks.

The Bottom Line

If you’re sitting on RSUs or ISOs and haven’t thought through how to use them, sell them, or plan for taxes, you’re not alone.

But now’s the time to stop guessing and start planning.

We’ll help you understand what you have, how it works, and what to do next — in a way that fits your life, your goals, and your future.

At Blue Bell Private Wealth Management, we help high-earning professionals like you create clear, tax-smart strategies for executive compensation and long-term wealth.

If you have further questions about executive compensation or your specific RSUs or ISOs, please click here to book a free 20-min consultation call with us.