A Practical Guide to RSUs, ISOs, and ESPPs for Physicians and Executives

A modern physician’s pay structure often mirrors that of executives in other industries. Restricted stock units (RSUs), incentive stock options (ISOs), and access to employee stock purchase plans (ESPPs) have become commonplace in healthcare work.

Making the most of these opportunities may help to enhance your long-term wealth, but they come with additional complexities around taxes and investment risk, especially for people whose careers are built in clinical environments rather than corporate finance.

• With RSUs, Income Timing Matters
• ISOs and the Alternative Minimum Tax
• ESPPs are accessible, but not risk-free
• Common challenges with RSUs, ISOs, and ESPPs

With RSUs, Income Timing Matters

RSUs are one of the most common equity awards in healthcare leadership roles. RSUs are typically granted with a vesting schedule, often tied to continued employment over several years. Once vested, the shares become the employee’s property.

The key issue with RSUs is taxation. When RSUs vest, their value is treated as ordinary income, regardless of whether the shares are sold. For high-income medical professionals, this might create a significant tax obligation in an already high-income year.

Beyond taxes, RSUs raise investment questions. Holding vested shares increases exposure to a single company. Over time, this leads to a risk of concentrating your wealth in one place. The advantages of diversification also apply to RSUs. There is no rule of thumb here. The right approach depends on your overall financial goals and risk tolerance.

ISOs and the Alternative Minimum Tax

ISOs are typically reserved for senior executives and key leaders. ISOs give the right to purchase company stock at a fixed price, often below market value if the company performs well.

ISOs can offer favorable tax treatment, within very specific guardrails. If you exercise ISOs, they  do not automatically trigger ordinary income tax, but it can create exposure to the Alternative Minimum Tax. This often catches healthcare executives by surprise, particularly in years when income is already elevated.

Staggering exercises, coordinating with other income, and understanding exit timelines may help reduce unintended consequences.

ESPPs are accessible, but not risk-free

ESPPs are often viewed as a simple benefit. Employees contribute through payroll deductions and purchase company stock at a discount, typically at set intervals.

While ESPPs can be an effective way to participate in company ownership, they still add to employer concentration. For medical professionals whose income, bonuses, and benefits are already tied to one organization, this exposure can quietly accumulate.

Tax treatment for ESPP shares depends on how long they are held. Selling immediately versus holding for a qualifying period can lead to very different outcomes. Without a plan, participants may default to habits that don’t align with their broader financial strategy.

Common challenges with RSUs, ISOs, and ESPPs

Many of these corporate compensation structures tend to push healthcare executives toward concentration. You might feel like your portfolio is sufficiently diversified, because of high and stable income. In reality, a large part of your finances are bound to a single institution.

These are considerations for any executive, but especially in healthcare, where regulatory changes, reimbursement shifts, mergers, or leadership changes can affect both income and stock value at the same time.

These tools can support long-term financial goals, but only when they are understood and coordinated. At Prime Capital Financial, our advisors can help you evaluate your compensation package while helping to reduce your risk and tax exposure when possible. Our team has experience working with medical professionals and understands the role these pay structures can play in your financial life.