Accenture programs allow leadership to acquire a large amount of Accenture stock, but you should always consider how much you should own.
Additionally, Accenture MDs are required to own a minimum amount of Accenture equity, so we need to factor this in.
Owning single stocks subjects you to all sorts of unsystematic risks, but it becomes even more dangerous when it’s also the stock of your employer.
While many companies today seem unstoppable, we only need to look back at how Enron took down Arthur Anderson in 2002, a memory still too fresh for many Accenture Managing Directors.
We’ll get into some guidelines of how much Accenture stock to own, but let’s first cover this nice “problem” to have.
How Accenture Execs builds equity
While Accenture salaries might not be as high as some of the other consulting majors, their equity programs can make up for it.
Accenture employees under Managing Director can build equity through the Accenture ESPP and annual equity bonus grants.
Managing Directors start building large amounts of equity with the VEIP, annual equity award grants, and the MD grant awarded with the Managing Director promotion.
ESPP purchases occur after the six-month “saving” period, but all the other grants award restricted share units (RSU’s) that take between one and five years to vest and receive the shares.
As you can read about in the Accenture MD compensation post, MDs can easily start generating hundreds of thousands of dollars per year in Accenture stock.
The dangers of owning too much Accenture stock
When I started working at Accenture in 2004, I purchased Accenture stock through the ESPP for under $20/share… the same stock that sits over 10x that now!
Even more amazingly, the leadership team (Partners) during the IPO in 2001 cashed in an amazing amount of Accenture stock essentially for free.
While the Accenture stock price growth has been very healthy in the last twenty years, you should avoid the temptation of thinking this will last forever.
There aren’t any signs that it will slow down or danger is ahead, but it’s just too risky for your portfolio. Let’s go over the risks:
A. Unsystematic investment risks
Unsystematic risks are risks that can be diversified away by owning a large basket of stocks or funds. However, with a single stock, you’re exposed to:
- Industry Risk
- Management Risk
- Event Risk
These exposures occur because there’s a chance the economy can seem perfectly healthy, but someone makes a bad decision that takes down an entire company (Arthur Andersen).
B. Concentration risk
There’s a real possibility Accenture Managing Directors receive 50% of their compensation in equity in a given year, with that number jumping over 100% when the MD grant vests.
It’s normal for most of our income to come from one company; however, when your entire net worth is also held in the same company, it gets scary.
Concentration risk, and in this case, net worth concentration risk, occurs when too much of your income and equity are tied up in one company’s future.
Let’s think about all the things you’re getting from Accenture:
- Salary
- Health insurance (probably)
- Bonuses
- Equity
- A career
And what goes away if we got another Arthur Andersen situation (Hint: all of it).
While it may sound like I’m using scare tactics to lure you away from your sweet Accenture stock stash, I’m actually just following risk reduction principles we like to use in financial planning.
If we can reduce the risk and still find a suitable return elsewhere, why wouldn’t we?
You’ll still get lots of money from Accenture, between salary and future equity opportunities, but let’s make sure your entire future isn’t tied up with the firm.
MD rules for Accenture stock ownership
When deciding how much stock to own, we need to understand Accenture’s rules for Managing Directors owning equity.
You can read the full details of the rules here, but as an overview:
- L4 MD: 50% of base salary
- L3 MD: 100% of base salary
- L2 MD: 150% of base salary
- Senior MD: 200% of base salary
- Unvested equity counts towards these requirements
The last rule allows L4 MDs to hold most of their equity requirements in unvested equity (MD grant, equity grant, VEIP grant).
However, it gets more challenging when you’re promoted to L3 and above.
Here are some general rules of how to cover your required Accenture stock ownership:
- As L4 Managing Director: Unvested RSU grants value > 50% base salary
- As L3 Managing Director: Unvested RSU grants + stock ownership > 50% salary but building to 100% by the five-year mark
As you can see, this is very specific to your situation, so you’ll want to dig into your details or work with a professional to plan this out.
Calculating how much Accenture stock to own
When managing a properly diversified portfolio, you really shouldn’t have more than 10% of your portfolio in a single stock.
We recommend owning the minimum amount of Accenture stock that still allows you to meet the ownership requirements.
As we reviewed above, most L4 MDs will be covered by their unvested equity until their MD grants vests.
Therefore, they don’t need to hold additional Accenture stock as long as their unvested equity is greater than 50% of their salary.
This allows them to sell their RSU grants as they vest and sell stock accumulated through the VEIP.
Things become much more complicated once the MD grants vests and when MDs are promoted to L3.
The L3 promotion changes the rule to 100% base salary, but with five years to accrue.
It becomes more challenging because most L3 MDs will have their MD grants vested by this five-year window, so they’ll need to own quite a bit of stock on top of the unvested RSUs.
Their unvested RSUs won’t make up a large enough percentage of their salary to not own quite a bit of Accenture stock.
Because of this, L3 MDs should have a plan to retain stock each year (via VEIP or RSU grants) to build up to 100% by the end of their five-year window.
MD stock ownership example
Let’s get into some numbers. It gets complex very quickly, but if you’re already an MD, you’ll understand the terms.
Let’s say our example below, Percy was promoted to L4 MD on December 1st, 2020.
He’ll have until December 1st, 2025, to build his 50% Accenture stock ownership requirement.
As you can see in the chart below, in 2025, Percy has over $300k in Accenture stock that is vesting in 2025.
He’ll need to make sure he holds enough to hit the 50% requirement, but he’ll be okay if he sold most of his VEIP shares and equity grants from 2021 – 2024.
It gets more complicated when Percy is promoted to L3 in 2026. His new requirement is 100%, which he needs to hit by 2031.
As you can see in the chart above, his unvested equity in 2031 is only $200k, which is $679k short of his requirement!
His 50% salary requirement means he should’ve had $400k in equity in 2030, so he’d still have a $79k shortfall.
It’s a little more complicated when calculating the actual amount of equity required because Accenture uses a calculation of Fair Market Value (FMV). They find FMV on January 31st of each year by calculating the average stock price on each trading day.
This yields the number of shares required that year. Luckily, they manage all of this information on your MyHoldings page as well.
All of this should be planned through as you begin progressing through your career as an Accenture Managing Director.