Accelerating your growing wealth using AbbVie’s Long-Term Incentive Plan (LTI)

Accelerating your growing wealth using AbbVie’s Long-Term Incentive Plan (LTI)

October 09, 2020


For AbbVie employees who are at manager level and above, AbbVie provides annual stock grants to reward performance. The value of these are tied to how many shares are granted (which is based on your position in the company) and the price of AbbVie stock at the time the shares are available to you.

How does the plan work?

The shares are paid out as Restricted Stock Units (RSUs). These shares, while paid out in one year, vest over a number of years, and become fully paid out after 3 years. It’s easier to understand using an example:

In February 2020, AbbVie awards you 1,200 RSUs. However, at that point, this award has a value of $0 as the shares have not vested. In February 2021, one third of this grant will vest, leaving you with 400 AbbVie shares. At this time, you will have a tax bill because you have been paid the value of 400 AbbVie shares. If there are worth $100/share, your compensation is $40,000. The plan will withhold some shares from these 400 shares to meet the value of your tax bill. For examples sake, let’s say the withholding was 25%, you now have 300 shares, as 25% of the grant was withheld for tax payments.

In your E*Trade account – the custodian AbbVie uses for the LTI program – you’ll have 300 shares deposited to your account that are yours free-and-clear.

Chances are in February 2021, you’ll receive another grant for 2021. That means in 2022, you’ll receive the second vesting portion of the 2020 grant, and the first vesting portion of the 2021 grant. For employees who have been in the program longer than three years, they’ll receive stock from three different grants each year. Depending on the stock price and grant amount, this can lead to a large number of AbbVie shares being added to your investments each year.

Should I keep the stock or cash it out?

This is a big question that all AbbVie employees ask me!

You have two options here:

 - keep the stock, accumulate more with each vesting, and (hopefully) watch it grow over time

 - sell the stock as it vests and either spend or save it in a diversified portfolio.

There’s no hiding the fact that if you concentrate your wealth by holding a lot of a single holding (like AbbVie stock), and it does well, you can grow your wealth a lot faster than someone who diversifies their holdings across many different investments. But for each person that does this, there are countless others who bet on the wrong single investment and lost a lot of money. While people holding increasing amounts in Apple, Netflix and Amazon stock have become wealthy, those who invested in Enron, Hertz, and JC Penney have lost their investments, even if they continued accumulating the shares for decades.

It all comes down to risk. If you want to take a lot of risk, then holding a single stock position can pay off. But it’s not recommended.

As an employee of the company, you have an increased layer of risk in this situation. Not only are you relying on AbbVie increasing their share price of the next few decades, but you’re relying on them to continue to pay you as well. Your growing wealth and income are tied into one company. Unforeseen disasters could wipe out your wealth and income in one fell swoop. Don’t think it can happen – ask my clients who worked at British Petroleum (BP) in 2010 when the Deepwater Horizon spill happened. Their income was cut, and their RSUs were worthless.

However, if you decide to hold the shares, you need to know how the taxation works.

As the shares vested, you had shares withheld to pay the taxes due to these shares being classed as income. The price of the share on the day they vested – the Fair Market Value – now becomes your basis. Any amount the stock grows to after this will be subject to taxation when you sell it in the future – how much, depends on how long you hold the stock for.

The recommended course of action for AbbVie employees

Given that you are employed by AbbVie, receive your benefits from AbbVie, and now are also relying on AbbVie stock to increase your wealth, I would suggest being conservative considering the amount of risk involved.

As the RSUs vest, and the shares hit your E*Trade account, sell them. Take the cash proceeds and invest them into a diversified portfolio. AbbVie is still the 35th largest company in the S&P 500 (at time of print), so you’ll still be getting exposure to them. However, you’ll now have diversified your risk away by investing in hundreds of other companies.


Many wealthy individuals today have become wealthy by concentrating their investments in a single company. More than that have become bankrupt by doing the same thing. It’s not recommended that you hold more than 10% of your wealth in a single holding, and if you’re household income is coming from the same company, I would bring that down to 5%.

Stay diversified in your investments, and over time, you’ll become wealthy taking an appropriate amount of risk.