Understanding 10b5-1 Trading Plans for Executives

For any company, having competent executives in place is key to developing and leading their corporate strategy and culture. A strong executive team can drive a company’s near-term results and carve a clear path to continued success well into the future. That’s why talented executives are widely coveted, and why they’re both well compensated and an important focus of a company’s retention planning.

A primary component of executive remuneration and long-term wealth-building potential is equity compensation. Essentially, equity awards represent an added layer of compensation on top of base salary, performance bonuses and other standard benefits. Equity is often granted by the corporation in the form of stock options, restricted stock units (RSUs), restricted stock awards (RSAs), or performance shares. Equity serves to better align an executive’s interests with those of the company and its shareholders, and since a vesting period (e.g., several years before this awarded equity can be sold) is typically imposed, it encourages executives to stay at – and continue contributing to – the company.

Transacting on this equity compensation can be highly complex and confusing given trading windows, stock volatility, shareholding guidelines, SEC rules and varying tax implications for different forms of equity. Fortunately, one well-established tool that’s available to help executives navigate these significant challenges is called a 10b5-1 trading plan. 

What is a 10b5-1 trading plan?

Simply put, a 10b5-1 plan is a written agreement between a corporate executive and a broker that establishes predetermined trading instructions. Such10b5-1 plans are created during “open window” periods when the executive is not in possession of material non-public information. This type of privileged, confidential information may convey notable advantages to the holder as it pertains to making trades (buys or sells) involving a company’s stock. Imagine that an executive knows their company is about to announce a steep decline in earnings. The information has not yet been publicly disclosed, so it would be a conflict of interest to act on this advance knowledge by selling shares ahead of the announcement. For this reason, regulations are stringent regarding insider possession of material non-public information and the use of it to execute stock transactions that are unfair in the context of other market participants.

At this time when executives do not yet possess material non-public information, they will determine the timeline of their plan, the equity that’s subject to this plan, and the provisions under which transactions would occur, such as specific dates, limit prices, etc. By proactively setting up their 10b5-1 plan, the executive does not need to be concerned about how future open window periods or the acquisition of material non-public information would affect (i.e., alter, impede or otherwise restrict) their ability to transact on the company equity covered in the plan. 

Who is a 10b5-1 plan for?

Executives should consider employing a 10b5-1 plan when some or all of the following apply to them:

1. They have shares they’d like to sell or options to exercise, but prefer not to sell at the current price in the open window. Accordingly, they set a limit order with their broker that would trigger in the event that the stock price rises.
2. They are a named executive officer and the use of a 10b5-1 plan helps eliminate doubt around subsequent possession of insider information and the timing of a stock transaction.
3. They are frequently subject to trading restrictions and would like to implement a plan when possible that facilitates transactions when they otherwise may not be permitted to trade.
4. They are comfortable that they won’t want to amend or change the plan being put into place, as the SEC does not view such amendments in a favorable light.

Potential benefits and drawbacks

As with any financial strategy, 10b5-1 plans have a variety of benefits and drawbacks. It’s incumbent on the executive and their investment, tax and legal advisors to weigh the potential benefits and drawbacks, to help determine if a 10b5-1 plan is suitable for their particular circumstances.

Some of the key benefits include the following:

1. These plans may help create a solid defense against insider trading allegations that, aside from the legal ramifications, could severely harm the reputation of the executive and the company involved
2. A well-conceived 10b5-1 plan can eliminate the emotion of trying to choose the perfect time or price to sell, as the trading parameters are already set
3. Plans can allow for flexibility when executives are subject to trading windows or restrictions

Some of the drawbacks include the following:

1. Plans require a “cooling off” period of 30 to 90 days following implementation, during which time no transactions may occur. Therefore, the executive must be certain this illiquidity period is acceptable relative to their shorter-term financial needs
2. Since changes to or termination of a 10b5-1 plan is not looked upon favorably by the SEC, they should be avoided. This means that once implemented, plans do not have flexibility
3. When a plan is legally in place, trading outside the plan is generally not allowed
4. Material corporate information may become available while a plan is in effect, and that could make an executive regret the structure of their plan as the outlook for the company and its stock may change dramatically (and possibly to the detriment of the equity holder)

We’re here to help

As you’ve seen, the 10b5-1 plan can be a useful tool to help executives manage their equity compensation and related trading regimen. However, it’s not a decision to be taken lightly as there are potential ramifications to consider and reconcile with an overall investment and financial plan.

Corient has experience helping executives with financial planning and other important activities that are often specific to the corporate executive. You can be confident that our Corporate Executive Practice Group takes a comprehensive, hands-on approach when working with clients at major corporations across the world. Our wealth management services have been designed to help executives and other senior leaders address their unique financial needs. We work with our clients to integrate compensation packages into cohesive, customized long-term wealth plans that can support personal, professional, generational and legacy objectives.

To explore 10b5-1 plans and other targeted strategies related to the complexities of executive compensation, feel free to contact a Corient Wealth Advisor today.

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5228053 – February 2026