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When most of your wealth is tied to your company’s performance, your financial future rises and falls with its results. If the company performs well, your wealth grows but if it doesn’t, your wealth can decline sharply. Do you really want your financial security to depend entirely on your company’s performance?

Imagine pouring your heart into a company, working long hours, and investing your future in its stock, only to watch it all disappear overnight.

That’s exactly what happened to thousands of Enron employees when the energy giant collapsed in 2001, wiping out not just the company but also their life savings tied up in Employee Stock Ownership Plans (ESOPs).

Enron, a natural gas company formed in 1985, quickly became a major player in the U.S. energy market. Its founder, Kenneth Lay, aimed to create a “new economy” based on trading energy and commodities. Enron diversified into various businesses, including electricity, water, and broadband trading, as well as renewable energy and overseas projects.

Between 1998 to 2000, the company began to show astronomical growth in its revenue. Its stock price soared, and by the late 1990s, Enron was one of the world’s largest and most successful companies.

On August 23, 2000, Enron’s stock price peaked at $90.75 per share, giving the company a market capitalization of about $70 billion, making it the seventh-largest publicly traded company.

By September 2000, Enron’s stock began to decline. By January 11, 2002, less than two years after its peak, Enron’s stock price had plummeted to a mere $0.12 per share. This marked the beginning of one of the most infamous corporate collapses in history.

Take Sandra Stone, for example. As an executive assistant, she worked 12-hour days, skipped lunches, and built her future around Enron’s success. At one point, her ESOP holdings were worth $150,000. But as Enron’s stock tanked, so did her savings. She recalls being urged not to sell, with executives reassuring employees that they’d be “laughing at this” in a couple of years. Instead, she lost everything.

Mark Lindquist’s story is just as heart-wrenching. A web designer making $56,000 a year, Mark was let go via voicemail. Mark was the sole earning member of his family as his wife had to be at home with his autistic son. With no job and no savings, he had to face the impossible task of paying for therapy for his autistic son. His financial stability, like that of many other employees, was shattered by Enron’s sudden downfall.

The Enron scandal serves as a stark reminder of the dangers of over-investing in a single company and the importance of diversification in retirement portfolios. That’s the reason we suggest ESOP/RSU diversification. After diversifying your ESOPs and RSUs you can decrease the concentration risk in your portfolio.

Even Company’s top executives have a plan for RSUs, Why Don’t You?

When Restricted Stock Units (RSUs) vest, many employees either hold on, hoping the stock price rises, or sell quickly out of fear it may fall. Company executives, however, take a more structured approach through what’s known as a 10B5-1 plan.

Under this plan, executives set trading rules in advance, for example, “Sell 25% of my vested shares every quarter at market price.” Once established, the trades execute automatically, regardless of news, market conditions, or insider knowledge.

This strategy removes the stress of market timing, provides legal protection against insider trading concerns, and ensures steady diversification as RSUs gradually convert into cash.

Suppose even the company’s top leaders, those most familiar with its future, rely on 10B5-1 plans to diversify systematically. In that case, it raises an important question: Shouldn’t employees consider a disciplined approach as well?

Take the example of Ontrak Inc., its former CEO Terren Peizer sold over $20 million worth of company stock between May and August 2021 while privately knowing that Ontrak’s largest customer responsible for more than half of its revenue, was about to end its contract.

He set up two Rule 10B5-1 trading plans to sell nearly 600,000 shares for about $19.2 million and another 45,000 shares for $1.9 million, just before the news became public. After the termination was announced, Ontrak’s stock dropped more than 44%, allowing Peizer to avoid losses of over $12.7 million.

Let’s take a recent example from India. In March–April 2025, IndusInd Bank’s shares fell by nearly 35% following discrepancies related to accounting for derivatives losses. However, between March 2023 and December 2024, former MD & CEO Sumant Kathpalia, former Deputy CEO Arun Khurana, along with three other officials, had collectively sold shares worth around ₹157 crore.

During this period, Mr. Kathpalia sold 1.25 lakh shares, thereby avoiding a potential loss of about ₹5.2 crore, while Mr. Khurana offloaded over 3.4 lakh shares, averting a notional loss of around ₹14.3 crore.

Both executives were beneficiaries of the bank’s Employee Stock Option Scheme (ESOPs), under which they transacted by selling and subsequently buying back shares of the bank.

Now think, What’s your RSU plan?

These stories highlight a brutal truth: concentrating your wealth in a single company, even in your own employer is a risky game. ESOPs can be rewarding, but when things go wrong, like they did with Enron, it’s your entire financial future on the line. Diversifying your investments is the only real defense against these kind of catastrophes.

Diversification is a fundamental principle of investing. By spreading investments across a range of asset classes, investors can reduce the risk associated with any single holding. This strategy is often summarized by the adage, “Don’t put all your eggs in one basket.” The importance of diversification lies in its ability to mitigate losses from individual investments, thereby safeguarding your overall portfolio.

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Disclaimer:

The information provided in this blog is for informational purposes only and should not be considered financial advice. Please consult with a financial advisor before making any investment decisions.