The NASPP Blog

I liked last week’s blog title so much, I’m using it again this week. It’s not often that I can work a Beatle’s lyric into a discussion of stock compensation. John Hammond of Computershare was the only person to get ten points for knowing the relevance of the reference (or the only one to read the blog the whole way through to know that it was worth ten points).

More on the UK Tax Changes
Last week I discussed impending tax increases in the UK and the need to take action quickly. This week I focus again on tax increases in the UK, but for the 2011-2012 tax year, which begins on April 6, 2011 (another ten points to anyone who can explain why the tax year starts on April 6 in the UK). At that time, National Insurance Contributions (NICs) are scheduled to increase to 13.8% (up from 12.8%) for employers and to 12% (up from 11%) for employees. Unlike Social Security in the United States, the employer’s portion of NICs is uncapped. Most of the employee’s portion is capped, although there is a lower rate that continues to apply after the cap has been reached–this rate is increasing to 2% (up from 1%).

The Problem with NICs 

The employer paid portion of NICs is particularly problematic because it is uncapped. Under US GAAP, this makes for an unpredictable and uncontrollable charge against earnings, not to mention cash outflow. This is also true under IFRS, with the added drawback that payroll taxes have to be accounted for as a liability, the amount of which is adjusted each period (with a corresponding adjustment to expense) until the liability is paid.

Because of this, some companies require employees in the UK to also pay the company’s portion of NICs for their stock compensation. According to the 2008 NASPP International Stock Plan Design and Administration Survey (co-sponsored by Deloitte), 26% of companies transfer the company’s portion of NICs to employees for stock options and RSUs.

It’s Not too Early to Start Planning for the 2011-2012 Tax Year

With the NIC rates increasing, companies may want to take another look at their stock plans for UK employees.

Combined with the income tax rates that are going into effect for the 2010-2011 tax year, this means that by 2011, employees in the UK are going to be paying a lot higher taxes, even more so where employers pass their portion of NICs on to employees. It may be time to reconsider requiring employees to pay the company portion. If the company were to start picking up the tab on its portion of NICs, that would help offset the increase in the taxes paid by employees.

I wonder if it might be possible to split the difference. For example, maybe the company pays half and passes the other half on to employees. Or the company continues to require employees to pay up to 12.8% but the company picks up the 1% increase.

Another possibility is to offer a qualified plan in the UK, which generally would not be subject to NICs. Only 13% of respondents to NASPP survey offer a CSOP–the type of qualified plan that most closely resembles ISOs in the United States. While the number of shares that can be granted under a CSOP is relatively small, granting a portion of employees’ options in a CSOP might help offset the tax increases.

Thanks to Valerie Diamond of Baker & McKenzie for explaining NICs to me.

A Solution for Section 6039 Returns
Stock & Option Solutions is currently performing market research to determine if there is substantial market demand for a product to assist with e-filing the Section 6039 returns (Form 3921 for ISOs and 3922 for ESPPs) with the IRS. If you are interested in such a solution, be sure to complete their survey.

Domestic Stock Plan Design Survey Coming Soon
We are lauching the next edition of our Domestic Stock Plan Design Survey (co-sponsored by Deloitte, with survey systems support provided by the CEPI) in early March. We are implementing a new policy with this edition of the survey:  the results will be released only to those companies that participate in it.  Service providers that are ineligible to participate in the survey can qualify to receive the survey results by promoting the survey to their clients–contact Danyle Anderson, the NASPP’s Programs Director, if you are interested in participating.

Last Chance to Submit a Proposal for the NASPP Annual Conference
This is your last chance to submit a speaking proposal for the 2010 NASPP Annual Conference; all proposals must be completed by this Friday, February 26.  We begin reviewing proposals as soon as the submission period closes so we cannot make any exceptions to this deadline–no matter how dire the circumstances. If you feel a cold coming on now; plan accordingly!

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 

• Complete the Compliance-O-Meter quiz on Transaction Reconciliation.
• Submit your speaking proposal for the 2010 NASPP Annual Conference.
• Purchase the 2009 NASPP Conference Audio. 
• Renew your NASPP membership for 2010 (if you aren’t an NASPP member, join today). 
• Attend your local NASPP chapter meetings in Austin, New York/New Jersey, Silicon Valley, and Wisconsin.  I’ll be at the Silicon Valley chapter meeting; I hope to see you there.  

-Barbara