August 26, 2014
Most Expensive Mistakes with ESPPs
Our popular “Meet the Speaker” series, featuring interviews with speakers at the 22nd Annual NASPP Conference, is a great way to get to know our many distinguished speakers and find out a little more about their sessions in advance of the Conference.
For today’s “Meet the Speaker” interview, we feature an interview with June Anne Burke of Baker & McKenzie, who will lead the session “Top 10 Most Expensive Mistakes with ESPPs.” Here is what June Anne had to say:
NASPP: Why are ESPPs a particularly timely topic right now?
June Anne: After a decline in popularity of ESPPs following the change in accounting treatment under US GAAP circa 2004, ESPPs are making a comeback. Many companies that have reduced the size of the population eligible for equity incentive awards (such as stock options and restricted stock units) over the last several years sense that something is missing: namely, the opportunity to purchase company stock at a discount, employee focus on company financial success and/or identification with the parent company. Further, with companies continuing to expand internationally, we are increasingly seeing companies implementing ESPPs on a global basis. We now have had several years since the regulations under IRC Section 423 were amended, including changes that help facilitate a global ESPP offering, so it’s a good opportunity to take stock of the issues companies face when designing and implementing their ESPPs—and, of course, ways to avoid them.
NASPP: What common mistake do companies make with global ESPPs and how can they avoid it?
June Anne: Many companies fail to review their corporate tax structure when deciding which entities to include in the ESPP, particularly when an ESPP is offered globally and certain countries are excluded. In addition, when adopting country-specific terms or rules to comply with non-U.S. laws (e.g., inclusion of part-timers to comply with a European Union directive), it is essential to understand the ownership structure and tax status of each employer company so as to avoid running afoul of Section 423’s employee coverage or equal rights and privileges requirements. If these key requirements of Section 423 are not met, the tax-qualified status of options granted under the plan could be in jeopardy. As companies tend to change their corporate structure all the time, companies need to review their corporate tax structure in advance of every offering period, when designating the subsidiaries eligible to participate in the ESPP. There are other strategies to minimize risk in this area, but you’ll have to come to our session to find out what they are!
NASPP: What is the silver lining to your topic?
June Anne: The silver lining is that it is possible to implement an ESPP globally without running afoul of Section 423 and the varying legal requirements around the globe. We’ll definitely be diving into a few ESPP horror stories in our session, so perhaps the biggest silver lining is the sense of relief our audience will feel at (hopefully) not having had to face such scenarios in their own work lives! And for those that have lived through ESPP mistakes, the silver lining is the lesson learned and the errors they won’t repeat.
NASPP: What is something you learned from the NASPP?
June Anne: I have learned a number of things from attending NASPP conferences and webcasts over the last several years, and by logging onto the NASPP website. Relevant to our session, I attended the “IRS and Treasury Speak” session on the proposed Section 423 regulations and the session on the final regulations the following year, and found these sessions to be very informative.
Don’t miss June Anne’s session “Top 10 Most Expensive Mistakes with ESPPs” at the NASPP Conference!
About the NASPP Conference
The 22nd Annual NASPP Conference will be held from September 29-October 2 in Las Vegas. This year’s program features 60+ sessions on today’s most timely topics in stock compensation; check out the full agenda and register today!