A long-time staple of the NASPP’s Global Stock Plans portal has been Baker & McKenzie’s Matrix of International Considerations in 50 Countries. This year’s edition of the matrix, released in April 2016, now includes considerations for cash awards (phantom shares, net settled RSUs and other cash-settled equity awards). The considerations for cash settled awards vary by country, similar to other award types. In today’s blog, using the Martix as our guide, we’ll test your know-how related to treatment of cash awards.
Trivia Time!
The world is a big place, and with cash-settled awards gaining popularity in non-US jurisdictions, it’s time to deepen our expertise in this area. Take the trivia quizzes below to learn more about whether cash is king, or alternatively a can of worms. You can see the results from your peers in each poll, and the correct answers are listed at the bottom of this blog. Good luck!
#1 – Tax Basis
bike tracks
#2 – Timing of Taxation
find bike trails
#3 – SAFE Registration in China
feedback surveys
For more more country specific considerations in handling cash awards, view the entire Baker & McKenzie Matrix.
-Jenn
ANSWERS:
Belgium 2. Both France and Malaysia 3. Payment of cash settled awards from the local payroll
Here’s what’s happening at your local chapter this week:
Seattle: Ken Stoler and Matthew McKittrick of PwC present “ASU 2016-09: Improvements to Employee Share-Based Payment Accounting & Early Adoption Considerations.” (Wednesday, May 11, 11:30 AM)
Connecticut: The chapter hosts its third brewery tour and beer tasting! The meeting will start with appetizers and a presentation by Cynthia Nisley of Georgeson Securities on “Unclaimed Property: How It’s Affecting You & Your Shareholders.” The presentation will be followed by a tour of Two Roads Brewing Company and a beer tasting.
Twin Cities: The chapter hosts another networking event. This is a unique opportunity to meet and network with your peers from different companies and learn more about other professionals in the stock compensation industry.
Many companies are very excited about the expanded exception to liability treatment that is available under ASU 2019-06 (see my blog entry, “Update to ASC 718: The FASB’s Decisions,” December 1). In the NASPP’s quick survey on the ASU, about 30% of respondents so far have said that this is the amendment they are most excited about (to the extent that anyone can be excited about accounting).
Many plans (possibly even most plans, by a wide margin), include language prohibiting employees from tendering award shares to cover tax payments in excess of the minimum statutory required withholding. This language is included in the plan to make it abundantly clear that the company doesn’t allow share withholding in excess of the minimum required tax payment; liability treatment could be required if it appears that the company would allow this, even if it isn’t ever actually done. I’m sure the language is also included to protect companies from themselves—if anyone had ever gotten the bright idea to allow share withholding for a tax payment in excess of the minimum required, hopefully someone would have realized the plan prohibited this.
If this language exists in your plan, the plan has to be amended to change the limitation from the minimum required payment to the maximum payment before you can change your share withholding procedures.
Shareholder Approval May Be Required
At a minimum, the Board of Directors would need to approve the amendment to the plan. But for some companies, shareholder approval may be required as well. The NYSE and NASDAQ require shareholder approval of any material amendments to stock plans. As Mike notes:
From the perspective of the NYSE and NASDAQ, if the Stock Plan allows the recycling of shares surrendered or withheld to pay tax withholding (that is, puts those shares back in the authorized share pool and allows those shares to be re-used for future awards), then an amendment of that Plan that allows for tax withholding at the maximum rate, instead of the minimum rate, would be material because it will increase the number of shares available for issuance under the Plan!
According to the NASPP’s 2013 Domestic Stock Plan Design Survey (co-sponsored by Deloitte Consulting), close to 60% of respondents allow shares withheld for taxes to be recycled. These companies would need to obtain shareholder approval of this amendment.
Companies May Need to Wait Until After Adopting the ASU
Once you amend your plan, your auditors make take this as an indication that you plan to allow share withholding in excess of the minimum required tax payment. If so, and the amendment is approved before you adopt ASU 2016-09, that’s going to trigger liability treatment for all of the awards under the plan. This liability treatment will go away once you adopt the ASU, but until then, it could be a problem.
It might be possible to structure the amendment so that it is effective only after your company adopts ASU 2016-09, but it’s a good idea to consult with your legal and accounting advisors before rushing headlong into amending your plan.
Just Over Two Weeks Left! The early-bird rate for the 24th Annual NASPP Conference expires in just two and a half weeks, on May 20! Don’t miss your chance to save—register today!
Quick Survey on ASC 718
Take the NASPP’s quick survey on the FASB’s update to ASC 718 to find out how companies are responding to this exciting development. And when I say quick; I mean quick! The survey has only seven questions; you can complete it in less than five minutes. Do it today; before you forget!
NASPP To Do List
Here’s your NASPP To Do List for the week:
Last week it was widely reported that the founder of Chobani (yes, the yogurt company) became the latest to join a recent trend of CEOs who are sharing their wealth with employees in the form of stock.
Chobani Founder and CEO, Hamidi Ulukaya, committed to give shares to his 2,000 employees equal to an estimated 10% of the company. Chobani is still a privately held company, so its exact present value is not known. But recent estimates put the company’s value between $3 billion to $5 billion.
While such a practice may be more prevalent in tech startup companies, Chobani is in an entirely different industry – the food industry. That’s part of what makes this move by Chobani’s CEO so unique. Sharing equity (especially pre-IPO) in a food company is not the norm, or even common. It’s a rare occurrence. Additionally, Chobani is giving shares to employees after a decade of being in business and after a value has been established, which makes this even more interesting.
In a New York Times article “At Chobani, Now It’s Not Just the Yogurt That’s Rich,” CEO Ulukaya was quoted as saying “I’ve built something I never thought would be such a success, but I cannot think of Chobani being built without all these people. Now they’ll be working to build the company even more and building their future at the same time.”
One Chobani employee’s reaction was also reported in the NY Times article, and it seemed like the perceived value component that every company strives for when issuing equity to employees. When one of the original employees, Rich Lake, was asked about his new shares, he said “It’s better than a bonus or a raise. It’s the best thing because you’re getting a piece of this thing you helped build.” I know HR consultants and stock plan people everywhere are cheering because isn’t that exactly what you want to hear an employee say about their stock awards?
We’ve seen other CEOs handing over portions of their shares to employees in recent months. Hopefully this trend will continue, as more executives see the value of sharing in the equity pie as a team. After all, to sum it up with a sports phrase – there is no “I” in team. And I’m guessing Chobani’s CEO would agree that given the huge success of the company in a decade, the team is well deserving of their stake in the company.
Here’s what’s happening at your local NASPP chapter:
Austin: Amit Tekwani and David Outlaw of Equity Methods present “2016 State of the Union in Equity Compensation.” (Wednesday, May 4, 11:30 AM)
Orange County: Lunch, learn and network! The chapter hosts a presentation on “Preparing for Dodd-Frank Disclosure Compliance.” (Thursday, May 5, 11:30 AM)
Dallas: The chapters hosts its 4th Annual Southwest Roundup. Highlights include 5 credit hours of CEP, CPE and SHRM; 4 credit hours of CLE; and presentations on employee communication, global and domestic updates in tax and financial accounting, and industry trends and best practices. (Friday, May 6, 8:45 AM)