Many estimates point to figures around 65% of the US population being “visual” learners. Perhaps that’s what inspired the old adage “a picture is worth a thousand words.” Certainly when it comes to participant communications, that seems to ring true. In today’s blog I’ll explore how one of my favorite new tools, infographics, can creatively transform our word-heavy stock plans into a visual story. It may very well be that an infographic is also worth a thousand words.
What’s an Infographic?
If I lost you at the word “infographic,” fear not! A quick Google search turned up this definition: “a visual image such as a chart or diagram used to represent information or data.”
Essentially, the most important details are portrayed in a graphic full of pictures and minimal words. Here’s a simple ESPP infographic I found on Salesforce.com’s website:
Key details are prominently portrayed in a format that allows the reader to visually absorb the information. Another company, GuideSpark, also used infographics in a video to summarize their ESPP:
I’ve seen quite a few infographics depicting ESPP plan terms, but not so many focused on other award types. Think of the possibilities! Infographics can be a great tool to summarize processes, key plan terms, calculations, and more. A quick list of areas where I think they could be further utilized for stock plans:
Award vest/release process (tax elections, withholding, release of shares)
Stock option exercise
Tax withholding/reporting
Explaining performance conditions attached to awards
Explaining dividends/dividend equivalents
Insider trading guidelines
Blackout periods/trading windows
ESPP plan
Many more!
Do you have a stock plan infographic you’d be willing to share? I’d love to see what other creative stock plan infographics are out there. This can be a very engaging, effective (fun!) way to communicate information without overload.
Here’s what’s happening at your local NASPP chapter this week:
Los Angeles: Ken Stoler of PricewaterhouseCoopers LLP, presents “Advanced EPS for Stock Compensation.” (Wednesday, June 8, 11:30 AM)
San Diego: Nathan O’Connor of Equity Methods and David Reichel of QUALCOMM present “The Cutting Edge of Compensation Practices – What we Expect to See in 2017.” (Wednesday, June 8, 11:30 AM)
Atlanta: Scott Wallace of E*TRADE Financial and Kerri McKenna of PricewaterhouseCoopers discuss the recent changes to ASC 718 and how these changes will impact equity compensation. (Thursday, June 9, 11:30 AM)
Michigan: Art Meyers of Choate, Hall & Stewart presents “Protecting Your Company’s Stock Plans in Today’s Environment.” (Thursday, June 9, 11:30 AM)
NY/NJ: Daniel Moynihan and Sydney Hilzenrath of Korn Ferry Hay Group discuss the firm’s annual study of CEO compensation. (Friday, June 10, 8:30 AM)
A recent Baker & McKenzie blog (“What To Do When Your Board Goes Global,” available in the NASPP’s Global Stock Plans portal), focuses on an accelerating trend – that of company boards of directors becoming more and more globally diversified. “We are seeing an accelerating trend among U.S. companies to add non-U.S. residents to their Board of Directors. This makes sense: as more and more companies “go global” and expand in ever more countries, their Boards should reflect the global nature of the company.” While it may be a positive that companies are comprising their boards of more globally diverse members, there are things to know.
Areas of Key Consideration
Taxation can get complex. To ensure proper withholding occurs, companies need to verify the director’s tax status relative to the US. Are they a US citizen or permanent resident? Did they reside in the US for 183 or more days per year? These questions are essential in determining US tax withholding requirements. Additionally, companies will also need to assess and determine whether an exemption from US tax withholding exists based on a treaty with the director’s home country.
Even if there is no complex US withholding required beyond a flat rate of 30%, the director may be subject to withholding taxes in his/her home country. Canada is one such country where this is a distinct possibility.
Companies need to determine whether any income/tax reporting needs to occur at the US state level where the non-US director performed services.
Careful attention should be given to analyzing regulatory exemptions in the home country that may be available. While some exemptions may apply to employees, those same exemptions may or may not be available to non-employees, including non-employee directors. It’s important not to outright assume that if employees qualify for an exemption that non-US directors will qualify too.
The Baker & McKenzie blog suggests thoroughly vetting tax and regulatory requirements that apply to non-US directors in each jurisdiction, similar to the practices many companies undertake in vetting requirements that are applicable to employees. Additionally, such analysis should be ideally conducted on an annual basis to capture changes to tax and regulatory requirements, as well as board demographics.
Here’s what’s happening at your local NASPP chapter this week:
Orange County: The chapter is hosting a summer social to promote the NASPP and the Orange County Chapter. This is an open event where members and non-members can come out and network and learn more about the NASPP. There will be surprises and raffles prizes. I’ll be there and I hope to see you there. (Thursday, June 2, 6:00 PM)
Portland: Dan Walter of Performensation presents “Performance Awards for Private and Smaller Public Companies.” (Thursday, June 2, noon)
This week’s news that Phil Mickelson, a professional golfer, was caught up in an insider trading crackdown and had to disgorge nearly $1M in profits from stock sales (but was not prosecuted by the SEC) gave me pause. I wasn’t actually surprised by this seeming paradox – and maybe it’s because I’ve been sporadically blogging about insider trading for a while now. The question of how you can be obligated to return profits obtained from trading stock on inside information, without actually being prosecuted is a good one, and I’m guessing the muddled answer may elude some. An article in the New York Times this week summed up the matter of Mickelson’s insider trading quite handily: “How to Get Away with Insider Trading.” In today’s blog I’m not going to focus on how to get away with insider trading, but rather on how muddled the definition of insider trading has become in recent years.
The Short Story
You may have caught wind of this story already, so I’ll keep my summary of it short. The former chairman of Dean Foods admitted to passing on inside information to a well-known professional sports bettor in Las Vegas. According to the NY Times, “The sports bettor made an estimated $43 million over five years from this information, according to federal prosecutors. A second beneficiary of stock tips was the professional golfer Phil Mickelson, who had gambling debts of his own.” Mickelson received the tip to sell stock, sold stock and paid off his gambling debts. So why was Mickelson not charged if he did indeed trade on inside information? Well, he was not named a “defendant” in the civil lawsuit, but rather a “relief defendant.” What is a relief defendant? A Fortune article on the topic described the term as “someone who is not accused of wrongdoing but has received ill-gotten gains as a result of others’ illegal acts.” The key here is that Mickelson may not have been aware that the tip he got, though inside information, was obtained illegally. Mickelson did agree to disgorge $931,000 in profits from the sale and pay $105,000 in prejudgment interest.
Did you follow all that? I had to sort through it myself. So just how do we define what is considered legal or illegal when trading on non-public information? I’ve decided to create a short quiz to help sort through the matter.
Test Your Insider Trading Know-All
I’ve come up with a few questions to help test your know-how, and also sort through the answers. Fun and educational all in one.
True or False? Federal law defines “insider trading” as any trade that is made on the basis of material, non-public information.
True or False? One is not likely to be charged with insider trading if they trade on a stock tip but remained unaware of any benefit the provider of the tip obtained for that information (e.g. friend says “buy this stock” with no further details as to how they got the information.)
True or False? In order to be required to disgorge trading profits to the SEC, you must be found guilty of charges of civil or criminal wrongdoing related to insider trading.
The Answers
Okay, so the quiz doesn’t come with a prize. Otherwise I’d have to work harder to hide the answers a little farther away from the questions. But at least you can learn something from our Q&A game.
True or False? Federal law defines “insider trading” as any trade that is made on the basis of material, non-public information: False. There is no federal law that defines insider trading. This is particularly problematic in prosecuting insider trading cases. The New York Times reported that “First, neither Congress nor the S.E.C. has ever defined “insider trading” in a comprehensive way. So our laws are largely made by judges who, bound by precedent, rarely update law to fit new circumstances.” In a previous NASPP Blog titled “Insider Trading Isn’t Illegal?) (April 2, 2015), I explained that “…although the SEC has been successful in pursuing these cases, they have had to use loopholes to do so – relying on general antitrust laws and decades of case law (and, I’m not a lawyer, but I’m told that case law is subject to interpretation by individual judges, so the application of that could vary widely). The bottom line is there isn’t a statute that specifically addresses insider trading, which leads to potential ambiguity and inconsistencies in the courts.”
True or False? One is not likely to be charged with insider trading if they trade on a stock tip but remained unaware of any benefit the provider of the tip obtained for that information (e.g. friend says “buy this stock” with no further details as to how they got the information.):True (likely). The answer to question 3 is a bit muddled, but thanks to the appeals court case of United States v. Newman, which overturned the convictions of two hedge fund managers for insider trading because the government failed to prove they had known about any benefit provided to the sources of the information, it’s not likely the SEC will be bringing formal charges against those innocents embroiled in insider trading cases who lacked understanding of the benefit the tipper may have received for that information (which is seemingly how things played out in the Mickelson case.) The Supreme Court has agreed to hear the appeal of the securities fraud conviction in Salman v. United States. According to the New York Times, “The court will consider what evidence the government must introduce to prove a benefit passed between a source of confidential information and the recipient who trades on it, called the ‘tippee.'” That won’t happen until 2017. For more details, view the full New York Times article “The Rocky Road of Insider Trading Law.” (April 2016)
True or False? In order to be required to disgorge trading profits to the SEC, you must be found guilty of charges of civil or criminal wrongdoing related to insider trading: False. As we have seen with the Mickelson case, the SEC has means to prompt those involved in insider trading (even if they did not engage in wrongdoing themselves) to return the profits they obtained from the related trades. In the Mickelson case, naming him as a relief defendant in the civil case allowed the SEC to pursue disgorgement of the profits.
Clearly a lot still needs to be settled when it comes to clearly defining insider trading. What seems clear is that those involved in trading stock should do their absolute best to ensure the trade is not based on any material, non-public information. Even if prosecution isn’t imminent, profits would still likely need to be repaid in an SEC investigation that finds insider trading somewhere in the chain of events. As stock plan professionals we’re likely well aware of insider trading policies and practices designed to prevent trading on inside information. Education of our employees in this area should address the recent publicity around insider trading that has likely created more questions than provided answers. At minimum, employees should be taught to scrutinize information they receive about trading stocks, and be very careful about sharing their own company’s information with others. That’s pretty consistent age old advice that still applies in modern times, even with all the ambiguity around what really is truly illegal when it comes to trading on inside information.
Those of you who are regular blog readers likely know by now that one of my favorite topics in stock plans is that of participant communications. I enjoy the dynamics of communication, and exploring the many modes, practices and mediums available. One thing that has long been a consideration in any communications strategy is the art of understanding the audience, including generational differences, and crafting a message that will resonate – both in its delivery method and content.
Multiple resources widely report that the Millennial generation now is the largest living generation in the United States, outnumbering baby boomers. It’s then not hard to fathom the reality that, in many companies, the Millennial component of the workforce may be larger than any other group. In today’s blog, using a recent blog published by myStockOptions.com (“Millennials and Stock Compensation: How to Tailor Stock Plan Eduacation For the Instagram Generation“) as a reference, we’ll explore the communication needs of this large generation of Millennials relative to your stock plan.
Who Are Millennials?
I have to admit, sometimes it’s hard to keep track of all the generational nicknames out there. I actually had to do some Googling myself to sort through some of them. So who are Millennials? While dates of generations are not exact, most resources believe the Millennial (also known as Gen Y) population includes those born in the early 1980s until the late 1990s to 2000 time frame.
A Key Question
The myStockOptions.com blog reports that up to 50% of workforce employees may fall into the Millennial generation category. With such a sizeable population coming from a single generation, it warrants more understanding of the needs and nuances of these folks in the workplace, and of course, relevant to our industry, their stock plans. myStockOptions.com poses a key question:
“As we all know, stock plans work well to attract and retain talent only if participants understand their grants, making education and communications essential. Given the differences between the Millennial mindset and that of the Baby Boomers and Generation Xers who entered the workforce before them, how should stock plan education adjust to ensure that Millennials are getting its messages?”
We Have Answers
In their blog, myStockOptions.com explored tactics used by three companies as case study examples, with interesting findings: Akamai, AppDynamics, and Google. Not surprisingly, all three companies have workforces comprised of close to 50% Millennials (54% for Akamai and Google, 47% for AppDynamics). Here are some of the tips cited by one or more of the companies to implement when crafting communications for this generation:
Avoid information overload. Use timely, concise emails with information in the subject line that helps identify action required – such as “Action Required” or “Informational Purposes Only.”
Brevity wins engagement. Participants won’t be motivated by complexity.
Develop relevant content that engages your employees. For one of the companies, this means conducting equity surveys, creating newsletters, asking a question in each educational session or webcast, and even prize raffles.
One company cites great results in having “one-day, all-day educational sessions for employees a month after they start. These have been popular: the company says each live session has had ‘standing room only.'”
Additionally, myStockOptions.com editor-in-chief, Bruce Brumberg, shared some additional tips, including:
For a young employee population that is continually busy and multi-tasking, timing education to occur during “teachable moments.” These moments may include hire, tax season, the year-end period (especially if your company’s stock price has increased), vesting, and ESPP enrollment.
Interactive content is key, and it is important to have graphics, not just text.
Engaging content may include quizzes and videos—and, of course, everything needs to be accessible by mobile phones.
At the same time, it’s time to debunk the common assumption that Millennials are unwilling to read. As Bruce explained, “myStockOptions has found that when a topic really interests them, Millennials can be hungry for knowledge and in-depth information.” While messages for Millennials must be tailored to accommodate their busy, frequently online lives, these communications should not be so short that valuable details are lost.
Certainly there is much to consider in crafting communications to a multi-generational workforce. With many baby boomers still in the workforce, Gen X’ers sandwiched in the middle, and Millennials continuing to increase in workforce population demographics, this makes for a workplace filled with different needs, approaches, and strategies. It’s time to ensure your participant communications address the unique needs of all workforce generations.
Here’s what’s happening at your local NASPP chapter this week:
Florida: I am presenting on “Today’s Hottest Topics in Stock Compensation.” It’s going to hot! I hope to see you there. (Monday, May 16, 9:00 AM)
Phoenix: Boxian Kolb and Josh Schaeffer of Equity Methods present “What’s On Tap at the FASB and SEC in Equity Compensation.” (Wednesday, May 18, 11:30 AM)
San Fernando Valley: Alexa Kierzkowski of Frederic W. Cook & Co. presents “Trends in Executive Compensation.” (Wednesday, May 18, 11:30 AM)
Carolinas: Jim Jensen of Compensation Premier and Gregg Passin of Mercer present “Navigating from Emerging Growth Company to Emerged Growth Company – Premier’s Journey.” (Thursday, May 19, 11:30 AM)
Chicago: Donald Delves of Willis Towers Watson presents “Private Company Compensation.” (Thursday, May 19, 7:30 AM)
Denver: Cynthia Nisley of Georgeson Securities Corporation presents “Unclaimed Property: How It’s Affecting You and Your Shareholders”
San Francisco: Carine Schneider of Equity Solutions presents “Understanding the Psychological Principles of Decision Making and Motivation when Designing your Equity Plan” and Barbara Klementz of Baker & McKenzie presents “Key International Updates: The 411 on the Tax and Legal Changes You Need to Know Now for Global Equity Grants.” (Thursday, May 19, 11:30 AM)
NY/NJ: The chapter hosts a presentation on “Executive Reward Programs that Reinforce the Right Behaviors in a Sea of Competing Priorities.” (Friday, May 20, 8:30 AM)
In late March, ISS issued an updated Equity Compensation Plans FAQ. This development was largely eclipsed by the FASB’s issuance of ASU 2016-09, so I haven’t had a chance to get around to it until now. Here is a quick summary of the most significant updates:
Plan Amendments
FAQ 2 has been updated and a new FAQ 28 has been added to clarify that plan amendments may be evaluated under the Equity Plan Scorecard (EPSC), if the amendment could increase the potential cost of the plan. (By “cost,” ISS means dilution or shareholder value transfer; ISS is less concerned with the actual P&L expense.)
In other cases, i.e., amendments that don’t increase cost to shareholders, ISS evaluates the amendment based on whether it is favorable to shareholder interests, but without going through the whole EPSC.
Plans submitted for shareholder approval solely for Section 162(m) purposes fall into a separate category and ISS hasn’t changed or clarified anything with respect to these proposals.
Share Withholding
ISS suggests requesting new shares or extending the term of a plan as examples of the types of amendments that would trigger a new EPSC evaluation, but my guess is that this would also include amendments to allow share withholding for taxes up to the maximum tax rate when the shares withheld will be returned to the plan (my blog from last week explains why these amendments are necessary).
It’s possible that the timing of the release of these updated FAQs is not coincidental. It’s also possible I’m paranoid; hard to say. But then again, just because I’m paranoid, doesn’t mean ISS won’t apply the EPSC to your share withholding amendment. This issue is definitely a hot button for ISS. If your plan allows shares withheld for taxes to be returned to your plan, it’s a good idea to discuss this with whoever advises you on ISS concerns before you amend your plan.
Performance Awards
Previously, the FAQ provided that ISS would consider performance awards as being subject to accelerated vesting upon a CIC, unless the amount paid was tied to the performance achieved as of the CIC and was pro rated based on the amount of the performance period that was completed.
The new FAQ states that:
If a plan would permit accelerated vesting of performance awards upon a change in control (either automatically, at the board’s discretion, or only if they are not assumed), ISS will consider whether the amount of the performance award that would be payable/vested is (a) at target level, (b) above target level, (c) based on actual performance as of the CIC date and/or pro rated based on the time elapsed in the performance period as of the CIC date, or (d) based on board discretion.
I’m not sure this changes much, but it does seem to be a more nuanced position.
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
