Register for the 22nd Annual NASPP Conference. The Conference will be held from September 29-October 2, 2014 at the Mandalay Bay in Las Vegas.
It’s not too late to sign up for the NASPP’s acclaimed online Stock Plan Fundamentals course; all webcasts have been archived for you to listen to at your convenience.
The term “clawback” represents a concept that’s been around for a while and it’s fairly simple to grasp the basics. Essentially, a clawback is a policy that entitles a company to recoup all or a portion of stock option, bonuses and other incentives from top executives under certain conditions. The intent of these provisions is usually an attempt to influence the behavior of the executive – to encourage or deter them from certain actions. The Sarbanes-Oxley Act of 2002 and Dodd-Frank both contain provisions that cover clawbacks. Dodd- Frank mandated further expanded repayment provisions, and we are still waiting for the SEC to propose the rules and adopt them. Although final clawback rules are yet to be released, companies continue to evolve in their usage of these provisions. In April 2014, PwC released its Executive Compensation: Clawbacks – 2013 Proxy Disclosure Study, which analyzed clawback trends using proxy disclosures for Fortune 100 and other large companies from 2009 – 2012. I’ll recap some of the key highlights in today’s blog.
92% of companies have policies in place to recoup compensation if there’s a restatement of financial results. According to PwC, “of those 92%, 73% require evidence that that the employee caused or contributed to false or incorrect financial reporting”.
A restatement isn’t the only reason companies are recouping incentives – 84% of studied companies also cited misconduct, (including violation of a company’s code of conduct or ethics policies and criminal conviction) as a reason for triggering recoupment.
Newer forms of clawback policies are emerging – a common form including a trigger for excessive risk taking by executives. The existence of risk taking provisions varies greatly by industry. For example, in the banking industry, 70% of the studied companies have policies to recoup incentives based on excessive risk taking, while 0% of companies in the Pharma, Retail, Technology and Auto/Airlines industries had excessive risk triggers.
79% of companies reserved discretion to determine whether or not to enforce their clawback policies on a case-by-case basis.
In 86% of companies, both cash and stock are subject to recovery under clawback policies (the remaining 14% of companies are split down the middle – either they recover only cash (7%) or only stock (7%)).
90% of companies may recoup awards regardless of whether the awards have vested. 10% recoup only vested awards.
With the SEC yet to release their rule making in this area (though we expect some action in this area sometime in 2014), companies continue to evolve their policies on their own – often based on shareholder input or other drivers. We’re certainly likely to see some additional trends emerge once the final rules have been adopted.
It’s not too late to sign up for the NASPP’s acclaimed online Stock Plan Fundamentals course; all webcasts have been archived for you to listen to at your convenience.
I’m on the road: 13 days, 8 flights, 6 cities, 5 presentations, 219 slides, and 1 carry-on. So for today’s blog entry, I feature a few scenes from the Austin and Houston chapter meetings that I presented at.
June Anne Burke and Denise Glagau of Baker & McKenzie and Ken Lipscomb, the Austin Chapter president. June Anne and Denise co-presented with me on “The Hottest Topics in Stock Compensation Today” in Austin and then the three of us road-tripped to San Antonio to speak at the E*TRADE Directions conference. A big thank you to Ken for arranging the Austin chapter meeting to coincide with our travel schedule!
Gary Hamilton of My Equity Comp and Kimberly Steele of Apple. Gary is an officer of the Sacramento chapter and Kimberly is a board member of the Austin chapter and was previously president of the Phoenix chapter.
Gustavo Dalanhese of E*TRADE and a colleague. Gustavo is president of the NASPP’s new Salt Lake City chapter. The Austin meeting was a veritable who’s-who of NASPP chapter leadership!
Kevin Roberts of Morgan Stanley (and president of the Houston chapter), Erika Rivera of Morgan Stanley, and John Vander Voort of Morgan Stanley (and former president of the Houston chapter) pose with me for a picture. A big thank-you to Kevin for scheduling the meeting to accommodate my travel schedule and thanks to Erika for helping with the meeting setup. And thanks to John for the pre-meeting Starbucks!
Katrina Rene of Phillips 66, Dina Snow of Quanta Services, and Cheryl Bounds of Freeport-McMoRan Oil & Gas. If you haven’t noticed, there are a lot of oil and gas companies in Texas. After hopping around the state on a plane, I can also attest to the fact that Texas is a BIG state.
These lovely ladies told me they are the “Three D’s”: Doree Alacon-Sta Ana of CenterPoint Energy, Dinny Tan of INP, and Daphyne Clowers of CenterPoint Energy. Maybe they have a band on the side or maybe they just happened to sit at the same table and all have names that start with “D”? (I prefer the “band” theory.)
Just one NASPP chapter meeting this week: Emily Cervino of Fidelity and I will present “Living on Easy Street: Innovative Ideas to Make Your Life Easier” for the Phoenix chapter on Thursday, May 22. It’s going to be a lot of fun; I hope to see you there!
In last week’s blog, I covered some basic tips for keeping tabs on globally mobile employees. This is an area where companies are still struggling to figure out a streamlined method to track and appropriately tax their mobile populations. In working through last week’s post, I realized that I only had enough space to barely scratch the surface – there is simply a lot to talk about when it comes to mobility. I promised more this week, and in today’s blog I’ll venture into a couple of areas where companies may want to consider focusing attention or implementing procedures.
Audit the actions of local payrolls. The Stock Administration and Payroll departments are closely tied when it comes to withholding taxes and reporting to tax authorities about equity compensation transactions. When it comes to global populations, most companies have local payroll staff at the jurisdictional level. A typical process flow for a mobile employee’s equity award tax withholding may include a calculation of the tax due at the corporate (stock administration) level, and then supply of that information to the local payroll for withholding and remittance to the tax authorities. What happens after that handoff is where we want to focus. In an NASPP Quick Survey on Globally Mobile Employees (February 2013), 42.9% of respondents said that they do follow up with local Payroll to verify that the tax collected for mobile employees is actually deposited with the local tax authority. I’ll offer my kudos to those companies. However, the majority of companies still do not appear to follow up with the local Payroll in this regard. Oversight, particularly when it comes to tax and other compliance matters, is crucial. We can’t just assume just because a report was provided to local payroll personnel that everything happened perfectly from there. If you’re not following up after remitting data to Payroll (including global payrolls), it’s time to implement an audit that ensures proper withholding occurred, and was correctly remitted to the tax authorities.
Track Business Travelers. In the NASPP’s Globally Mobile Employees Quick Survey, only 14.4% of companies say they notify business travelers that the company may report and/or withhold in multiple jurisdictions. This number is reflective of feedback about business travelers across the survey board. As a category, they are the most unattended in terms of tax compliance, tax assistance, and tax equalization. One of the biggest challenges with business travelers is that it’s very hard to track their movements. They typically don’t change address and rely on a “home base” as their address of record. Often the only way to know someone has traveled is by their out of office notification or expense report. That may be one reason companies have limited their efforts with this population. However, as we know, complexity in monitoring a population is not a defense for non-compliance. I asked Marlene Zobayan of Rutlen Associates to chime in on whether or not companies should be putting more focus into tracking their business travelers. She had the following to say: “Each company should assess its exposure from non-compliance for business travelers. While states and countries are increasingly auditing payroll compliance for business travelers, some companies may have a low exposure while others have high risk. A Rutlen Associates survey conducted in September 2013 found that 78% of respondents were looking to increase conformity. As payroll compliance for business travelers becomes more common, tax authorities, even those in currently low enforcement locations, will likely expect a higher level of compliance from all companies.” This seems like an area where companies want to comply, but are struggling to figure out the mechanics. If you haven’t evaluated your business traveler population, I would recommend at least having the discussion around the size and risk factors related to this population with your mobility internal and external teams. I have a feeling we’ll be seeing more on this topic in the near future.
Mobility is certainly a large and complex set of topics within a topic. What’s important is that companies continue to evolve their practices to become more and more compliant with tax withholding and reporting across the board for these tricky populations.
New Episode in the NASPP’s Equity Expert Podcast Series
Check out the latest episode in the NASPP’s Equity Expert podcast series, “Interview Tips with Andrea Best.”
NASPP To Do List Here is your NASPP to do list for this week:
Register for the 22nd Annual NASPP Conference. The Conference will be held from September 29-October 2, 2014 at the Mandalay Bay in Las Vegas.
It’s not too late to sign up for the NASPP’s acclaimed online Stock Plan Fundamentals course; all webcasts have been archived for you to listen to at your convenience.
Last week, I summarized trends in retirement provisions for stock awards from the NASPP’s 2013 Domestic Stock Plan Design Survey (co-sponsored by Deloitte Consulting LLP). It turns out that the topic of retirement is one of endless blog fodder, so this week I look at more trends in this area. This week’s data is from the NASPP’s March 2014 Quick Survey on Retirement Provisions.
The Quick Survey Results
Retirement Eligibility: According to the NASPP’s Quick Survey, most companies (61% of respondents) have both a minimum age and a minimum service requirement that must be met to retire. Another 21% require a combination of age plus years of service (e.g., age, when added to years of service , must equal at least 65).
Minimum Age: Where companies have a minimum age requirement to retire, for 81% of respondents, that age is somewhere between 50 and 60 years. For the majority (58% of the total respondents), that age is between 50 and 55 years.
Minimum Service: The most common minimum service requirement is ten years (57% of respondents); second most common is five years (29% of respondents). These two categories account for 86% of the total respondents, so if your company’s requirement is different, you are definitely a bit of an oddball (and even more of an oddball if your age requirement is outside of 50-60 years).
Age + Service: It’s a little harder to define a trend for companies that require a combination of age plus years of service. There is close to a tie between 61-65 (34% of respondents) and 66-70 (28%). But 71-75 is not that far behind, at 19% of respondents, and 50-60 is not that far behind that, at 11% of respondents. 76-85 was last, but still in the running, at 9% of respondents. So, do whatever you want here.
Minimum Time From Grant to Retirement: At the majority (68%) of respondents, an eligible employee could be granted an award today, retire next month, and receive the payout provided to retirees under the terms of the award. Where awards do have to be granted a specified period of time before retirement for the retirement provisions to apply, for 47% of respondents, that time period was 1 year (for another 19%, it was six months).
Non-Competes: 41% of respondents say that retirees are not subject to a non-compete agreement. 30% say that only retirees above a specified rank (e.g., executives), are subject to a non-compete.
The Same Strokes for Different Folks: Most companies are egalitarian in the application of their retirement provisions. 90% or more say that the same provisions apply to execs vs. other management or the rank-and-file and US vs. non-US employees.
Collecting FICA: When employees become eligible to retire, 73% of respondents rely on the rule of administrative convenience to delay collecting FICA to a subsequent date in the same calendar year (either alone or in combination with the lag method). Practices are evenly split between share withholding and withholding the taxes from employees’ wages or other compensation (41% of respondents in both cases).
Well, that’s probably about it for retirement provisions (at least until we conduct another survey). Next week I promise to have something new to talk about.
Here’s what’s happening at your local NASPP chapter this week:
Austin: June Anne Burke and Denise Glagau of Baker & McKenzie and I are presenting on today’s hottest topics in stock compensation (Tuesday, May 12, 11:30 AM)
Chicago: Jack McArthur and Derrick Neuhauser of Aon Hewitt present “Equity Awards in M&A: OMG I need the 411!” and a bonus presentation on capped stock awards. (Thursday, May 15, 7:30 AM)
Houston: A double session! I present “Ways to Breathe New Life Into Your Stock Compensation Program” and Michael Mauro of EASi presents “Treatment of Equity Awards Upon Termination.” There will be prizes! (Thursday, May 15, 11:30 AM)
Michigan: Brian Wydajewski and Aimee Soodan of Baker & McKenzie present “Mission Impossible? Navigating Award Acceptance, Post-Grant Changes and Local Recharge Arrangements for International Equity Awards.” (Thursday, May 15, 1:00 PM)
Twin Cities: The chapter hosts “So, What Do You Do? – A Unique Opportunity to Meet other Stock Compensation Professionals.” This will be a great opportunity to meet your colleagues in the Twin Cities area! (Thursday, May 15, 7:30 AM)
NY/NJ: Kathy Biddle of EASi and Marsha Tepper of CompIntelligence present “Treatment of Equity Awards Upon Termination.” (Friday, May 16, 8:30 AM)
I begin my 2014 Grand Tour of the American Southwest this week (to be concluded next week) and I hope to see you at the Austin and Houston chapter meetings!
The term “mobility” has been part of our stock plan vocabulary for some time now. To me the concept of mobility is like taxes – a constant presence and there are always intricacies to handle or interpret. If I had to come up with a list of top 10 issues that our issuers face right now, mobility (and taxes) would be on it. It’s like a simmering pot – not quite boiling over, but it could at any minute if not monitored.
While the concept of tracking mobile employees has been around for a while now, I feel like there is still a mysterious aspect to handling this element of our employee population. The title of last month’s NASPP webcast summed it up perfectly: “Employee Mobility: We’ve Heard All the Rules, But What Are People Actually Doing?” I gathered quite a few tips from that webcast for keeping track of your mobile population; in today’s blog I’ll share a few of them.
What Are People Doing?
Manual is still “in.” When I say that manual tracking is still in, I don’t necessarily mean it should stay that way. But for now that seems to be a norm in keeping tabs on cross border and state changes. If tracking mobile employees involves manual effort (even a significant amount of it), you are probably on par with many of your peers at other companies. They key is to work effectively within the manual framework. For example, rather than audit address changes one by one to identify transfers, perhaps you can work with your IT group to develop a report that detects changes in address (and other applicable) fields within your HRIS system and deliver those changes to you daily. Now that you have a report, your manual focus can turn to conducting a periodic audit of that data, rather than undergo the cumbersome effort to do frequent manual address audits.
Leverage Your Platform’s User Defined Fields. While manual effort may still represent a part of the process, you do want to find ways to automate as much as you can. One area where you may be able to make some headway is storing information about the employee and their grants/awards in the system that maintains the records of your grants. Many of the systems that track equity awards have some variation of what we call a “user defined or designated” field (“UDF”) – which essentially is a blank field where you can store custom information. Not all systems are structured the same, but there are two places you can start with your inquiries: 1) create a UDF at the “person” level so that you can label a person who has “transferred” jurisdictions; 2) create a UDF at the grant level to keep track of the country of residence when the grant was made. Some systems may already have mobility specific fields that you can use, allowing you to save your UDFs for other purposes. These are just suggestions – all systems are not the same and you’d need to explore the tracking options with your service provider. The bottom line: use whatever the system can offer you to track your cross border activity.
Implement Safety Nets Where You Can. Because of the complexity involved in keeping track of people who are moving around, you want to consider having multiple means to monitor this activity. Don’t just rely on a single report feed. Don’t just rely on a process in which HR manually informs you of the changes. None of these are “wrong,” but there can be gaps. For example, if HR needs to fill out a form each time someone transfers and they forget to pass it on, you can still catch the action if you have a daily “feed” of HRIS address changes. But if you rely on the form alone, you may find that things get missed. No approach is fool proof or perfect, especially when things go global or involve multiple locations. Audits are great ways to identify missing data, but you don’t want to be doing an audit every day or every week. Also, the more time that passes, the harder it is to “unwind” activity or make corrections. So think about how you are tracking your mobile employees and try to come up with at least one safety net to catch the activity in case the first method fails. Reserve the audits to be done on a periodic basis.
Form a Mobility Department. Mobility affects more than just the stock administration department. There are other departments that are equally vested in understanding who is moving where – like Payroll and Human Resources (among others). If you have a significant mobile population, or the number of transfers is frequent, you may want to consider forming some type of mobility task force or department to serve as command for monitoring cross border activity. That sounds fabulous if resources are available for that scenario. In fact, it seems several companies are already on that path: in the NASPP/Deloitte 2012 Global Equity Incentive Survey, 34% of respondents said they had a mobile department to track the movements of expats and cross border employees. If your mobile population is on the smaller side, it may not make sense to have an entire department dedicated to this purpose. In that case a task force comprised of key inter-departmental players and external advisers may suffice in helping to streamline the process.
Many of the tips or inspiration for tips in today’s blog came from the fabulous panelists who shared them on last month’s mobility themed webcast. If you missed it, it’s definitely worth listening to the replay.
As I wrote this blog, I realized that there are so many areas of mobility to cover. In next week’s blog I will do a “Part II”, so stay tuned for more on this topic.
