There aren’t any surprises, at least when it comes to executive and stock compensation. ISS didn’t make any changes specific to stock compensation and the only change that relates to executive compensation is that they’ve changed the Relative Degree of Alignment measure to be a three-year calculation only, rather than a weighted average of the one and three-year calculations.
Six Degrees of Kevin Bacon
The Relative Degree of Alignment measure doesn’t have anything to do with Kevin Bacon (although it might be argued that it would be a lot more interesting if it did). Instead, as I noted in my blog on ISS’s proposed changes (“ISS Policy Changes for 2014,” October 29, 2013), it simply compares the company’s TSR ranking among its peers to its CEO pay ranking. Ideally (from ISS’s perspective, that is–your CEO might feel differently), your company will have a high TSR ranking and a CEO pay ranking that is equal to or lower than its TSR ranking. A low TSR ranking and a high CEO pay ranking will result a negative RDA and probably a lot more attention from ISS than you’d like.
What’s Changed
The old calculation averaged the one-year RDA and the three-year RDA with a respective weighting of 40/60. The new calculation is just the three-year RDA.
Why Change?
Because the most recent year was included in both the one-year and three-year calculations, the prior RDA measure placed significant emphasis on this year. By eliminating the one-year RDA measure, the most recent year will be deemphasized in favor of the longer three-year period. As a result, short-term changes in TSR and CEO pay rankings will have a smaller impact on this aspect of ISS’s analysis. ISS also notes that the longer term calculation will help alleviate timing mismatches in pay for performance that result from equity awards being issued early in the fiscal year, before the corresponding performance year.
No Burn Rates Yet
The burn rate tables aren’t available yet. I expect them some time in mid to late December. Hmmm, maybe I’ll be able to get three blog entries out of this whole policy update.
Don’t Miss Your Chance to Update Your Peer Group with ISS
The companies that ISS considers to be your peers are critical for the RDA measure as well as numerous other analyses that ISS performs. ISS will consider your self-selected peers when constructing your peer group. You have until December 9 to let ISS know which companies are in your self-selected peer group. For more information see, ISS’s Peer Group Methodology FAQ. You can submit your peers and any other feedback you have for ISS on your peer group at http://www.issgovernance.com/PeerFeedbackUS.
Here’s what’s happening at your local NASPP chapter this week:
Kansas/Missouri: The chapter is hosting its annual holiday luncheon at Hereford House Restaurant. Attendees share highlights from National Conferences, plan meetings for 2014, and have a roundtable discussion on topics of interest. (Wednesday, December 4, 11:30 AM)
San Diego: The chapter is hosting it’s annual holiday social and networking lunch at Cozymel’s Mexican Grill. (Wednesday, December 4, 11:30 AM)
Michigan: Gary Hamilton of My Equity Comp presents “6039 Compliance, Tips and Tricks: Filing your 3921 and 3922 Forms the Right Way.” (Thursday, December 5, 2:00 PM, webinar only)
New York/New Jersey: Amy Reina and Sally Pritchard of Deloitte Tax present “So, What Is Everyone Else Doing? Stay Ahead of the Curve in Planning for 2014.” (Thursday, December 5, 8:30 AM).
It’s a holiday week so I thought I’d do something a little lighter for today’s blog entry. Over the nearly 20 years that I’ve worked in this industry, I have asked a lot of questions about stock compensation. I’ve also found the answers to a lot of them, but there are still a few questions that remain a mystery to me. For today’s entry, I present some of my unanswered questions.
IFRS 2?
The international financial reporting standard for stock compensation is IFRS 2. Two? Is this really the second standard that the IASB drafted? Seriously? Of all the possible areas of discrepancy in worldwide accounting, stock-based compensation was the second most important area they could think of? And, if so, what the heck was so important that it beat us out for the number 1 spot?
Why Two and a Half Months?
What is magical about two and a half months after the end of the calendar year for the IRS? Would anyone care if the deadline were just two months (i.e., the end of the second month)? Because in terms of explaining both the provisions of 409A and the FICA short-term deferral rule, this would be a heck of a lot easier to say.
Forms 1 & 2?
Whatever happened to Forms 1 and 2? I must remember to ask Alan Dye about this. Wouldn’t it have made more sense to call Forms 3, 4, and 5 something like “Forms 16A, 16B, and 16C”? Or maybe 16H (“H” for holdings), 16NE (“NE” for non-exempt transactions), and 16E (“E” for exempt transactions)? The form for Rule 144 is called “Form 144,” why not use the same naming system for Section 16 forms?
When Is 30 Days After June 30?
Why does Form G-4 (filed by companies that have issued loans for the purchase of their own stock in excess of the Federal Reserve Board thresholds) have to be filed within 30 days following June 30? Wouldn’t that always be by July 30? Why couldn’t the Federal Reserve Board just say, “file this form by July 30”? Does the Federal Reserve Board have a different calendar than I do?
How Does the IRS Determine What Constitutes “News”?
Why does the IRS send out an email announcing inflation adjustments for the carbon dioxide (CO2) sequestration credit under §45Q but doesn’t send an email announcing proposed rule changes under Section 83?
How Many EDGAR Passwords Does It Take to Change a Lightbulb?
Why the heck does it take four–count ’em, that’s 4–codes to change my EDGAR password? That’s two more codes than I have to enter to change the password on any of my financial accounts. And it’s useless as a form of security because I can’t remember any of them, so I have them all written down in the same document–if someone manages to get one of them, he/she probably has them all. Heck, I bet most companies have a single document where they store all of these codes for all of their insiders–all in one handy place for anyone who wants to sabotage their insiders’ Section 16 filings. This is a perfect example of why lawyers shouldn’t be allowed to develop computer systems.
What Is a Borker, Anyway?
Does anyone else consistently mistype the word “broker” as “borker”? It seems so inappropriate but also kind of appropriate at the same time. “Consluting” for “consulting” is another typo I make with some regularity. Thankfully, both errors are caught easily with spellcheck.
Just a few thoughts to ponder and perhaps discuss with your family as you enjoy Thanksgiving dinner. Enjoy your holiday!
This week I admit to having holiday brain already. Somehow it’s just hard to think about serious topics when my mind is wandering to the mechanics and food of Thanksgiving Day. So keeping with the lighter side, I’m going to brainstorm a list of things you can do when your own mind goes into distraction mode.
1. Read the highlights of the 2013 Stock Plan Design Survey (co-sponsored by Deloitte Consulting LLP) – hot off the press. Who doesn’t love good survey data to back up practices or shed light on new trends? Take a few minutes to learn about what’s hot and what’s not.
3. Be social. We can’t all park ourselves around the same physical water cooler, but we can meet virtually, via social media. The NASPP continues to evolve socially – with very active LinkedIn, Twitter and Facebook pages. We’ve got lots of content out there, but we also capture the “fun” of being in this industry – our latest posts feature great photos from some recent chapter events. If you find yourself daydreaming, take a minute to follow us or Like us online. This will ensure you don’t miss any hot off the press updates, either.
4. Take some “me” time. Has it been a while since you took stock of yourself, or invested time in building your brand and furthering your career? I recently came across a quote by Warren Buffet that says “Generally speaking, investing in yourself is the best thing you can do. Anything that improves your own talents; nobody can tax it or take it away from you. They can run up huge deficits and the dollar can become worth far less. You can have all kinds of things happen. But if you’ve got talent yourself, and you’ve maximized your talent, you’ve got a tremendous asset that can return ten-fold.” If it’s been a short or long while since you’ve put some of your time into your own growth and development, it’s time to put “you” back on the list. Give yourself the gift of personal growth this holiday season. A great start would be to explore our NASPP Career Center. It has its own blog, Career Corner, guest authored by Andrea Best of Stock & Option Solutions. It’s a great way to spend some quality down time minutes.
5. Keeping with the theme of #4 above (“me” time), consider updating your LinkedIn profile. Even if you aren’t looking for a job, it’s becoming “standard” practice to put lots of detail in your profile and post regular updates.
Hopefully you’ve gained a couple of ideas on how to spend your holiday distraction time. I wish everyone a very happy Thanksgiving holiday.
Check out the full results of the NASPP’s 2013 Domestic Stock Plan Design Survey (co-sponsored by Deloitte Consulting LLP). (Only issuers that participated in the survey and service providers that were ineligible to participate can view the full results.)
Sign up for the NASPP’s acclaimed online Stock Plan Fundamentals course which will be offered next spring. This course is a great introduction to stock plan administration; register by February 14, 2014 for the early-bird rate.
Order the audio from the 21st Annual NASPP Conference. Just $65 per session for NASPP members–less per session if you purchase a multi-session package.
The San Francisco NASPP chapter kicked off the holiday season with a “double meeting” and a cocktail party. Here are a few pictures (click the thumbnails to see larger, more in-focus pictures):
The meeting was held at One Market restaurant in San Francisco. One Market is consistently rated one of the top 100 restaurants in the bay area by the SF Chronicle and has traditionally been the venue for the chapter’s holiday party, making it an event that members look forward to every year.
The meeting featured two presentations of about 45 minutes each–I loved the fast-paced format. In this picture, chapter board members mingle with meeting attendees during the break between presentations. Congrats to chapter president Mark Clem of Equity Methods and the rest of the chapter board for hosting a fantastic event.
Daryl Walke of Applied Materials with Jon Burg of Radford. Jon presented with Jeremy Erickson of Orrick on the pay ratio disclosure rules. I learned that statistical sampling is harder than it looks and involves math that I hope I never have to understand.
Cheryl Claeys of RealNetworks, Max Sternberg of Williams-Sonoma, and Vanessa Iriarte of Clorox chat before the presentations begin.
Attendees enjoy cocktails after the presentation. During the party, everyone had a sticker with a celebrity’s name on their back. Attendees had to try to guess their celebrities by asking questions of their fellow attendees. I was Bob Dylan.
Nandita Nandy of Radford, David Howell of Plante Moran, Sean Evans of Radford, and Valerie Diamond of Baker & McKenzie have figured out their celebrities and now discuss the finer points of statistical sampling.
At the end of the evening, all attendees that figured out their celebrities were entered in a raffle for a gift certificate to One Market. Karen Moses of Xoom won the raffle.
See more pictures of the meeting on the NASPP’s Facebook page.
Here’s what’s happening at your local NASPP chapter this week:
New York/New Jersey: UBS and Equity Methods sponsor the presentation “Performance Award Complexities: Tips on Managing Risks in Valuation, HR, and Financial Reporting.” (Wednesday, November 20, 8:30 AM)
Denver: The chapter hosts its 2013 winter member luncheon which will include planning for 2013 and nominations of officers. (Thursday, November 21, noon)
Austin: Jon Doyle of International Law Solutions will lead an interactive discussion on “How to Navigate Problem Countries – Legal and Administrative Nightmares Around the Globe.” (Friday, November 22, 11:30 AM)
Twitter’s highly anticipated IPO appeared to go off without a hitch last week. No IPO has had as much buzz since Facebook debuted on the NASDAQ 18 months ago. Although Twitter is getting most of the 2013 IPO glory, did you know that this has been the hottest year for IPOs since 2007?
According to Dealogic and the Wall Street Journal, “Twitter is also riding a wave of strong demand for IPOs. October was the busiest month for U.S.-listed IPOs since 2007, and 2013 is on track to be the best year in terms of the number of deals and dollars raised since 2007, according to Dealogic.
Six companies this year have more than doubled on their first day of trading, the highest amount since 2000. The average one-day pop for U.S. listed IPOs this year is 17%, the best performance since 2000.” Twitter certainly has the advantage of strong market conditions to support the IPO. As I write this, the trend seems to continue with yesterday’s IPO of Extended Stay hotels. They, too, performed well on their first day of trading.
Here are some fun/interesting Twitter IPO facts:
An estimated 1,600 Twitter employees became millionaires (at least on paper) based on the $40 stock price a day after the IPO (a flagship day for stock compensation, in my humble opinion).
For most employees, a 6 month lockup is in effect, meaning the majority of stock plan related shares will be tied up until May 2014.
A small percentage of shares will be permitted to be sold in February 2014 in order to raise taxes for the vesting of restricted stock.
On IPO day, Twitter’s Company Twitter page recorded just a one word telling tweet: #Ring!
Market research analyst PrivCo calculated potential IPO related tax windfalls of $479 million for California and $1.72 Billion for the IRS.
With 1,600 potential new millionaires joining the Silicon Valley ranks, it’s bound to be good for the local economy – anything from real estate to potential cash infused into other new start up companies.
Congratulations to Twitter for claiming the title of IPO darling for 2013.
Sign up for the NASPP’s acclaimed online Stock Plan Fundamentals course which will be offered next spring. This course is a great introduction to stock plan administration; register by February 14, 2014 for the early-bird rate.
Order the audio from the 21st Annual NASPP Conference. Just $65 per session for NASPP members–less per session if you purchase a multi-session package.
Good news for CA taxpayers involved in violations of Section 409A: the state has reduced its penalty tax for these violations from 20% to 5%.
CA’s penalty is in addition to the federal penalties of a 20% tax plus interest at 1% higher than the penalty rate. With the combined federal and CA state penalties, an individual that is subject to the maximum federal and CA state marginal income tax rates of 39.6% and 10.3% respectively, could have incurred a cumulative tax liability as a result of a 409A violation that was close to, or possibly even more than, 100% (don’t forget that FICA would also apply to the income). So now CA taxpayers that end up subject to the 409A penalties are only paying an additional combined federal and state penalty tax of 25% (on top of the standard tax rates that apply to the income) instead of a combined 40% penalty (of course, at the maximum individual tax rates, that’s still potential a tax liability of around 80%).
The new CA penalty tax is effective retroactively to Jan 1 of this year. Here are a couple of alerts on the change: Skadden, Pillsbury, Cooley.
Blog Survey: 409A Compliance Failures Thinking about how draconian the taxes could be for a 409A compliance failure got me wondering whether anyone (other than that poor guy in Sutardja v. United States, see “409A in the Courts“) is actually paying these penalties . So I put together a quick survey.