Our popular “Meet the Speaker” series, featuring interviews with speakers at the 25th 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 Rob Miceli of Merrill Lynch, who will lead the session “Further on up the Road: ASC 718 Compliance in 2017.” Here is what Rob had to say:
NASPP: Why do NASPP Conference attendees need to know about the current landscape for ASC 718 reporting?
Rob: An optimized equity plan administration solution in 2017 has to include comprehensive reporting in support of the share-based compensation accounting requirements associated with the awards that are issued.
In driving toward a solution that meets any particular issuer’s specific financial reporting requirements, it is helpful to be mindful of both the broad and nuanced issues relating to award characteristics themselves, data organization or storage issues, transactional occurrences, or other unique reporting requirements that can create complexity in the financial reporting area.
Whether in the context of examining current processes in an effort to optimize the status quo, or in terms of evaluating the marketplace for tools to assist with financial reporting, this Power Session will provide attendees with a practical framework for thinking about what characterizes an optimal ASC 718 compliance process—both in general and in the context of specific issues that may be relevant to their particular organization.
NASPP: How can companies improve their ASC 718 reporting processes?
Rob: As with many areas within the equity plan administration landscape, with respect to successfully supporting the financial reporting requirements of equity plans, the devil is often in the details.
When considering the reporting solutions available for ASC 718 compliance, an extremely helpful exercise can be to slow the process down and, as early in the process as possible, ensure the demonstrations and discussions that are occurring are grounded in a level of detail that allows all parties to determine with precision whether the firm-specific reporting requirements in question can be met.
While the accounting standards stipulate—for the most part—somewhat rigidly what our requirements are, the particular share-based compensation accounting needs that can arise from company to company can be quite specific. Converting to a new accounting platform is a non-trivial task, so if an implementation project is going to be undertaken we better be sure the end result will provide precisely what is required.
One specific best practice step can be inquire as to whether sample data following a series of specific transactions and examples can be simulated in the solution environment that is being reviewed so that a relevant, apples-to-apples analysis can be conducted.
NASPP: What is the silver lining to ASC 718 reporting?
Rob: As we are now more than 10 years from the adoption date of FAS 123(R), we are in a position to consider quite a bit of information as we evaluate how best to handle our equity plan reporting requirements.
Different tools and solution approaches are out there and specific issues both that are complex and that would be classified as issues we would expect to be cleanly supported in almost every instance are known.
Being aware of the more prevalent issues that may be out there and the different solution approaches that do exist can help any issuer develop an ASC 718 compliance process that is optimal for them.
NASPP: What is your superpower?
Rob: At the moment, with a two- and a four-year old at home, I am channeling all of my superpowers into my toddler negotiating skills. I’m pretty good but if anyone has some best practice advice in this area, please let me know.
Don’t miss Rob’s session, “Further on up the Road: ASC 718 Compliance in 2017,” at the NASPP Conference!
About the NASPP Conference
The 25th Annual NASPP Conference will be held from October 17-20 in Washington DC. This year’s program features close to 100 sessions on today’s most timely topics in stock and executive compensation; check out the full agenda and register today!
Our popular “Meet the Speaker” series, featuring interviews with speakers at the 25th 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 Yonat Assayag of ClearBridge Compensation Group, who will lead the session “Flipping Pay for Performance Upside Down: It’s Not Just Performance Shares.” Here is what Yonat had to say:
NASPP: Why should companies be thinking about their LTI plans now?
Yonat: Structuring the right long-term incentive plan for a company’s business needs is one of the biggest challenges that companies are facing today. Pressure from external groups like shareholders and shareholder advisory groups puts an even greater spotlight on how companies are structuring their programs. Hearing the latest market insights on LTI plan design during our session can help to make sure everyone is making an informed decision about the plan design that’s right for their particular circumstances.
NASPP: What is a common mistake companies make with their LTI plans and how can they avoid this?
Yonat: One common mistake companies make in designing their incentive plans is to “blindly” follow the market trend. While this may ultimately be the right approach, it is important to review all the pros and cons before making a decision. Specifically, when designing a long-term incentive plan, companies should review the trade-offs of each LTI vehicle and ultimately come to a decision of what is best for their business situation, with an understanding of market practice.
NASPP: What is the silver lining to LTIs?
Yonat: The silver lining is that companies do not need to feel “stuck” with a plan design that isn’t working for them. Companies can re-evaluate and modify their LTI plan design over time to meet their evolving needs.
NASPP: What is your superpower?
Yonat: Brainwashing!
Don’t miss Yonat’s session, “Flipping Pay for Performance Upside Down: It’s Not Just Performance Shares,” at the NASPP Conference!
About the NASPP Conference
The 25th Annual NASPP Conference will be held from October 17-20 in Washington DC. This year’s program features close to 100 sessions on today’s most timely topics in stock and executive compensation; check out the full agenda and register today!
Our popular “Meet the Speaker” series, featuring interviews with speakers at the 25th 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 Laurence Wagman of Golden Parachute Tax Solutions, who will lead the session “The 280G Enigma: How One Tiny Code Section Can Ruin an Otherwise Perfectly Constructed Pay Plan.” Here is what Laurence had to say:
NASPP: Why do you feel strongly about your Section 280G?
Laurence: Having worked on hundreds of transactions, it amazes me on how little attention is paid to Section 280G when companies put together pay plans. What is more amazing is that just a little bit of tax planning upfront can often save both companies and executives significant tax penalties.
NASPP: What is one action should companies be taking now?
Laurence: Plan…Plan…Plan!!!
Make sure your company understands the impact Section 280G has on your company’s pay plan. Recognizing these potential consequences early on allows a company to employ various planning techniques which may not be available once a transaction is announced.
NASPP: Is there a silver lining to 280G?
Laurence: We have seen a trend with more and more companies begin to do more planning without a transaction pending.
NASPP: What is your favorite memory from a past NASPP Conference?
Laurence: This is my 9th or 10th year coming to NASPP – There are so many great memories at the Conference. It would be an understatement to not mention how much I love catching up with all the people I have met through the years.
My favorite moment was one of the panels I was on (I believe it was DC). We had a little extra time at the end of our panel discussion. On a whim my co-panelist Shari Overstreet and I decided to do a mock-280G non-compete interview—it was a complete improvisation because Shari and I had no idea what we were going to ask/say. At the end of the day she was interviewing a public company CEO who invented the drug that helped men understand woman better and was nominated for a Nobel Prize by Oprah Winfrey. The spontaneous humorous interview allowed for a number of laughs, kept our audience engaged and allowed us to illustrate some great technical points. Probably not your typical NASPP panel—but based on the feedback we received it was a great panel.
Don’t miss Laurence’s session, “The 280G Enigma: How One Tiny Code Section Can Ruin an Otherwise Perfectly Constructed Pay Plan,” at the NASPP Conference!
About the NASPP Conference The 25th Annual NASPP Conference will be held from October 17-20 in Washington DC. This year’s program features close to 100 sessions on today’s most timely topics in stock and executive compensation; check out the full agenda and register today!
Our popular “Meet the Speaker” series, featuring interviews with speakers at the 25th 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 Valerie Diamond of Baker McKenzie, who will lead the session “Around the World in 60 Minutes: Key International Updates.” Here is what Valerie had to say:
NASPP: Why is it important for companies to stay current on the latest global developments impacting stock plans?
Valerie: There are a lot of changes in political administrations all around the globe these days. As administrations change, so do their rules and regulations related to equity awards. Companies need to stay on top of these issues, particularly the tax requirements, and change their process and procedures to fit any changes in the laws.
NASPP: What is one action should companies be taking now with respect to their global stock plans?
Valerie: Companies should review their existing grant documents to make sure that they are up to date and address the countries where equity awards are granted. It would be helpful to take a look at existing agreements and compliance now before attending our session and to use our session as a means to find out what is new and what needs to be updated in the company’s grant documentation to fit changes in the laws.
NASPP: What is the most innovative solution/response you’ve seen for keeping track of local requirements?
Valerie: We have been using an online questionnaire process to collect information from local payroll and HR on tax withholding and reporting and local compliance. This information is gathered in an excel spreadsheet and is easy to compare to the requirements in the local country. This allows the company to do an easy clean up on any compliance issues that are incomplete or in need of a refresh.
NASPP: What is your favorite tourist attraction in DC?
Valerie: My first favorite is the Vietnam memorial. My second favorite is the view of the White House from the deck at our Baker McKenzie DC office. It’s really cool to sit on our roof deck and enjoy the view.
Don’t miss Valerie’s session, “Around the World in 60 Minutes: Key International Updates,” at the NASPP Conference!
About the NASPP Conference
The 25th Annual NASPP Conference will be held from October 17-20 in Washington DC. This year’s program features close to 100 sessions on today’s most timely topics in stock and executive compensation; check out the full agenda and register today!
Our popular “Meet the Speaker” series, featuring interviews with speakers at the 25th 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 Keyoor Mankad of My Equity Comp, who will lead the session “Best Practices for Insider Trading Policies.” Here is what Keyoor had to say:
NASPP: What are some of the things companies need to think about when it comes to insider trading compliance?
Keyoor: Insider trading compliance is very critical to every company, from new IPOs to established companies. There have always been questions and debates about who should be designated as insiders, what transactions are subject to insider reporting, and who is responsible for filing these reporting requirements. Brokers are a critical component in this process and there is always confusion around preclearance requirements. Dealing with insiders can be a challenge. How can all of us, from stock plan administrator to legal counsel and brokers, work as a team to successfully report all transactions accurately? My panel has combined experience of over 50 years and consists of an issuer, a broker, a lawyer and a consultant.
NASPP: What is one best practice companies should implement?
Keyoor: The most important part of this whole process is clearly documenting procedures. Ideally, a clear copy of each and every step involved in the process should be handy to all of the parties involved.
NASPP: What is the worst horror story you can tell on your topic?
Keyoor: We do have a horror story involving a senior level executive, but you will have to attend our session to witness all the details.
NASPP: What is your favorite memory from a past NASPP Conference?
Keyoor: Watching Huey Lewis and The News at Mandalay Bay Las Vegas.
Don’t miss Keyoor’s session, “Best Practices for Insider Trading Policies,” at the NASPP Conference!
About the NASPP Conference
The 25th Annual NASPP Conference will be held from October 17-20 in Washington, DC. This year’s program features close to 100 sessions on today’s most timely topics in stock and executive compensation; check out the full agenda and register today!
We are pleased to bring back our popular “Meet the Speaker” series, featuring interviews with speakers at the 25th Annual NASPP Conference. These interviews are 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 our first “Meet the Speaker” interview, we feature Kim Arnold of UnitedHealth Group, who will lead one of our new Power Sessions, “Take This Job and Love It!” Here is what Kim had to say:
NASPP: It seems like you are pretty excited about your job as a stock plan administrator. How come?
Kim Arnold, UnitedHealth Group: I have never met a kid who says “When I grow up I want to be a stock plan administrator!” I think most of us fall into the role, and not always by choice. But as a person with over 20 years of stock plan administration experience, I want people to be aware of and excited about the opportunities associated with a career in stock plan administration. I want to help people be successful in the role!
NASPP: What is a common mistake companies make with the stock plan administration role?
Kim: Companies sometimes fail to fully utilize the skills and experience of stock plan administrators. Good stock plan administrators are worth their weight in gold (or stock, as the case may be!). Keeping up on regulatory developments and plan design trends can be invaluable to companies looking to attract, reward and retain talent.
NASPP: What is the silver lining to stock plan administration?
Kim: The silver lining is that even for those who have been thrust into the world of stock plan administration, the outlook for a career in the field is awesome! It’s a job with so much variety no two days are the same. From compliance to employee education (and everything in-between), I believe there is something for everyone. It’s a role that allows a person to try on many hats!
NASPP: The NASPP Conference is in DC this year—do you have a favorite tourist attraction in the area?
Kim: There are too many awesome tourist attractions in DC to choose only one favorite, but I do love the National Gallery of Art. Spending a day there feeds the inner art history geek in me.
Don’t miss Kim’s session, “Take This Job and Love It!,” at the NASPP Conference!
About the NASPP Conference
The 25th Annual NASPP Conference will be held from October 17-20 in Washington, DC. This year’s program features close to 100 sessions on today’s most timely topics in stock and executive compensation; check out the full agenda and register today!
Back in December I reported on a shareholder who was sending demand letters to companies alleging that share withholding transactions aren’t exempt from Section 16(b) unless the transaction is automatic, i.e., insiders have no choice in how to pay their taxes (“Shareholder Challenging 16(b) Status of Share Withholding“). I have a few updates on this development.
The Bad News
Back in December, it was just one shareholder but now there at least two more shareholders that are issuing demand letters like this. Also, we’ve now progressed beyond demand letters, with several companies now in litigation over this.
Both Good and Bad News
As noted in the March 2017 issue of Section 16 Updates, the shareholders have submitted demand letters to around 70 companies. One bit of good news is that in most cases, the amount of the alleged short-swing profits has been small, so payments to the shareholders have also been small.
But this is also bad news because it means that most companies would prefer to settle rather than pursuing costly litigation, which is necessary to get clarification on this matter from the courts. As noted in Section 16 Updates:
A clear ruling on the issue is much needed, given the chilling effect that the shareholders’ demand letters have had on the grant and exercise of elective stock withholding rights and the burden that re-approvals have imposed on compensation committees.
The court dismissed the complaint for failure to state a claim, holding in a one-page order that “the transactions in question are compensation related and are designed to be exempt under” Rule 16b-3(e). While a lengthier discussion of the issue might have been more helpful in resolving other pending cases, the court’s holding is nevertheless important because it clearly rejects the plaintiff’s argument that Rule 16b-3 exempts withholding transactions only if they are “automatic.” Moreover, the court allowed reliance on the exemption even where the decision to withhold shares was made by the issuer (i.e., employees) rather than the insider or the compensation committee. The case therefore provides reason to believe that courts will reach a similar result regarding all forms of stock withholding so long as withholding was authorized by the compensation committee as part of the initial equity award.
I’m sure this is a topic that Alan will be discussing in his session “Section 16 & Insider Considerations in Today’s Market” at the 25th Annual NASPP Conference—don’t miss it!
The NASPP is proud to be an educational partner for the CEP’s East Coast Symposium, the newest one-day event in equity compensation. If you are located in the Northeast, this is a great opportunity to catch up on current developments in stock compensation, meet other equity professionals, and pick up a few continuing education credits.
Our own Jenn Namazi will participate in two panel discussions:
Tweet, Like, or Post: What Social Media Taught Us About Stock Plan Education
Career Grounded? Lift Off with These Career Catalyzing Strategies
The Symposium will be held on August 1 (with an opening reception on July 31) at The Heldrich in New Brunswick, NJ. The cost to attend is $350. Register today!
Earlier this year, I presented five trends in restricted stock and unit awards. For today’s blog, I present a second installment in what I can now officially call a “series”: six trends in performance awards from the 2016 Domestic Stock Plan Design Survey cosponsored by the NASPP and Deloitte Consulting.
Trend #1: Performance awards are on the rise for executives.
Over the past four survey cycles, we’ve seen a more than 100% increase in the use of performance awards at the NEO and senior executive levels. For NEOs, usage has risen from 37% of respondents in 2007 to 80% in 2016. For senior execs, usage has risen from 32% of respondents in 2007 to 69% in 2016. Very few companies grant performance awards below the ranks of senior execs.
Trend #2: Performance-based options are not popular.
The vast majority of respondents (95%) issue full-value performance awards paid out in stock. Only 19% issue awards paid out in cash and only 8% issue performance-based options. I suspect this because when performance options are underwater, they don’t provide much of an incentive.
Trend #3: TSR is hot right now.
Usage of TSR as a performance metric has increased 80% since our 2010 survey, up from 29% to 52% of respondents. There is a lot of variation in practice when it comes to choosing performance metrics; this is the first time in the history of the survey that any performance metric is utilized by more than half of our respondents.
Trend #4: Three is the magic number when it comes to performance periods.
The majority of respondents (78%) measure performance over a three-year period. I suspect this is because ISS (and possibly other proxy advisors/investors) encourage use of a three-year performance period.
Trend #5: Multiple metrics are common.
Just over 60% of respondents report that their performance awards are subject to more than one metric: two metrics is most common but 19% use three or more.
Trend #6: Performance is typically measured at the corporate level.
Just under 90% of companies report that they measure performance at the corporate level only, rather than incorporating departmental, team, or individual goals. At 62% of respondents, the metrics for performance awards are different than those used for the company’s annual incentive plan (another 20% use a combination of annual incentive plan metrics and other metrics).
As part of its IPO last month, manufacturer Gardner Denver granted RSUs worth $100 million to its 6,000 employees, including hourly workers, customer service, and sales staff. According to Bloomberg, “As its executives rang the bell at the New York Stock Exchange, workers learned they would each get shares equal to about 40 percent of their annual salaries” (“KKR Gives Industrial Workers a Piece of the Action“).
There are three things that I find interesting/encouraging about this announcement.
Manufacturing
Broad-based stock awards are common in the high-tech space. According to the NASPP/Deloitte Consulting 2016 Domestic Stock Plan Design Survey, 66% of high tech companies grant RSUs to exempt workers below middle management and 35% grant RSUs to nonexempt employees. In Silicon Valley, the numbers are even higher—77% grant RSUs to non-management exempt employees and 57% grant RSUs to nonexempt employees.
But outside of high-tech, grants of RSUs below middle management are a lot less common. Garner Denver makes gas compressors and vacuum systems and is headquartered in Wisconsin, putting it squarely outside of high-tech and about 2,000 miles from Silicon Valley. This makes their announcement blog-worthy in my book.
Private Equity
Even more surprising is that Gardner Denver is 75% owned by private equity firm KKR. After the grant, employees will own about 10% of the company. Private equity firms are not known for their generosity when it comes to stock compensation programs.
More Than a Token
What I find most interesting about this story, however, is the amount of stock delivered to employees. $100 million worth of stock to 6,000 employees works out to be an average of over $16,000 in stock delivered to each employee. At Gardner’s IPO price of $20, this is an average of over 800 shares per employee. As noted in the Bloomberg article, grants are 40% of employees’ annual salaries, making this more than just a ham sandwich. Each grant is likely to be meaningful to the employee who receives it.
This kind of investment positions an equity plan for success. If (and this is a big “if”) Gardner Denver can execute on the education necessary to help employees value the awards and understand how their efforts can improve the company’s stock price, this plan could be a win-win: improved results for the company and wealth creation for employees. The impetus for the plan came from the head of KKR’s industrials team, Pete Stavros, who is also the chairman of Gardner Denver. Bloomberg notes:
To Stavros, who wrote a paper while a student at Harvard Business School about employee share-ownership plans, manufacturers can make good prospects for employee ownership. In tech, for example, success often comes from betting on the right trend or on a single founder or chief executive officer, he says. By contrast, most manufacturers operate in a low-growth environment where they must do “a million things a little better” to excel, such as reduce scrap rates and improve plant productivity. Front-line workers know best where operational inefficiencies exist and how to fix them, and equity ownership lets them share in the fruits of their efforts.
Contrast Gardner Denver’s plan to Apple’s announcement of broad-based RSUs back in October 2015 (“Apple to Offer Broad Based RSUs“). Apple awarded grants of only $1,000 to $2,000 to employees, which, given Apple’s stock price at the time, likely worked out to be less than 10 to 20 shares per employee. Of course, Apple is subject to constraints that Gardner Denver isn’t: a lot more employees, proxy advisors, institutional investors, not 75%-owned by the investment firm that holds the chairman position on their board (who believes in employee ownership), over $100 million granted to their execs alone in 2016 and a history of mega-grants to execs. All of these things limit the number of shares available for grants to employees. But I still have to wonder how those RSUs are working out for them.