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Tag Archives: 2010 NASPP Conference

August 3, 2010

The Horror! The Horror!

Today we continue our series of blog entries guest authored by speakers for the 18th Annual NASPP Conference. For this installment of the series, we feature Emily Cervino of the CEP Institute on “Night of the Living Dead: Equity Compensation Horror Stories–The Sequel!”

Night of the Living Dead: Equity Compensation Horror Stories–The Sequel!
By Emily Cervino, CEP Institute

The NASPP Conference agenda is full of best practices, emerging trends, and successful case studies. But, don’t forget about the darker side of equity compensation. At the 2009 Conference, the “Night of the Living Dead” panel was a huge hit…and 2010 will bring back the same concept, with a completely new slate of horror stories!

Why are we dwelling on epic failures, monumental disasters, and crippling catastrophes? Because we can learn just as much (if not more) from these fiascos as we can from stunning successes. Hearing these horror stories will help attendees avoid a similar fate, stockpile their ammunition for making a case to management, and sleep easier knowing that even with these calamities, not a single panelist has had to enter the witness protection program. A major problem doesn’t end your career…if you know how to handle the problem and ensure it doesn’t happen again.

For example, take the humble ESPP…these plans may not have the allure or status of other equity programs, but with broad participation, infrequent processing, and the final regulations for Section 423 plans providing for the possible inadvertent disqualification of the plan, the risks for ESPP are at an all time high.

One of the horror stories starts as many horrors do… as a new employee, quickly flung into the frenzy of processing an ESPP. The ESPP had been run on “autopilot” and on the date of the purchase, the fearless new stock plan administrator received the report of payroll contributions for the plan participants. Noticing that there were suspiciously high amounts for many employees, a frantic red flag was raised. The “investigative work” resulted in a shocking revelation–the company had been allowing employees who hit the $25,000 limit following a purchase to carry over those leftover funds to the next offering period. Just to be clear…the company was carrying forward the contributions, not the limit. So, if an employee hit the $25,000 limit, the company did not refund the excess contributions, but added those contributions to the payroll contributions for the next offering. This was clearly not permitted under the plan. Other employees weren’t permitted to make a lump sum contribution. So, what we have here is the dreaded violation of the equal right and privileges provision of Section 423.

The end result was a frantic scramble on the day of the purchase to recalculate, notify the impacted (and now unhappy) employees about sizeable refunds, and determine what those refunds were. Lessons learned? Read your plan. Don’t accept the status quo when you are in a new position. Get ESPP contributions (or, at a minimum, estimated contributions) at least a week in advance of the purchase. Educate and befriend Payroll. And, in case you missed that first one…it bears repeating–read your plan.

Join us as we frighten you with nightmare stories and set you on the path to safety with recommendations on how to avoid similar misfortune. Due to the popularity of last year’s premier, our panel is offered twice, during Session III on Tuesday at 1:45 PM and again during Session V on Wednesday at 9:00 AM.

Got your own horror story to share? The NCEO is soliciting stories for an edition of the book “Don’t Do That” focused on equity compensation. This is a great way for others to learn from the challenges you have overcome. Submit your story today!

“Night of the Living Dead: Equity Compensation Horror Stories–The Sequel!” promises to keep attendees on the edge of their seats. Make sure you’re there to enjoy the thrill at the 18th Annual NASPP Conference.  The Conference will be held from September 20-23 in Chicago. Register today and bring popcorn!

NASPP Members Eligible for Discount on CEP Exam
If you’ve been thinking about enrolling for the Certified Equity Professional exam, now is the time to do it. Because the NASPP serves on the CEP Institute Advisory Board, we are able to offer NASPP members a $200 discount on the November 6, 2010 exam.*

The CEP program is the certification standard for the equity compensation industry, comprised of a three-level, self-study program in the technical regulatory issues affecting equity compensation.  

Visit the CEPI website for more information on the program. To take advantage of the NASPP member discount, contact the CEPI at (408) 554-2187.

* The Fine Print: Eligible registrations include new Level 1, Level 2 or Level 3 registrations for individuals who are involved in administering or managing their own company’s equity programs. Deferrals and re-tests are not eligible for a discount. Individuals already registered are not eligible for a retroactive discount. Candidates from service providers do not qualify. Questions regarding eligibility can be directed to the CEPI at (408) 554-2187.

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July 29, 2010

Conserving Share Usage Through Innovative Incentive Design

Today we continue our series of blog entries guest authored by speakers for the 18th Annual NASPP Conference. For this installment of the series, we feature Myrna Hellerman of Sibson Consulting on “The New Long-Term Incentive Paradigm–Conserving Share Usage Through Innovative Incentive Design.”

The New Long-Term Incentive Paradigm–Conserving Share Usage Through Innovative Incentive Design
by Myrna Hellerman, Sibson Consulting

The Dodd-Frank Act “Say-on-Pay” provision…something totally new? Not really. For years shareholders have had a voice in compensation decision making, especially through the power to approve incentive and equity compensation plans. They just haven’t used their power to its full potential. Dodd-Frank provides a clearer platform and framework to exercise this power.

Next year we will celebrate the “coming of age,” 18th anniversary of Section 162(m), the infamous “Million Dollar Cap” for non-performance-based compensation. Like Dodd-Frank, there was an expectation that Section 162(m) would “reel in” executive pay, create a greater alignment between pay and performance, and give the shareholder a “say on pay.” The logic was simple: “You lose deductibility of top executive pay if it exceeds $1 million unless the pay is earned under a shareholder approved performance-based incentive compensation plan.” In 2003 the SEC further strengthened shareholder’s “say on pay” by affirming the new NYSE and Nasdaq rules that expanded the shareholder approval requirement to equity compensation plans and amendments thereto.

So, does the existence of the formal Dodd-Frank Say-on-Pay Vote imply that earlier attempts to give shareholders a say on pay have been complete failures. Headline news over the years would suggest this to be so. However, we think not. Successful outcomes just don’t make the headlines. One of these formerly untold success stories will be presented at the 18th Annual NASPP Conference in September. The presentation, “The New Long-Term Incentive Paradigm–Conserving Share Usage Through Innovative Incentive Design,” provides an exemplar outcome in response to a pre-Dodd-Frank “say-on-pay” vote. The takeaways from this presentation will be valuable as organizations prepare for the more formal Say-on-Pay vote required under Dodd-Frank.

In 2005 stockholders rejected an additional share authorization at the 9,000+ employee Arthur J. Gallagher & Co due to burn-rate and dilution concerns. This “No” vote was unexpected at a company with generally shareholder-friendly, conservative pay practices. In response, the organization began a lengthy transformational journey that resulted in a new long-term incentive paradigm. The paradigm recognizes several key realities:

  • The voice of the shareholder is very powerful. Shareholders need to be continually educated about the company’s pay practices and deserve a reasoned response to their objections.
  • A purge of poor pay practices and a “diet” to get value transfer and burn-rates into line are not just part of a short-term solution. They are a way of life.
  • A culture of “ownership” in the long-term success of the organization can be preserved even when there is a paucity of equity. At Gallagher this was accomplished through the use of a uniquely designed, 162(m) compliant long-term cash incentive approach, which mirrors the risks and rewards of equity (this design will be detailed in the presentation).
  • Management must get comfortable with the difficult, prioritized decisions that are required to effectively manage long-term incentives.
  • The board, and especially the compensation committee, need to embrace a more intimate role in executive compensation decision making, especially with respect to long-term incentives. Management and the outside independent advisor must provide the education, transparency of information, and the analytics that allow the directors to be successful in this role.

The NASPP Conference presentation and the accompanying discussion will be lead by Myrna Hellerman (SVP, Sibson Consulting), Jon Minor (Sr. Consultant, Sibson Consulting) and Tom Paleka (VP Global Rewards, Arthur J. Gallagher)., three catalysts to Arthur J. Gallagher’s transformational journey that began because of a “say on pay” vote.

As we head into an era replete with much greater shareholder involvement in executive and stock compensation, learn how one company has already adapted to survive.  Don’t miss Myrna’s session, “Conserving Share Usage Through Innovative Incentive Design,” at the 18th Annual NASPP Conference.  The Conference will be held from September 20-23 in Chicago. Register today!

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