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Tag Archives: administration

December 15, 2015

5 Things About Global Stock Plans and Technology

This past summer, the NASPP and Solium co-sponsored a quick survey on global stock plan administration. We asked companies about the technological challenges they experience when it comes to administering global stock plans, focusing on 12 primary challenges related to tax compliance, financial reporting, and other administrative matters. Close to 70% of respondents indicated that they struggle with four or more of the challenges identified and several noted that they struggle with nine or more of the challenges.

For today’s blog entry, I highlight five things I learned from the survey:

1. There are still a lot of manual processes out there.

Two-thirds of respondents say they spend too much time on manual processes.  This is a high-risk proposition: it is difficult to implement adequate controls over processes and calculations performed in a spreadsheet. This seems especially concerning given that the SEC is in the process of adopting rules requiring recovery of compensation for all material misstatements, even if due to inadvertent error (see “SEC Proposes Clawback Rules,” July 7, 2015). One incorrect calculation discovered too late could result in recoupment of bonuses and other incentive compensation paid to executive officers.

2. Tax compliance is a top concern for companies.

This really isn’t a surprise—let’s face it, tax laws outside the United States are a hot mess.  Every country does something different. Some countries change their laws every few years (I’m looking at you, Australia and France) and grandfather in old awards.  Some countries have different rules for social insurance taxes vs. income taxes. Add in mobile employees and, well, you have a lot of work for tax lawyers.

3. Regulatory compliance is also a challenge.

56% of respondents cite keeping up with regulatory changes as a top challenge and 45% cite regulatory requirements in other countries.  Regulatory compliance goes beyond tax laws to include things like securities laws, data privacy (a hot topic these days, see “Data Privacy Upheaval,” December 3, 2015), labor laws, currency restrictions and a host of other issues. It’s hard to stay on top of it all.

4. It’s the participants that suffer.

Ultimately, in the struggle to administer a global stock plan, something has to give and that something is usually the participant.  Only 50% of respondents offer a qualified plan in countries where they could; the hurdle of regulatory compliance gets in the way. And 75% of respondents said that they would focus more on employee education if they could just spend less time on basic administration.

5. Expectations are low.

When we asked companies what is on their wish list for their administrative system, I was surprised at how low some items ranked (it was a “check all that apply” question, I thought everyone would want just about everything).  For example, despite the fact that 71% of respondents reported tax-compliance for mobile employees as a top challenge, only 64% wanted a system that could calculate tax liabilities for mobile participants.  It left us wondering if companies need to dream bigger for their administrative platforms.

Check out the White Paper and Survey

If you haven’t had a chance to read it yet, check out the white paper on the survey results and download the full results from the Solium website.

– Barbara

 

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September 1, 2015

Random Answers

Here are the results to my random questions in last week’s blog entry.

Terminated Employees & Black-out Periods

Two-thirds of respondents (37 out of 54) do not subject terminated employees to black-out periods.

For those respondents that do subject employees to black-out periods, the majority (11 out 16 respondents), don’t make any accommodation for them.  The terminated employees are simply expected to finance their exercises in a way that doesn’t involve an open market sale.

Two respondents noted in the comments that they would automatically exercise the options if they aren’t exercised by the end of the exercise period.  One person noted that their black-out period is shorter than their post-termination exercise period, so this hasn’t been a concern for them.

Evaluating Stock Plan Administration

The majority of respondents don’t have any specific metrics that they use to evaluate the performance of the stock plan administration team (which probably explains why no one has responded to this question in the NASPP Discussion Forum).

Of the metrics suggested in the question, the most popular choices were:

  • Accuracy of reports produced for tax/financial purposes (7 respondents)
  • Total time spend on various tasks (e.g., employee inquiries, processing transactions, reporting) (4 respondents)

One respondent indicated that they are evaluated on their average time to resolve employee inquires/escalations and one respondent indicated that they are evaluated on the processing and direct costs per participant.

Some of the metrics suggested in the other comments were:

  • Timeliness and accuracy of all transactions, participant communications, and tax/financial reporting
  • Demonstration of increasing knowledge and ability to take on more complex tasks
  • Quality of response to employee inquiries/escalations
  • ESPP participation
  • Responsiveness to plan managers and various company contacts in addition to participants

Personally, I think that having at least a rough idea of how much time you spend on various tasks is an important and valuable metric to be aware of.  It can be very helpful when trying to prioritize various initiatives and projects.  For example, if tax reporting takes a huge amount of time compared to everything else you are doing at year-end, that might be an indication that you need to invest in improving your tax reporting processes.

I’m also a big fan of the ESPP participation metric, but only if you have the proper tools and resources to impact this (e.g., education budget, attractive plan, etc.)

Grant Conversion

Close to 90% (38 out of 43 respondents) don’t convert grant values into foreign currency before determining grant sizes for non-US participants.

What About the Family Feud Contest?

I will announce those results in tomorrow’s blog.

– Barbara

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August 27, 2015

Random Questions

I needed a quick blog entry for today (Jenn is on vacation), so I decided to do another poll with questions that have been posted recently to the NASPP’s discussion forum.  If they apply to you, please take a moment to indicate your answers so we can help these folks out. As always, if you are a contractor that works with multiple clients, please answer for just one of your clients (preferably one that won’t otherwise complete this poll). Thanks for indulging me!

Create your own user feedback survey

– Barbara

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April 8, 2014

Survey Says…

The NASPP’s 2014 Domestic Stock Plan Administration Survey (co-sponsored by Deloitte Consulting LLP) is now open for participation. This is the industry’s most comprehensive survey on stock plan administration, easily worth the cost of NASPP membership. Seriously–consulting firms charge upwards of $1,000 to participate in surveys that offer less data with fewer respondents. We let you participate for free–but issuers have to participate to receive the full survey results. Don’t put it off; you’re going to want this data and you only have until April 25 to complete the survey.

For today’s blog, I highlight just a few of the many data points in the survey that I am eagerly anticipating an update on. These are hot topics today and I’m looking forward to finding out where current practices stand with respect to them:

  • The Latest Trends in ESPPs:  Rumor has it that companies have been implementing new ESPPs and have been enhancing the benefits (discount, lookback, etc.) in their existing ESPPs. We saw a decline in both the number of ESPPs and the benefits offered under ESPPs in the last survey, so I’m very excited to see if this trend really has turned around.
  • Automatic Exercise on Expiration:  For the first time ever, the survey collects data on this emerging practice.  I think it makes a lot of sense so I’m very interested to see what percentage of respondents have implemented this program.
  • Rule 10b51 Plans: Has the recent negative attention that Rule 10b5-1 plans have received from academics and the media impacted the use of these plans?  My money says no; if anything, I expect usage to have increased a bit; we’ll see if I’m right when the survey results are published.
  • Stock Ownership Guidelines:  The 2011 Stock Plan Administration survey saw a 35% increase in the percentage of companies that have stock ownership guidelines, a remarkable increase–far higher than we expected based on responses to the 2007 survey.  If everyone that said they were considering implementing stock ownership guidelines in 2011 survey did actually implement them, close to 80% of all respondents will now have these guidelines in place. 
  • Social Media:  The topic du jour when it comes to educating employees these days is the use of social media (Facebook, Twitter, LinkedIn, etc.)  I think these tools have significant potential for reaching younger employees. I look forward to finding out what percentage of respondents use them now and setting a baseline that we can use for comparison purposes in future years.

April 25 will be here before you know it and you are definitely going to want to have access to the full survey results. If you are an issuer, register to participate today. (Service providers that are not eligible to complete the survey can access the full survey results at no cost, provided they are members of the NASPP. This access is available to service providers only; issuer companies must complete the survey to access the full survey results.)

– Barbara

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July 28, 2011

The Deja View

For today’s blog entry, we feature guest author Kim Kovacs of OptionEase on new technologies for stock plan administration. Kim, along with Edwin Yuen of Microsoft and John Hammond of AST Equity Plan Solutions, will lead the session “The Deja View: Game-Changing Technologies for Stock Plan Administration” at the 19th Annual NASPP Conference in November.

The Deja View: Game-Changing Technologies for Stock Plan Administration
By Kim Kovacs of OptionEase

Recent technological advancements have propelled equity compensation administration and participation to new levels of convenience and effectiveness. Firms are now using “software as a service” to integrate brokerage platforms with equity compensation administration and financial reporting software. The growth in utilization of web-based software has improved results while reducing administrative hours.

Cloud computing, or the use of web-based software to access shared data, has long been a hot topic in the IT world. This model of network access eliminates the need for locally installed software while providing easier access to information. Recently, the focus of the “cloud computing” discussion has shifted from discussing the cloud itself to the utility and implications of moving to the cloud. In the context of equity compensation, the utility of the cloud includes ease of access for both participants and administrators to an always up-to-date, more cost effective online system. The questions become: at what pace should the equity compensation industry move to the cloud, and what model should it use? The debate over the pace of moving to the cloud stems from the perceived need to compromise between access and control. Companies want to give users the most flexible, user-friendly experience possible while maintaining data in a secure and controlled manner. Some firms are using a hybrid model combining locally installed systems with cloud computing, while others have been able to leverage the cloud fully to give participants and administrators the most convenient usage possible while maintaining data security.

Participants are rapidly increasing their use of tablet PCs and smartphones in a business context. As IT is increasingly “consumerized,” participants demand access via the device of their choosing, and expect connection on the go. The synergies between the consumerization of IT and the movement to software as a service are numerous: participants are able to view their award information in real time through participant portals and are able to take action in accepting grants and exercising awards. The end result is that participants have a greater sense of ownership over their awards, which enhances the effectiveness of the company’s equity compensation plan.

The user interface for equity compensation administration and compliance systems is changing along with the movement to a software as a service platform. Administrators expect customizable dashboard views that allow for quick and effective actions. Participants and administrators are increasingly intolerant of multiple sign-ons or dealing with separate interfaces for their equity compensation needs. Participants expect to initiate exercises via portal and to have access to tax withholding and scenario modeling information.

Our industry is poised to take advantage of these new developments to better communicate the value of equity compensation plans to participants. A more streamlined, accessible, and actionable system increases participant motivation, improves administrative accuracy and efficiency, and reduces expense.

Find out what might be next for your administrative platform with Kim’s session, “The Deja View: Game-Changing Technologies for Stock Plan Administration” at the 19th Annual NASPP Conference.

Register for the 19th Annual NASPP Conference
The 19th Annual NASPP Conference will be held from November 1-4 in San Francisco.  The last time we were in San Francisco, the Conference sold out and this year promises to be just as exciting (but a lot roomier–we’ll be in a much bigger space).  Register for the Conference today!

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June 9, 2011

Automation 1-2-3

Automation is essential for data management because of its efficiency and accuracy. Any time a person is tasked with manual data entry, there is a significant risk of error. That risk increases exponentially as the data volume increases. These are the three basic steps to building and executing a project plan to incorporate automation into your daily routines.

  1. Identify

  2. The first step towards automation is to identify the data sets that require regular manual manipulation as well as the databases or software systems where the information resides. Processes could be either data entry/transfer (e.g., entering employee demographic information) or the processing and interpretation of data (e.g., share usage projection). This is the time to really brainstorm. Every single process you do can go on your list; each process may include several steps that should be broken down into individual opportunities for automation. Take your list and create a spreadsheet with a list of each process, where the data originates, where it needs to be transferred to, and what departments or outside service providers are involved.

    Take time at this step to get to know each of the database or software systems that your data touches because this knowledge will carry forward to each piece of automation you build. Drill down each system’s capabilities for formatting output of data and accepting data as an upload. If you are manipulating data for analysis, it may be possible to build data output reports that either reduces the manual processes for analyses or provides the data in a format that requires no further manipulation. When starting your automation project plan, you are only looking to understand the potential from each of your data systems; you don’t need to detail the entire business specification at this point.

  3. Prioritize and Build
  4. Once you have identified which data processes are candidates for automation, it’s time to prioritize. A good place to start is to eliminate the processes that require data output formats that your systems can’t accommodate at this time. These items can take a different route as topics to approach with the database architects, whether they are internal or external contributors. Rate the remaining processes on how easy each is to automate as well as how significant the process is. Significance is the more difficult to define because it could mean processes that impact the highest volume of data, represent the highest risk of error, or are components of the most visible data outputs. This helps when determining which pieces of automation to tackle first.

    Once you’ve established your project priorities, build your automation. You don’t need to tackle projects one at a time. You may find that some pieces may build on each other because they use the same original data. Additionally, you may be able to oversee more than one automation project simultaneously if the process requires time commitments from separate groups.

  5. Bust
  6. The final step for automating a process is to break the automation. Well, at least try your hardest to break it. Take each piece of the automation and think of as many situations as you can where data will feed into or come out of that process, even if it’s not what the process was originally intended for. Don’t limit yourself to using correct data, either. It’s important to know what will happen if incorrect or incomplete data sets are used so that you can recognize these problems if or when they happen in the future. Remember, you may not be the only one using the process and it could be the platform for further automation in the future.

-Rachel

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February 10, 2011

Blind Spots

A policy is only as solid as its exceptions. You may have a well-defined plan or policy for your company’s current situation that has bare spots that may not stand the test of time–and unusual circumstances. It’s difficult to cover all your bases when you are creating a new policy or plan, but it’s even more difficult when you jump into managing an existing plan under inherited policies.

The problem is that it is rare that a stock plan manager has time to pick through every piece of every plan document and policy and play out every scenario to determine if there are cracks that need to be exposed. This is where experience really counts; whether it is your own personal experience or experience you picked up second hand by listening to the holes other stock plan administrators have encountered. Whenever you are networking, attending a presentation, or perusing a discussion forum and you hear a new predicament, run–don’t walk–back to your desk and check to see if your company could potentially run into the same issue.

Just to give you a taste, here are three problems to think about:

Insider Trading Policy

Generally speaking, insider trading policies restrict the transactions of individuals deemed to be in possession of insider information. They help to protect both the company and the individuals by preventing transactions that would either be or appear to be insider trading. However, there are a couple places where ambiguity could trip you up. For example, if your insider policy doesn’t detail what constitutes a transaction, you could find yourself up against (or in the middle of) a blackout period scrambling to determine the correct course of action. Cash exercises and trading shares to cover tax liability on restricted stock vests are the most common sources of contention. Even if you’ve covered yourself by getting all your insiders into Rule 10b5-1 trading plans, there could still be an issue when someone not normally considered to be an insider is marked for a particular blackout period because she or he is either recently promoted or currently in the middle of a project that provides access to nonpublic information. If that same person has, for example, a restricted stock vest during the company blackout window, you could have a situation on your hands.

Fair Market Value

The fair market value for both grants and transactions can be pretty much any reasonable definition, which means that companies may set fair market value differently. Non-market days can be blind spot when it comes to restricted stock vests. Another tricky situation may arise if your FMV is defined in such a way that it is possible for someone to exercise an underwater option. For example, if your company uses the prior day’s closing price as the FMV for option exercises, an employee could exercise barely-in-the-money options and end up with an exercise price that is higher than the defined FMV.

Terminations

Your company can treat all terminations equally, but most companies do not. Voluntary, involuntary, for cause, death, disability, and retirement are all on the list of potentially unique termination reasons with varying impact to equity compensation. Of course, you want to have each reason clearly defined, but the blind spot could be what happens if the circumstance combines more than one reason. For example, what if an employee leaves the company and subsequently passes away during the post-termination grace period?

Take Charge

For larger issues regarding plan design and policy, there are a number of resources on the NASPP site to provide essential guidance. Our April 2010 webcast, “25 Ways to Improve Stock Plan Documents,” details more than 25 plan design issues that you need to be aware of and we have an entire portal dedicated to plan design with a host of resources under multiple topics.

There were also several fantastic sessions at the 18th Annual NASPP Conference last year like “Night of the Living Dead: Equity Compensation Horror Stories–The Sequel!” and “Key Fixes for Today’s Stock Plans: Clawbacks, Double-Triggers, and Hold-through-Retirement” that you haven’t missed your opportunity to experience–you can catch up by ordering the audio and materials today. I can’t wait to see what plan design treasures are in store for us this year! If you have a fabulous idea for a session at this year’s Conference, we are accepting proposals through February 28th.

Finally, don’t overlook your opportunities to learn from others. The NASPP has over 30 local chapters planning regular meetings. Making sure you attend your chapter’s meetings gives you access not only to timely topics and great speakers, it also gives you the networking opportunity to discover which issues are most important to your peers and how they are dealing with them. We also have an active Discussion Forum where you can browse, search, and even subscribe to the topics that matter most to you.

-Rachel

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September 28, 2010

Face Your Demons!

With the NASPP Conference just barely behind us, today I highlight some tips I picked up on working with your lawyers from one of the sessions at the Conference. While most of us dread having to run projects past legal, the fact is that your lawyers (both in-house and outside counsel) can be an important and helpful member of your team, as demonstrated by the session “Face Your Demons: How You and Your Stock Plan Lawyer Can Work Together More Effectively” (a complete production with skits, props, and even audience participation, the session also demonstrated that even lawyers can have a sense of humor).

Face Your Demons: How You and Your Stock Plan Lawyer Can Work Together More Effectively

Negotiating Vendor Service Agreements / Business Contracts

Your lawyers provide valuable assistance in reviewing vendor service contracts. For one thing, they are probably better at reading fine print than you are (and you don’t really want to read those contracts yourself anyway, do you)?

The salesperson may present the contract as a form agreement, but this is rarely the case. Your lawyers can spot important service limitations that might impact your business–such as limited customer support hours–or gaps in the services that are provided that might later prove critical and can help you modify the contract to better meet your needs.

Lawyers also make excellent partners in negotiations. While many of us are uncomfortable with negotiating, lawyers are typically good at it. Let them play the bad cop to your good cop and take some of the pressure off yourself.

Reduce Exposure of Audits and Litigation / Secure Better Value from Outside Counsel

Of course, one of the tasks lawyers do best is compliance–look to your lawyers for assistance with understanding the potential risk of an audit or litigation–including the likelihood of such an event occurring, possible penalties, and even “softer” impacts, such as public perception and employee morale. This allows you to make informed decisions when evaluating procedures and plan designs. Should you become aware of a compliance failure, your lawyers should be one of your first phone calls (after your manager, of course); they can help you assess the gravity of the situation and strategize an appropriate response.

And, because your lawyers are working with many different clients (and also know other lawyers that have lots of clients), they can be a valuable source of information on industry trends and best practices. Before deciding on a process or design, check with outside counsel to find out if there is a better way.

Solicit More Proactive Legal Advice

When implementing new plans or programs, don’t wait until it’s too late to talk to your lawyers. Get their input early in the process, while you can use their input to shape the program (e.g., making sure there aren’t any unexpected compliance pitfalls or better approaches). And don’t be afraid to push back–working with your lawyers should be a back and forth process.

Navigate Evolving International Issues

I’ve said it before, but it bears repeating–a global stock plan is not a do-it-yourself project. No matter how few employees or countries are involved, never offer stock compensation to non-U.S. employees without consulting outside counsel. (Think about it, you would never implement a plan in the United States, even for just a handful of employees, without legal assistance. The laws aren’t any less complex outside the United States.)

In addition to seeking their advice when new programs are implemented, consider meeting with your outside counsel on a regular basis (e.g., quarterly) to review developments outside the United States that might impact your plans so you can determine if further research is needed.

Did you miss this session? It’s not too late to hear the presentation; purchase the audio and materials today!

It’s Renewal Time
All NASPP memberships expire on a calendar-year basis. Renew your membership today and avoid the last minute rush on December 31.

Join Now and Get Three Months Free!
If you aren’t currently an NASPP member, now is the time to become one! Join the NASPP for 2011 and you’ll get the rest of 2010 for free.  Tell all your friends!

Don’t Miss Out–Conference Audio Available
If you weren’t able to attend the Conference or did attend but couldn’t get to all the sessions you wanted to (and with over 40 sessions, who could?), you can download the audio from any and all sessions in MP3 format.  Purchase just the sessions you want or save by purchasing a package of sessions.

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 

– Barbara 

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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 CervinoCEP 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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June 22, 2010

Divorce and Termination

A divorce case involving stock options that has some potential lessons for stock plan administrators recently came to my attention. The case involves grants that were divided in a divorce settlement and then later cancelled due to the employee’s termination.

Divorce is Expensive–Especially If Options Expire Unexercised

Under the terms of the divorce settlement, the employee’s options and SARs were split equally between him and his ex-spouse. The grants were non-transferable, so the employee was required to hold half of the grants in constructive trust for the ex-spouse. Upon exercise of that portion of the grants, the employee would then have to pay over the proceeds to the ex-spouse.

After the settlement was final, the employee terminated his employment and, as a result, the period in which the grants could be exercised was curtailed. The employee did not exercise the grants within that period and the grants were cancelled. The employee’s ex-spouse then claimed that the employee owed her the value of her half of the grants–about $15,000–because, by failing to exercise the options/SARs within the prescribed period, the employee had deprived her of the opportunity to realize this gain.

The employee had been under the impression that he could take the options/SARs with him. I’m sure anyone involved in stock plan administration can read the subtext here: the employee likely asked his (uninformed) best buddy at work what would happen to the grants and never bothered to check his grant agreements, exit paperwork, or even call stock plan administration to ask about the grants. I imagine that it’s even possible that this lack of follow-through was a contributing factor in the divorce in the first place.

The end result is that the court agreed with the ex-wife and the employee now owes her about $15,000.

Lesson 1: Appropriate Cancellation Procedures

In this case, the options/SARs were non-transferable and were all still held by the employee. Thus, when the employee’s termination was entered into the stock plan database, it was likely automatically applied to all of the options/SARS. Where the options are transferable and have been assigned to the ex-spouse in the company’s stock plan database, this procedure might not work quite so efficiently. If you are transferring grants divided in a divorce settlement to an ex-spouse, it is critical that you remember to cancel those grants along with the grants held by the employee when the employee terminates.

Lesson 2: Cancellation Notification

The second lesson here is to make sure that, in the event the employee does terminate, it isn’t your job to notify the ex-spouse that the grants he/she has a right to are subject to cancellation. At the time that you receive notice of the divorce settlement, make sure that any responsibility for providing subsequent notices about any change in the status of the grants (due to termination, change-in-control, repricing, stock split, etc.) falls squarely on the employee’s shoulders and that the employee is aware of it. You have enough to do keeping track of employees; you don’t need to take on their ex-spouses as well.

Lesson 3: Stay Out of It

I think this case is a good argument for not allowing transfer of options and awards upon divorce. By not permitting the transfer and requiring the employee to exercise the options/SARs on behalf of the ex-spouse, the company effectively distanced itself from all of the proceedings related to the grants. This also helped to clarify that the employee was responsible for alerting the ex-spouse to the fact that the options/SARs were going to cancel as a result of his termination. Where the company has transferred grants to an ex-spouse and is in communication with the ex-spouse about them, the lines may get a little blurry.

See the NASPP webcast archive, “Death and Divorce: The Lighter Side of Equity Compensation” for more tips on administering stock compensation through divorce.

18th Annual NASPP Conference
Don’t miss the 18th Annual NASPP Conference from Sept 20-23 in Chicago. This year’s program is phenomenal–we’ve planned over 40 sessions on critical and timely topics.  Register for the Conference today.

NASPP New Member Referral Program
Refer new members to the NASPP and your NASPP Conference registration could be free.  You can save $150 off your registration for each new member you refer, up to the full cost of registration. You’ll also be entered into a raffle for an Apple iPad–get started on your referrals today to make sure you are included in the June raffle.  And the new members you refer save 50% on their membership–it’s a win-win!   

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 

– Barbara

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