Quick Survey on Stock Plan Education
The NASPP and Fidelity Stock Plan Services are pleased to announce a joint survey on stock plan education programs. Take this quick survey today to find out how your education program compares to your peers’. The survey includes fewer than 25 questions; you can complete it in less than ten minutes—do it today, before you forget. The deadline to complete the survey is Friday, December 11.
New Studies
We’ve posted the following new studies to the NASPP website:
The Internet and cell phones (now smartphones) have completely changed the way the world communicates. It hasn’t been a slow process; the evolution is occurring at lightning speed. What was “new” a few years ago is now mainstream; what’s coming down the pike will soon be the norm. If you’re with the camp of stock plan professionals that have been using the same modes and strategies to communicate with participants for a while now (let’s say more than a couple of years – and I’d guess there are many of us in this camp), it’s time to rethink the tools and resources available. In today’s blog I share a few things to consider in getting off the dinosaur and focusing on emerging ways to communicate with participants.
A New Era Underway
The modes of communication are changing…rapidly. Long emails, newsletters, static intranet sites and hard copy mailings are losing their luster in the shiny new world of communication. What’s in? Video, blogs, podcasts, Google “hangouts”, mobile friendly apps and social media, for starters. Of all of these, the use of video is my prediction for the next king of communication tools. With the birth of YouTube, anyone with a smartphone, tablet or webcam can create and distribute a video. So if you’re thinking “big budget” when it comes to video, think again. There are a range of possibilities – from done-for-you video service firms to do-it-yourself and host/access on sites like YouTube or Google Plus. With the array of mobile devices now in our hands, video is also accessible on the fly, allowing you to engage with participants around the clock. As with any mode of communication, you’ll want to get buy-in from other key decision makers (legal for starters) before you start creating videos and distributing them. The take away here is that it’s much easier than you think, and will show participants that you’re ready to engage in modern fashion,on their terms. There was a fantastic session at our recent 21st Annual Conference (“Stock Compensation Goes Hollywood”) on using video for stock plan communications – if this has perked your interest, I highly recommend accessing the session materials (free for conference attendees) and audio (available for purchase).
How Well Do You Know Your Participants?
Get to know your audience and expand your communication vehicles. Communication is not a one size fits all approach, nor is it a one mode per generation concept. It’s short-sighted to think that employees over 55 won’t be receptive to social media (in fact, 2013 surveys show that 60%+ of 50-64 year olds are active on social media). Likewise, it’s equally limiting to expect that your 20-something population will only want to receive communications via social media. The fact is, there are distinct patterns of communication emerging. So much depends on age, location, culture and other factors. One mistake communication “senders” can make is to deliver content in their own preferred method of communicating. This may not work for the “receiver.” If you have multiple generations in your stock plan population, you may want to consider a quick survey to identify preferred methods of communication. Additionally, it’s wise to consult with contacts in non-U.S. jurisdictions to evaluate preferred modes along with cultural considerations. The bottom line? Consider adopting a multi-mode approach to delivering your equity compensation content to participants. Broaden the Content Horizon
When crafting communications, think in terms of “benefits,” in addition to features. Features are great, but a list of them in a communication doesn’t always answer the question in participant minds: “What’s in it for me?” Let’s face it – we’re living in the era of “me,” and employees want to know what they are going to gain at any given point in time. When highlighting the “features” of various plans, awards or programs, try to also list the benefits. A simple way that I like to think about benefits? A benefit follows the phrase “…so you can…”. For example:
Join the new ABC Company ESPP Plan! The plan offers:
15% discount on company stock (feature)
Change your contribution at any time (feature)
Simply adding in the benefit behind the feature can give the employee answers to questions they may have about why it’s a good thing for them to be involved in these programs. If you tweak the language to incorporate the feature and the benefit, it may look like this:
Automatic 15% discount on company stock, so you can be assured that your purchase price will be less than the fair market value of the stock on the date of purchase.
Contribution rates may be changed at any time, so you can have peace of mind knowing that even if your circumstances change during the offering, you can make adjustments as needed.
I’m not a lawyer, so please do check with your legal advisers about this approach. At minimum you’ll want to make sure that you aren’t selling participants on an investment decision (so note that the benefits I’m talking about are not “financial” reward related or promises about future gains).
It’s time to move into the next era of communication. With so many possibilities, it’s an exciting time and a great opportunity to really get in touch with your participants on a whole new level.
Next week I’m going to be spending some time in one of my favorite cities: Boston. Not only is Boston rich in history and culture, but home to Solium’s 2012 Synergy Conference.
If you’re planning to be at Synergy, you’ll want to note that the NASPP will be involved in sessions on three great topics. I’ll highlight them here, so even those who are not attending can catch a glimpse of what will be presented.
Nuts and Bolts: Understanding Equity Compensation from the Other Perspective
Whether you’ve been in stock compensation for decades or just months, you’re likely to have some awareness that there are many parts of the organization that request and depend upon data and information from the stock plan function. I’ve always found this to be a unique aspect of administering equity plans versus other types of benefits. Stock compensation touches so many areas, such as Legal, Payroll, Accounting, Finance, Human Resources, Tax, and so on. Have you ever wondered what those other departments actually do with the information they request from you? Or, how their world works? A panel that includes experts from the “other” parts of the organization will share insight into what they really need and how they use the information. I haven’t often seen much discussion or sharing that originates from this perspective, so I’m really looking forward to interacting with issuers from this angle and helping to forge insight into how internal peers perform their jobs using the outputs from stock administration.
Participant Communications and Best Practices
I also have the pleasure of being a co-facilitator for two great roundtables at Synergy: Employee Communications and U.S. Best Practices. I’m excited about these roundtable discussions, because I want to hear what’s new and exciting on the issuer front in these categories. In a preview of the Best Practices roundtable, we’ll be discussing some trends from the NASPP’s 2011 Domestic Stock Plan Administration Survey and finding out what companies are really doing in these areas. Key topics include increased use of stock ownership guidelines and continued migration towards outsourcing.
If you’re planning to be at the Solium conference, I look forward to seeing you there. For those that aren’t, I’ll be sure to highlight any new information or interesting ideas about best practices and communications in a future blog.
This time of the year always puts me in a state of reflection, thinking about what was accomplished and looking forward to next year. Contemplating next year means setting goals and objectives, both professionally and personally. Have you completed your 2012 planning?
I’m always in favor making things as fun as possible. Setting professional goals and objectives doesn’t have to be a chore! For this week’s blog, I offer three ways to spice up your stock programs in 2012.
1, 2, 3 Ideas
1. Work the Concept of “Perceived Value” into your Stock Plan Communication Strategy. One thing I learned from the session on Maximizing the Perceived Value of Equity Compensation at this year’s Annual Conference, is that the act of giving an employee a stock option is not what motivates them. What motivates the employee is their own perception of what the grant is worth. If the value of that stock option goes up and there’s gain, the employee then feels grateful to the company and works harder. This is called reciprocal behavior, and is a key to how recognizing the role of perceived value can help achieve the intended value proposition. To better align with this concept, companies need to lessen efforts focused on trying to “explain” the value to the employee, and focus on strategies that address the employee’s perception that “it’s worth what I think it’s worth”. Key drivers in achieving plan effectiveness are employee perceptions, behaviors and culture.
2. Bridge the Generation Gap. Most of today’s workforce populations are diverse. Not just culturally and geographically, but age-wise as well. It’s been said before, but I’ll say it again: there is no one-stop method to communications that is guaranteed to meet your employee population’s needs. Using multiple mediums targeted to your company’s various demographics is a must. One generation may be starting to embrace email, while others (think Generation Y) view email as a tool of yesterday! Email blasts alone to your stock plan participants are likely not going to cut it in 2012 and beyond. Start thinking about adding new modes of communication, such as text messaging, social media, and a focus on short, concise messages.
3. Implement a New Technology. We may not be in a position to create an iPhone or Android app for stock plan management (now that would be cool!), but there are many other ways to demonstrate that we’re hip and cutting edge. One idea would be to find a technology to implement in 2012. A great way to generate ideas in this area would be to talk with your IT group to see what technologies they’re implementing in the coming months; there may be an opportunity for you to tap in to something already on the road map. One idea I recently heard about was a company that is exploring implementing a secret Facebook group for their ESPP participants. Employees could receive Facebook updates and information real-time, accessible via multiple technologies (computer, phone, etc.). Competitive concerns were alleviated by making the group secret, such that no-one else could view it or have access.
I’m sure there are many other interesting ways to enhance stock programs in the coming year. Take our poll below to see what others are contemplating for 2012!
On Another Note: A Follow Up
Last month I blogged about the question of whether or not insider trading should be legal. In mid-November, CBS aired a segment on the show 60 Minutes about stock trades made by congressmen/women using inside information. I was surprised to learn that their trades were not in violation of any laws. If you’re interested, view the story here.
Not-So-Stupid Equity Plan Questions: What Your Employees Are REALLY Asking By Pam Ellis of Solium Capital
Ever get those head-scratching questions from employees where you just don’t have a clue what they’re thinking, let alone asking? Let’s face it, this happens all the time, and often way more often than we’d like. But rather than throwing the question immediately in your circular file, you can turn this into a valuable lesson to understand the employee’s perspective better and learn what you can do to enhance your communication techniques.
At this year’s conference, I am leading a panel presentation that goes through this very analysis. Entitled “Not-So-Stupid Equity Plan Questions: What Your Employees Are REALLY Asking,” the panel consists of several service providers and an issuer who will review a list of common questions they have received and dig deeper to see what each one can teach us. Panelists include Bank of America Merrill Lynch, Prometheus Laboratories, Solium Capital, and UBS. The speakers from the various service providers are either involved in or have direct oversight of their stock plan call centers, so they hear firsthand the range and multitude of questions that come in across their broad base of clients.
Once the group started looking at common questions across the spectrum, they realized this was employee-relations gold and set out to illustrate how a company could use these questions to their advantage. The session focuses on 10 of the panelists’ favorite questions, analyzes the hidden message in each one, and provides recommendations on what the company can do to alleviate or eliminate these concerns altogether.
A great example is the confusion employees have over year-end tax forms; like many people who think taxes are a waste of time and an unnecessary evil, they don’t bother to understand them or make sure the numbers are right. They don’t know what information to provide to a tax advisor, what forms they need to complete on their return, or even what income has to be reported. Tailoring education materials to include visual flowcharts and checklists can go a long way in making the employee feel more comfortable about the tax reporting process – and therefore more positive about their equity awards in general. Other concepts such as exercising underwater options and differences between equity awards and 401ks can create further headaches and incite plenty of brow-furrowing inquiries.
With a little bit of humor and audience participation, the panelists expect to demonstrate how there really are no stupid questions.
Don’t Miss the 19th Annual NASPP Conference The 19th Annual NASPP Conference will be held from November 1-4 in San Francisco. With Dodd-Frank and Say-on-Pay dramatically impacting pay practices, you cannot afford to fall behind in this rapidly changing environment; it is critical that you–and your staff–have the best possible guidance. The NASPP Conference brings together top industry luminaries to provide the latest essential–and practical–implementation guidance that you need. This is the one Conference you can’t afford to miss. Don’t wait–the hotel is filling up fast; register today to make sure you’ll be able to attend.
I recently attended a great presentation on perceived value at the Silicon Valley NASPP Chapter All-Day. The panel was moderated by Emily Cervino of the CEP Institute and included Fred Whittlesey of Compensation Venture Group, Keith Pearce of Intel, and Jason LeBovidge of Fidelity Investments. In today’s blog entry, I summarize some of the points they discussed.
Perceived Value ≠ Fair Value Perceived value is the value employees assign to the grants they receive. This value is often completely different than the fair value of the award or even the cash value of it. For example, employees often have a higher perceived value of at-the-money stock options with a low exercise price than those with a high exercise price–the exact opposite of how the fair values for those options would come out.
Perceived value is different than fair value because, as Keith explained during the presentation, the formulas for the two values are different:
Perceived value = signal value + cash value
Fair value = time value + intrinsic value
At-the-money stock options have no intrinsic, or cash, value, so all of their fair value is derived from time value. Yet when employees consider their stock options, they don’t include any time value in the equation.
Signal Value
The good news, however, is that employees will consider the signal value of their options and awards and, unlike time value, this value is something that you can influence.
Signal value is what the option/award signifies to the employee. It’s an intangible quantity that represents how valued the grant makes the employee feel and how meaningful the grant is to the employee. The information you provide to employees about their grants and how you deliver the message can increase signal value.
A Few Ways to Increase Signal Value
Make a big deal out of the grant. For example,you might include a letter from the CEO in the grant package and have the CEO discuss the stock program at company meetings.
Promote the stock program using a variety of media: email, company intranet, HR blog, employee newsletter, posters around the office, benefits statements, etc.
Make things personal. Meet with employees in person about their grants. If your company is too large for you to do this, have managers or local HR reps hold these meetings.
Have employees provide testimonials about what the program means to them.
Make sure employees understand the stock program.
Don’t oversell the program; disappointment has a devastating impact on perceived value.
It’s Not Too Late to Enroll in the NASPP’s Financial Reporting Course The NASPP’s newest online program, “Financial Reporting for Equity Compensation” started on Thursday, July 14, but it’s not too late to get into the course. All webcasts have been archived for you to listen to at your convenience.
Designed for non-accounting professionals, this course will help you become literate in all aspects of stock plan accounting, from expense measurement and recognition, to EPS and tax accounting. Register today so you don’t miss any more webcasts.
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.
With the year-end quickly approaching, I thought that the final versions of Forms 3921 and 3922 would surely be waiting upon my return from my vacation last week, providing foddor for the NASPP blog (the IRS, along with the SEC and FASB, seem to have a knack for releasing stuff when I’m on vacation). But, to my surprise, the final forms still aren’t available. So instead, this week I blog about a recent case in the Maryland Court of Appeals relating to a company’s right to cancel options upon an executive’s resignation, which reminded me of a few best practices to ensure that, when employees terminate, stock awards receive the treatment the company intends.
Forfeiture of Awards Upon Termination of Employment: Not Always As Clear Cut As You Think The case involved an executive who voluntarily resigned but continued to work while severance negotiations were ongoing. The negotiations failed and the company terminated the executive–just eleven days prior to when his options would have vested. The county court (where the case was initially tried) assigned a value of around $850,000 to the options, presumably based on the spread on the vesting date or the date the executive tried to exercise the options. Given the sum involved, I can only imagine that the eleven days ate at the executive–resulting in his lawsuit claiming that the options were “wages” owed to him under Maryland’s Wage Payment and Collection Law.
To those of us in the business, this might seem like a no-brainer in favor of the company, but the court in which the case was initially tried found in favor of the executive. It all worked out in the end, at least from the company’s perspective, because the appellate court decided against the executive. Even so, lawsuits are expensive, especially those that end up in appeals, so this wasn’t exactly a landslide for the company. The case brings to mind a few best practices.
Dot the I’s and Cross the T’s
Proper documentation is key. This lawsuit is exactly why your attorneys want you to require employees to sign their grant agreements–so that, if necessary, the company can prove that employees knew the terms and conditions of their grants. I’ve read about numerous lawsuits relating to the treatment of stock compensation upon termination and a large percentage of them hinge on whether or not the employee was informed of the vesting and forfeiture conditions.
In addition to having a signed grant agreement, retain copies of any communications to employees that notify them of the terms of their grants and, in particular, any communications relating to their stock compensation that are provided at the time of termination. I’ve read about one case disputing termination provisions where there wasn’t a signed grant agreement on file, but where the subsequent communications that the company was able to produce were sufficient to decide the case in the company’s favor.
Proper documentation is especially important in sensitive circumstances, such as when an executive is leaving on bad terms (as in this case), an employee is terminated for cause, or a reduction in force.
Don’t Be Late
It is critical that stock plan administration receive timely notice of terminations. In this case, the executive actually tried to exercise his options and wasn’t able to because a block had been placed on his account. If the notice of termination had been received just a couple of weeks late, the exercise might have been permitted. Trying to unwind that transaction and force the executive to disgorge the amounts realized on it would have made things infinitely more complicated (and that much more expensive for the company).
Be Prepared
When a reduction in force is planned, it’s a good idea to check for vesting dates that occur shortly after the expected last date of employment. In this case, the employee was voluntarily resigning, so this wasn’t as much of an issue. But where employees are involuntarily terminated, forfeiture of awards that would have vested shortly after their termination date can be problematic. At best, it leaves everyone feeling even worse than they already do. At worst, it can look like the company purposely terminated employees to avoid having to pay out the awards–especially if a large group of the terminated employees had awards vesting on the same date. It might be best to accelerate vesting of the awards in question.
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.
I was fortunate to be the moderator for one of the Conference sessions, “QUALCOMM and Microsoft: Gold Standards in Employee Communication.” It was very exciting to see all the top-notch communications policies and practices in place at these two companies! I can’t share them all with you in just one blog entry, but today I share my absolute favorites.
Custom Alerts
Custom communications are a fantastic tool for alerting employees to important events or necessary actions. What impressed me the most about the alert systems that used by both of these companies is that they are able to send out alerts for upcoming events from an internal email address. Your broker may be able to help with some or all of these alerts. However, the cool thing about taking it in-house is that when essential messages come directly from the stock plan services team, employees are trained to pay attention to both their equity compensation and other communications from the team.
There are a number of alerts and notifications that may be useful to employees. These three really stood out:
Countdown to Grant Acceptance Deadline
If you have a grant acceptance policy with teeth (e.g.; recipients forfeit the grant if not accepted within a specific timeframe), this particular alert is particularly important. Even if there are no defined consequences for failure to accept a grant, reminding an employee periodically that there is a grant that requires acceptance is a best practice. Targeting employees who have this on their “to do list” greatly increases the odds that they will complete the grant acceptance process.
Upcoming RSU Vest
An upcoming RSU vest is a time for planning, both for the stock plan services team and the employee. Including action items in an alert to employees helps them prepare. If there are any choices or actions that have a deadline (like broker selection, tax payment method, or grant acceptance), this type of alert may be your last chance to get their attention.
Unexercised Option Expiration
An automated alert sent directly to employees notifying them of an in-the-money option that is about to expire is great for them and can reduce risk for the company. Notifying them of a deeply underwater option that is about to expire, on the other hand, is just rubbing salt in the wound. Create parameters that weed out the options that have no hope of being in the money before expiration and you’ve got yourself a stellar communications practice!
Rolling out a new plan
Many companies are changing the way they look at equity compensation. This presentation offers many unique practices for rolling out a new plan or compensation philosophy to employees. If your company is considering changing the compensation mix, introducing a new equity compensation vehicle, or expanding performance grants to a larger population, this presentation has some essential tips for you. These three ideas were my favorites:
Blog
This one really is timeless. Having information available on the intranet is great. Actually, it’s essential in my book. A blog that employees can either subscribe to or go for the latest updates and archived of information and FAQs gives you a forum that is dynamic and current. Implement it when rolling out something new, and keep it up to feed employees information in bite-sized pieces later on!
Webcasts by Location
Again, this is another idea that is fantastic for communicating a new plan, but doubles as an ongoing tool that is especially helpful for new hires. Webcasts can be saved for download on the intranet or aired at special meetings or new hire orientations. Customizing the information to fit each country or location, including translation if necessary, really personalizes equity compensation in a way that one generic presentation simply can’t. This way, employees will see grant sizes, tax implications, and brokerage information that is applicable to them.
Practice Communications
I was totally tickled by this idea! You start by creating focus groups to find out what verbiage and format gets the best results. Then, test out your dissemination process on another group. The example from the presentation is a “cascading” communications strategy, an advanced version of “train the trainer”. The information starts with the VPs and moves on down the organizational chart with each level speaking to the employees directly under them. This can be a highly effective communications strategy, but it could turn out like a bad game of “telephone.” Taking a dry run lets you see what your end result is with your test group and gives you time to make necessary adjustments before implementing the communication process for the entire company.
April 15th is looming and many of your employees will be scrambling to get their taxes filed. Since crunch time exaggerates confusion, this last push will really highlight the top issues your employees face when it comes to reporting their equity compensation.
Keep a Tally
It’s a busy time of year. I know you have a lot going on, and fielding tax questions from employees only makes it busier. But, give this a try, anyway. Keep a tally of the types of questions that you get from employees who are trying to file their tax returns. Better yet, see if you can bring your HR teams in on the count (or at least get feedback from them). This is the best feedback on your communications efforts that you can get from your employees. They may love your seminars, you may have high participation rates, you may even have 100% grant acceptance. But, when it comes down to actually getting the right numbers onto the right tax forms, employees absolutely must have absorbed what you’ve been telling them. If you see a particular type of question come up more often than any other, then you know what information to tackle in the coming year. If you get too many questions to even begin to keep track, then tax time is telling you to step up your game and get communicating.
More Choices Mean More Issues
If you have multiple equity compensation vehicles (say, an ESPP, NQ options, and RSUs), employees have a lot to sort through when tackling their tax returns. If they sold shares during the year, they need to understand how to find the cost basis of those shares and whether they are reporting income or capital gains. If you find that a significant number of questions center around employees’ inability to distinguish between their different pieces of equity compensation, then maybe tax time is telling you to reconsider the mix as well as the choices. Even just limiting tax payment methods can reduce the confusion.
Walk the Line
A difficult issue that stock plan management teams deal with is exactly how to help an employee understand their equity compensation well enough to file a correct tax return without actually offering tax advice. I think the best way to avoid the two extremes of either giving out too much information or frustrating employees by just sending them away unassisted is to have standard communications and samples ready. You can get buy-off from your legal department on the communications, desiminate them to HR locations, and make them available on your intranet. This helps to control the message that’s going out to employees and will save you time when you can direct an employee to a resource instead of walk them through the information personally.
If you find that you are getting a significant number of employees begging for tax help beyond what is in your standard communications, tax time may be telling you that employees need tax advice resources. Check with your legal team and your current service providers to see if you can direct employees to a list of financial advisors that understand equity compensation.
NASPP Resources – Be a Part of the Solution!
We now have an Employee Communications portal on the NASPP site. Included in the content are samples of how other companies are helping employees understand their equity compensation. This is a great place to share and learn, so don’t be shy about submitting your own communications. You can submit via the Employee Communications portal, or by contacting me directly. You can find my contact information in the NASPP On-line Member Directory.
If you signed up to participate in the 2010 Domestic Stock Plan Design Survey, but haven’t completed it, yet, don’t forget that the deadline for completion is Friday, April 9th! Remember, anyone who completes the survey will get an additional 10% discount on 2010 Conference registration fee.