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.
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.
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!
Buck Consultants’ 2013 Global Long-Term Incentives survey returned insight into some of the trends that capture the pulse of the global happenings in stock plans. In today’s blog, I’ll highlight some of the key observations.
It’s a Small World, After All
Oops, as soon as I wrote the above caption, the song from Disney’s “It’s a Small World” ride has been looping in my head. Sorry if it’s happening to you now, too (although misery does love company).
What I was reaching for is that some of the global trends point to a fairly consistent and uniform approach across the global board. Among them:
Full value awards (time and performance based) are squarely the dominant form of equity compensation, with RSUs presently delivering the most value, globally.
Stock options are out; their use globally continues to decline.
The use of broad based equity globally is on the decline, and usage rates are projected to stay fairly flat in 2014. Senior management levels and above are most targeted to receive grants from the equity plan.
There weren’t any big surprises there – these trends have existed in the U.S. for a while now, but it is nice to have some confirmation that this truly is a global trend.
I was reminded when reviewing the summary of the survey of the key factors that drive global equity plan decisions:
Overall objective: the company’s high level objectives filter down to many decisions, including how and when to use equity compensation.
Local talent market: Sometimes it’s easy to forget that there are many other job markets and economies outside of the U.S. The dynamics of the local market can be a huge factor in determining a compensation approach. The survey summary cited the examples of China, India and the Philippines – all of whom have hot labor markets right now.
Red tape: This has long been a consideration for U.S. parent companies looking to extend their compensation programs abroad. Just how many legal, securities, and employment considerations exist are largely specific to each country and therefore need to be considered in advance of adopting an equity approach in those regions.
Taxes: The tax implications of certain award types are a big driver in determining what will maximize the value to the participant. Employer taxes are also a consideration.
Administration: Last, but not least, the cost and burden to administer these programs abroad is considered. There are only so many resources available, and in some cases it may not make sense to issue equity once the administrative analysis comes into play.
One of my favorite NASPP resources is the bundle of Country Guides in our Global Stock Plans portal. The Guides provide a lay of the land on a myriad of considerations (including commentary from the practitioners who work on these guides) for 34 countries. If you are looking to expand into new regions, or offer additional equity types in existing countries, the Country Guides should be your first stop. There are a myriad of other resources available in the portal as well, all contributed by the folks and firms who specialize in global stock plans – a true gold mine of information.
“There’s an app for that…” has become such a mainstream phrase in our society, it’s hard to remember that it’s only been a handful of years since “app” emerged as a word. As technology and apps have sprouted at light speed, it’s nice to see the trend carry over into our world of equity compensation. The more tools, the better. In today’s blog, I’ll highlight the features of a cool new app that just launched – the Baker & McKenzie Global Equity Matrix app (kudos to anyone who can accurately count how many times I use the word “app” in this blog today.)
Get in the Know
I’m an iPhone user, so I downloaded the app as soon as it was available last week, excited to test drive global stock plan information with a screen touch. By my count, you can presently access select tax and legal information for equity types in 40 different countries. The app is very simple to use – just choose your country, and decide whether you want to see “all” information, or filter the information for stock options, restricted stock/units, or ESPP. Voila, information on things like taxation, subsidiary deductions, exchange controls, securities restrictions, withholding and reporting, plan entitlement and data privacy all appear. Pretty nifty. One thing I really liked was that you can filter by country, equity type, and topic. That means if you only want to see information on data privacy for RSUs in Colombia, you can narrow the field of information and don’t have to scroll through a myriad of other data.
Some key highlights of the app include:
Available for iPhone, iPad and Android. Just search for “Global Equity Matrix”.
It’s Free. It’s a FREE app, which makes it easily available to all of us.
It’s regularly updated. I’m guessing this is similar to the hard copy matrix that Baker & McKenzie publishes with country updates. They indicate that this app will be regularly updated as well, so that should help to keep up with new developments.
Get updates to important developments. As things happen, updates will be sent right to your device.
I can completely see the value of an app like this one. We all bring our smartphones to meetings anyhow – wouldn’t it be great to tap into the considerations for a jurisdiction right there in the meeting, via an app at your fingertips? Technology keeps evolving, and I love these tools that are emerging to empower us with knowledge and help us to be even more efficient in our work.
The Global Equity Matrix app is available via your smartphone. You can also find the link in our Global Stock Plans portal. I can’t wait to see what someone thinks of next.
Speaking Proposals: NASPP Conference speaking proposals are due a week from Friday, by March 1. With the Conference in September, we are on a tight schedule this year and cannot make any exceptions to this deadline, no matter how dire the circumstances. If you feel the flu coming on, plan accordingly.
Early-Bird Registration: For those of you that are not hoping to speak at the Conference, the deadline for early-bird registration ends on Friday, March 8. This deadline also will not be extended. Don’t pay more than you have to for the Conference; register by March 8.
Quick Survey on Globally Mobile Employees Take our quick survey on globally mobile employees. With just eight questions, we’re serious about the “quick” part–you can complete the survey in less than five minutes!
We Have a Winner! Congratulations to Elizabeth Dodge of Stock & Option Solutions! Elizabeth won our raffle for the free registration to the CEP Symposium.
Here’s your NASPP “To Do List” for the week:
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 we keep an ongoing “to do” list for you here in our blog.
This week, we feature another installment in our series of guest blog entries by NASPP Conference speakers. Today’s entry is written by Jon Doyle of International Law Solutions, who will lead the session “The Amazing Race–Revisiting Global ESPPs.”
Companies are increasingly revisiting global ESPPs. Whether your company has offered its ESPP globally for years, is considering starting or re-starting an ESPP, or expanding your existing ESPP into new countries, this session is for you. The panel will take an in-depth look at global ESPPs.
Increasingly, with complex and expensive regulatory obstacles, as well as low participation in some cases, companies are more selective in offering their ESPPs around the world. In addition, companies that may have suspended their ESPPs internationally due to compliance, participation and budgetary concerns, are increasingly exploring offering their ESPPs in new markets. The panel will discuss the importance of setting expectations on participation and educating executives and local management about global ESPPs.
We will examine the regulatory challenges of a global ESPP, including the unique issues presented by Section 423 plans and how a non-423 component may be of use to you. We will discuss balancing the goal of offering an ESPP broadly while staying compliant. We will explore how to navigate through compliance and administrative roadblocks, as well as the impact of a company’s corporate structure on these plans. The panelists will share their experiences and best practices for successfully offering ESPPs globally.
Don’t miss this session, “The Amazing Race–Revisiting Global ESPPs,” presented by Jon Doyle of International Law Solutions, Bob Hartley of BMC Software, Wendy Jennings of Riverbed Technology, and Kate Lloyd of Accenture at the 20th Annual NASPP Conference in New Orleans, October 8-11.
This week, we feature another installment in our series of guest blog entries by NASPP Conference speakers. Today’s entry is written by Marlene Zobayan of Rutlen Associates, who will lead the session “Keeping Up With The Updates.”
When I first started in the global equity field over 15 years ago, we would prepare specific reports for companies wishing to offer equity globally. For each client, we would send their plan to a local expert in each country who would write a report on the tax and legal consequences of that plan. The overall report would be compiled by a US representative who managed the relationship with the client and talked the client through the findings. In a field that was new to most, this process a good path to follow. It was a surprise to most companies that not all countries followed the same logic as the U.S. when taxing equity compensation.
However, as time went on, the information became more readily available and the level of knowledge among industry members grew. It is no longer ‘news’ to anyone that Australia taxes stock options at vest or that the employer can save money through a French qualifying plan. In fact most of this information is now readily available on the web. However, now we have the opposite issue–the information available is overwhelming, confusing to the layperson and oftentimes contradictory. Additionally, the underlying laws seem to change at an unprecedented rate, for example the first quarter of 2012 there were at least 24 updates of new and pending legislation impacting global equity awards.
Information Overload?
Many accounting, consulting and law firms distribute newsletters to clients and friends whenever there is a change in the international laws impacting equity awards. While a useful tool, and often extremely well written and informative, the net result is that many companies get inundated with similar newsletters from different sources. There is little time to read and understand them all.
Regardless with the rapid pace of international developments all global companies must make the time and effort to keep up to date otherwise they can quickly find their practices and processes out of date and non-compliant.
A Free Resource for NASPP Members
In the NASPP Conference session “Keeping Up With The Updates“, the panel will review the wealth of information available on the NASPP’s Global Stock Plans Portal. These include the alerts which notify companies of updates and the Country Guides, all organized in a searchable archive by country. These resources provide a good foundation for an administrator whose company is expanding into a new country, extending a new type of plan or who simply wants to stay up to date. Although the NASPP global portal is a great resource to educate yourself, it is not a substitute for professional advice. The panel will help companies understand how to identify when the free resources are insufficient, and technical expertise is needed. Finally, the panel will cover some recent updates with a surprise guest.
How many other sessions can help keep your company out of trouble, save you money and provide a surprise guest too?
Global stock plan administration is more complex than ever. As more companies venture into foreign jurisdictions, more stock plan administrators become tasked with managing this new and ongoing growth relative to the company’s stock incentive programs. The NASPP recognizes the importance of identifying and understanding global stock plan practices and trends; that’s why, in partnership with PwC, we’re conducting the most comprehensive industry survey on this topic: the NASPP-PwC 2012 Global Equity Incentive Survey.
The last global survey was conducted in 2008 (in partnership with Deloitte), and even back then more than 60% of respondents had at least 2,500 employees based outside of the U.S. That’s a good sized population, and I’m betting those numbers have only increased since then, meaning that understanding global practices is even more important than ever. Back in 2008, non-qualified stock options ranked as the most popular form of stock compensation for employees outside of the U.S.; it will be interesting to see how much the use of Restricted Stock Units has risen in usage since that time.
In 2008, about half of responding companies indicated they make adjustments to the size of grants for their non-U.S. employees. 42% of companies had reported having recharge agreements in place with subsidiaries for stock plan arrangements. Have those trends continued to rise since then? This past year, our 2011 Domestic Stock Plan Administration Survey (in partnership with Deloitte), revealed some domestic trends that were somewhat surprising – for example, a dramatic rise in the use of stock ownership guidelines. Certainly we had expected this trend to continue to penetrate organizations, but the percentage of companies in 2011 (73%, vs. 54% from the prior survey in 2007) that had implemented such guidelines surpassed even our own informal projections. A lot can happen in four years, and we’re expecting to see some new trends on the global front, even some that may surprise us. You don’t want to miss out on the opportunity to have the full results available at your fingertips.
Time is running out to complete the survey (you must complete it by May 25th,) and, if you are an issuer, you must finish the entire survey to obtain the full results. To help you get started, I reiterate some tips to help submit your survey:
1. Don’t wait until the last minute. This is the industry’s most comprehensive survey; it includes loads of valuable information but it takes a while to complete. Start now, so you have plenty of time.
2. Don’t try to complete the whole survey in one sitting. The survey is divided into seven sections so that you can complete it in several sittings. If you complete just one section at a time, you’ll be done before you know it.
3. Get some help. Ask others at your company to complete the sections related to their responsibilities–everyone at your company will benefit from this data; there’s no reason for you to do all the work.
Incentives
There are benefits to completing the survey. First, as mentioned, you’ll have access to the full results (non-issuers who are NASPP members will also have access since they can’t complete the survey.) Second, you’ll receive a 10% discount on your registration to the 20th Annual NASPP Conference*, to be held this year from October 8-11 in New Orleans. This is a great opportunity (and added incentive) to attend the industry’s premier conference!
I hope I’ve given you enough reasons to click on over to the survey and start it today. I know I personally can’t wait to see the results.
-Jennifer
**The 10% discount applies to the rate in effect at the time you have both completed the survey and registered for the Conference.
One of the aspects of stock plan management that I’ve always found particularly challenging is keeping on top of “global” developments. We keep ourselves plenty busy trying to stay abreast of U.S. requirements for administering our stock plans, and when you layer in a foreign jurisdiction, or two, or a dozen, or more, now you’ve got a handful. The work has multiplied.
This week brought a few changes or updates on the global horizon, and in today’s blog I’ll summarize them in case you’re interested.
A SAFE Update in China
For Companies offering equity compensation to employees who are PRC nationals in China (and I know that there are many of you that do), approval from the State Administration of Foreign Exchange (“SAFE”) has been required since 2007 (via Circular 78). The process for obtaining SAFE approval has been long and cumbersome for many companies. For those companies who have, are contemplating, or are in process of seeking to gain such approval, some good news has emerged: in February, Circular 78 was replaced with a new Circular 7, effective immediately. Circular 7 seems to simplify the process of obtaining SAFE approval for equity compensation plans, including provisions that reduce the documentation required, expand the entities and people covered in the application, and cover more award types. There are some great alerts with more details on this topic in our Global Stock Plans portal. Be sure to check them out – included is information on action items that may be necessary even if you already have previously obtained SAFE approval in China.
Expanded Reporting in France for Qualified Plans
For those of you with French-qualified stock plans, new reporting requirements went into effect on January 31, 2012. Included is expanded reporting for stock option exercises. The bottom line: for stock options exercised on or after January 31, 2012, the new requirements apply. For details, visit our Global Stock Plans portal.
Adoption of IFRS: Urban Legend?
The talk about the possibility of the U.S. adopting IFRS as its accounting standard has started to sound like an urban legend in my book. Okay, well not really, but it was fun to describe it that way. It does seem like there is a lot of talk about “when” the SEC may have a timeline or more guidance on if and when IFRS will be implemented (and usually it remains just “talk”, since no SEC decision on the matter has been made). According to the Journal of Accountancy, the SEC’s Chief Accountant, James Kroeker, indicated at a conference in February that the SEC is on track to issue a decision in the next few months. A precise deadline has not been publicized and it seems that won’t happen until the SEC gets much closer to completing their report on the issue. This is something to keep an eye on over the next 6 months or so. Stay tuned.
Those are the highlights on the global front this week. As I mentioned above, there are resources in our Global Stock Plans portal that go further into these updates – well worth a few minutes of time.