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.
We recently posted the executive summary to the NASPP and PwC 2015 Global Equity Incentives Survey and, later today, we will be presenting highlights of the results in our webcast, “Top Trends in Equity Plans for International Employees.” For today’s blog entry, I highlight five findings that I think are significant:
Globalization Continues: Back when we did the 2012 survey, 20% of respondents said they expected to increase global participation in their stock plan and this trend held steady in 2015, with 19% again expecting to increase participation. In addition 77% of respondents said they expect global participation to remain the same. That leaves only a very small percentage of companies that expect to pull back their global stock plans.
Compliance Reviews Are More Routine: The percentage of respondents who said they conduct annual compliance reviews of their global stock plans increased to 43%, up from 34% in 2012. At the same time, respondents conducting only sporadic reviews dropped to 40%, down from 45%. It can be risky to wait until you hear about a regulatory change to conduct a compliance review; annual reviews help ensure that you know when the laws impacting your global stock plan have changed.
UK Takes the Lead in Challenging Tax Compliance: We asked respondents to indicate which countries they found to be challenging in terms of tax compliance. The UK was first, with 46% of the votes, up from 36% (third place) in 2012. China, however, is hanging in there at second place with 42% of the votes (China was in first place in 2012). France dropped to third place, with 26% of the votes (down from second place and 38% of the votes in 2012).
Mobility Compliance Up: The percentage of respondents tracking mobile employees continues to increase: 87% of respondents track formal assignees (up from 80% in 2012), 62% of respondents track mobile employees who aren’t part of an assignee program (up from 60% in 2012), and a surprising 27% track business travelers (up from 18% in 2012). But the tools for tracking mobile employees still leave something to be desired: 36% of respondents track this in an Excel spreadsheet, up from 29% in 2012. About another third (32%) outsource tracking to a consultant or TPA. The final third use a hodge podge of methods.
Participant Understanding Looks Like a Mountain Rather Than a Bell Curve: Only 34% of respondents felt that their global participants understand a good deal or completely understand their stock plan benefits. That leaves a two-thirds majority for whom participant understanding is at best, somewhat or partial. Global stock plans are a very expensive employee benefit, both in terms of the P&L and administrative cost. It seems a little crazy to invest resources like this in a plan and not also invest in the education to make sure participants understand it.
Be sure to tune in to the webcast later today to learn more highlights from the survey.
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?
Many companies are in the throes of year-end related activities. If your fiscal year ended on December 31, then you have the double duty of year-end financial reporting tasks combined with U.S. tax reporting requirements. Typically when I think about “year-end” and all the associated to-dos, things like W-2s, 1099s and participant communications are the first things that come to mind. In thinking further, I realize my perspective is a bit narrow. It’s a big world out there, and, for companies with employees outside of the U.S., there are additional reporting tasks associated with all the various non-U.S. jurisdictions that must be completed. In today’s blog I highlight some thoughts and tips for complying with year-end reporting requirements in non U.S. jurisdictions.
Thanks to a recent article published by Jones Day, available in our Global Stock Plans portal, I’ve been able to refresh my understanding on several key aspects of global year-end reporting compliance. I’ll focus on some general tips that came to my mind; country specific detail is available in the article and I’ll leave it to the law experts to share those tidbits.
It’s a Big World Out There
Yes, it’s true, the U.S. is not the only jurisdiction that requires year-end tax reporting related to stock plan transactions. I find that working in the U.S., it’s natural for us to be more intimately in the know when it comes to U.S. tax reporting compliance. However, as we know, there are many other locations that have similar reporting requirements. It’s important to understand which countries have existing legislation or measures and then formulate a plan to comply. Will a local resource be tasked with compliance? Will this be outsourced to a third party? Will corporate representatives facilitate such reporting?
Not All Tax Years Are Created Equal
One challenging aspect of managing stock compensation globally is the individuality of each global jurisdiction and their securities, tax, labor and other laws and requirements. These challenges remain consistent in the year-end reporting process as well. Not all tax years end on December 31. In fact, it’s common to see tax years ending in April, June and other parts of the year. For example, Australia’s tax year ends on June 30th. India’s tax year ends on March 31st. In some ways varied year-end dates may lessen the calendar year end burden placed upon stock administrators, payroll personnel, and others who work in managing global operations. However, it can be tricky to keep track of the multiple dates, deadlines and corresponding requirements. If you have employees with reportable transactions in multiple countries, you may want to create a global tax reporting calendar for the purpose of tracking important deadlines and requirements.
When You Assume…
There’s an expression about making assumptions, but in order to keep things professional I can’t write it here. If you’ve heard it, you know what I mean (and if you haven’t, I’ll be happy to share it with you offline). Anyhow, assumptions can lead to failures, and those of the compliance kind we certainly want to avoid. I’ve seen it happen many times – an assumption is made that local payroll is handling stock compensation related tax reporting. The problem? Payroll didn’t know they were supposed to do it, or, in some cases that there was even a requirement to report. Other possible vulnerabilities can be found in withholding rates (some locales have different rates for different situations, such as for current and terminated employees). While in many cases, local resources may know more about their own reporting requirements than those in the corporate office, it’s unwise to assume that everything will happen autonomously at the local level as intended. Even if you plan to have local resources handle the bulk of tax reporting and other year end compliance tasks, plug yourself in. Get involved and understand exactly what is being reported, for whom, and by when. This may involve internal business partners and external advisers with expertise in this area, and cross-communication is important.
Back to Work
I know we could talk for days about the extent and complexity of managing global stock plans, but alas it’s time to get back to work. I wish everyone a smooth year-end process, whenever that “year-end” may be.