This week, we feature another installment in our series of guest blog entries by NASPP Conference speakers. Today’s entry is written by Bill Dillhoefer of Net Worth Strategies, who will lead the session “Supercharging Your Stock Option Grants.” 10 pts to Bill for successfully using the word “quants” in his entry!
My company has been providing equity compensation decision support services since 1999 so we have witnessed firsthand a great deal of the development in stock plan participant education. Here’s a brief summary…. The internet bubble (1995 – 2000) instigated many companies to begin offering broad-based employee stock option programs. These companies had to provide participants with basic information about their stock option grants because options were new and mysterious. This was the “Options 101” phase because these communication programs generally avoided the more complex aspects of stock options.
This early phase of participant education may have transitioned into one that addressed advanced topics had it not been for two major factors. First, the internet bubble burst, causing the appeal of stock options to decline because underwater grants were perceived as worthless. Second was the adoption of FAS 123(R), which eventually resulted in the curtailment of broad-based option programs and the increase in popularity of restricted stock/units. Consequently, the adoption of advanced stock option education programs never gained popularity among issuing companies.
Nevertheless, stock options are still a widely used means of granting equity to valued employees. Even if your company isn’t currently granting new stock options, if your employees have outstanding options grants you can significantly increase their perceived value. It is often said that “perception is reality” so by simply educating participants on the Black Scholes value of their grants, this value become a reality. Now you are probably thinking this is crazy because Black Scholes is WAY over their heads and will only serve to confuse and discourage people. On the contrary, learn the secrets and benefits of providing employees with Black Scholes based information by attending “Supercharging Your Stock Option Grants” at the 20th Annual NASPP Conference.
This presentation consists of four sections. Professor Anne Farrell will present academic research showing that individuals misunderstand the full value of their employee stock options and how basic training can significantly change their subjective valuations. Next, I will introduce two time value based metrics: Forfeit Value and the Insight Ratio. These metrics can be incorporated into stock option communication programs and can increase retention and motivation by helping employees make informed decisions. In the third section, Clinton Shoap from Cargill, Inc. will provide examples of how they have successfully used time value information with their employees. Finally, Larry Bohrer from Charles Schwab will describe their approach to helping companies to realize the full potential of their option awards and how complicated concepts can be understood by participants when presented in the right framework.
Who says Black Scholes is only for quants? Delivered in the right manner Black Scholes information can be fun and profitable for employees with stock options. “Supercharging Your Stock Option Grants” should not be missed.
This week, we feature another installment in our series of guest blog entries by NASPP Conference speakers. Today’s entry is written by Joseph Purdy of Solium Transcentive, who will lead the session “Risky Business: Ten Ways to Protect Your Equity Programs.”
Life is full of risks; it is what makes life so interesting. It is how you navigate through the tidal wave of challenges that these risks pose that measure the quality of your success. Well, like everything in life, equity compensation plans involve many different types of risks. As an issuer’s plan administrator, you are responsible for understanding those risks and taking any action possible to mitigate them. It is a daily game of covering your…assets. This includes protecting your job, your reputation, your company, your executives, your shareholders and your most valuable resources–your employees.
Though I have spoken at many conferences, including several local NASPP chapter events, this is my first time on the “big stage” at the national conference. I am very excited to present with a great and diverse panel with years of experience in plan administrative services along with in-house administration, education, compliance, tax and legal services. I have the honor and privilege to present with Emily Cervino of Fidelity Investments, Renee Deming of Cooley and Lori Brennan of UBS Financial Services.
When putting this panel together we wanted to make sure the audience would walk away with a list of suggested procedures to verify or put in place to help mitigate risk. We wanted to ensure this wasn’t like other risk-based sessions we’ve seen over the years that simply scared you with the consequences of risk but really didn’t talk about how you can help mitigate the risks. Our topics will range from grant issuance to taxation and data flow to communication. We’ll also discuss some differences between in-house administration versus plan outsourcing scenarios with a strong emphasis that outsourcing your plan does not diminish your responsibilities for oversight and risk mitigation.
An interesting thing happened on the way to submitting our slide deck to the NASPP. We too ran into a risk situation due to the content of our presentation. The risk was identified by an internal process established by one of the firms represented on this panel. Since our presentation title includes the name “Risky Business” we couldn’t resist putting some pictures from a certain famous ’80’s movie into our slide deck. We were sad when we were told our presentation would create a copyright risk and all the pictures had to be removed. At the same time, it reminded us that risk review policies like this are imperative. This means our funny pictures of Joel, Lana, Barry and even Guido have been replaced with boring pictures of dice–sorry.
Make sure you join us for what should be a very interesting and informative panel. “Risky Business: Ten Ways to Protect Your Equity Programs” is session 4.2 on Tuesday October 9. See you there!
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?
This week, we feature another installment in our series of guest blog entries by NASPP Conference speakers. Today’s entry is written by Narendra Acharya of Baker & McKenzie, who will lead the session “50 Ways to Pay (and Tax) Your Board of Directors.”
While Board director compensation does not receive the same level of media focus as executive compensation, it does not escape scrutiny (see “Companies With the Highest-Paid Boards of Directors,” The Bottom Line, June 15, 2012). Earlier this year, director compensation was also the subject of a recent unsuccessful shareholder proposal to expand Say-on-Pay to director compensation (see Proposal 5 in Apple’s 2012 proxy statement).
At the same time, director compensation varies across companies to a greater degree than executive compensation practices and is more likely to be more influenced by the company’s historical practice than the company’s executive compensation practices. As a result, there can be substantially greater differences in the structure of director compensation than executive compensation, even within the same industries. Director compensation correlates more with company size than with industry (see “Annual Survey Reveals Emergence of New Compensation Practices,” The Conference Board, November 2, 2011.) These differences in the structure include different vesting practices as well as the availability of deferral elections.
Even when director grants are made under the same equity compensation plan that is used for employee awards, the process and procedures for implementing grants often is quite separate from the employee grant procedures and the grants may be administered by a group that does not generally administer employee awards.
As the makeup of boards becomes more international–recent surveys indicates that up to 10% of non-employees directors are not U.S. nationals–more companies need to address the specific US tax requirements that apply when non-employee directors are a US nonresident alien for income tax purposes. In the absence of specific tax treaty relief, companies can be required to withhold at a flat 30% rate on all of the director compensation paid to US nonresident alien directors. This can be a surprising result–in contrast to the treatment of compensation paid to US citizen/resident directors.
At the 20th Annual NASPP Conference, the session “50 Ways to Pay (and Tax) Your Board of Directors” will provide a multi-disciplinary review of trends in pay practices for directors. The session will also provide an overview of the US tax consequences of directors’ compensation including the use of stock and deferral programs. Finally, the session will address the unique US tax issues related to directors that are not residents of the United States for income tax purposes.
This week, we feature another installment in our series of guest blog entries by NASPP Conference speakers. Today’s entry is written by Ellie Kehmeier of Steele Consulting, who will lead a session on Section 162(m) at the NASPP Conference.
If any code section warrants the old adage “the devil is in the details,” it’s got to be Section 162(m), which disallows corporate tax deductions for compensation paid to top executives in excess of $1 million. Complying with the requirements of this section can be devilishly tricky, especially when it comes to trying to preserve tax deductions for equity awards by meeting the exception for performance-based compensation.
My fellow panelists, Danielle Benderly of Perkins Coie and Art Meyers of Choate Hall & Stewart, and I have presented on 162(m) before. We realize that, while it’s an incredibly important topic, it can also be an incredibly dry topic. For our session in New Orleans, we plan to bring 162(m) to life with lively back-and-forth discussion of issues raised in a detailed case study we’re putting together for this session that hits on many of the stumbling blocks that we’ve seen trip up HR, legal, and tax professionals alike.
For example, while most people understand that stock options and SARs generally qualify as performance-based compensation as long as the awards aren’t granted with a discounted exercise price, it’s easy to overlook the additional requirement that the compensation committee that grants equity awards to 162(m) covered employees must be comprised solely of two or more “outside directors”. Easy enough, you might think: if we’re already following the NASDAQ and NYSE listing requirements for independent directors, we should be okay, right? Not so fast! The tax rules are different, and in some respects more stringent, than the exchange listing requirements. For example, if your company pays any amount, no matter how immaterial, to an entity that is more than 50% owned by a director (directly or beneficially)–such as a caterer or florist that happens to be owned by a family member of that director–then you have a problem! If your compensation committee fails to meet these requirements, then all the equity awards granted by the committee similarly fail. That’s a harsh result, and can cause a pretty big hit to your company’s bottom line!
We will also use our case study to explore other outside director challenges, as well as tricks and traps related to when performance goals need to be established, if and how they can be changed, and when and how to get shareholder approval. For example, do your plans explicitly address how your compensation committee can adjust performance goals to reflect the effect on an acquisition? Can your company pay bonuses outside of your performance plan if the established goals are not met? Can you structure compensation for executives hired mid-year to comply with 162(m)? Our case study will also address the transition rules for newly public companies. Finally, we’ll discuss planning opportunities and best practices, and cover recent developments, including proposed 162(m) regulations that may be finalized by the time we meet in New Orleans. We’ll see you there!
This week, we feature another installment in our series of guest blog entries by NASPP Conference speakers. Today’s entry is written by Brian Frost of Towers Watson, who will lead the session “The Better Part of Valor: Discretion in Performance Share Plans”
Discretion and Long-Term Performance Plans By Brian Frost of Towers Watson
Long-term performance plans are becoming more prevalent every year as companies strive to align executive pay with shareholder returns. However, some compensation committees have become uncomfortable with establishing fixed goals for a three-year period due to the uncertain economic environment or changes happening at the company. To address these challenges, one approach might be for the committee to establish some initial performance goals while reserving the discretion to adjust the payout after taking into account likely outside perceptions and company-specific issues. Maintaining this flexibility comes with some downsides, however, and a particular concern is the potential for significant changes in the timing and amount of compensation reported in the company’s Summary Compensation Table (SCT). This, in turn, can influence the views of shareholders, proxy advisors and the press, which makes the decision to retain and exercise discretion one that requires a full understanding of the implications.
These are among the issues we’ll address in our October 10 session (6.3) at the 20th Annual NASPP Conference entitled “The Better Part of Valor: The Complicated World of Discretion in Performance Plans.” While the accounting rules are fairly straightforward when dealing with mainstream plan designs, more complicated plans, including those involving discretion, often reside in a gray area where accounting guidance is vague and the company and its accountants must use judgment to determine the appropriate accounting treatment. While the accounting interpretation may not have a material impact on the company’s financial statement, it can have a profound impact on the amount and timing of reported pay for NEOs. Participants in our session will gain insights about the plan design considerations that lead companies to use more discretion in determining performance plan payouts, the technical accounting rules that drive proxy reporting and other implications of discretion. Since how equity awards are reported in the SCT is determined under Accounting Standards Codification Topic 718 (ASC 718), we’ll explore the basics of those rules as well as the nuances of when and how discretion can influence the mysterious complexities of “grant date” and “service inception date.”
We also will explore the recent SEC decision in the Verizon case, which received significant publicity and involved his complicated mix of rules. Finally, we’ll review a list of items compensation professionals should know to better understand the decisions that influence the accounting and disclosure of discretionary plan awards so they can anticipate areas of potential concern before they arise.
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.
Don’t miss your local NASPP chapter meetings in NY/NJ and San Diego. Robyn Shutak, the NASPP’s Education Director, and I will be presenting at the San Diego chapter meeting–we hope to see you there!
For the past few years, in the months leading up to the NASPP Conference, we have featured guest blog entries from some of our Conference speakers. This week we feature our first guest blog entry for the 20th Annual NASPP Conference, by Michael Melbinger of Winston and Strawn, who will lead the session “Issues and Answers on Clawback Provisions.”
A couple of weeks ago the subject of compensation clawbacks burst onto the front pages and into lead stories at newspapers and TV stations all over the country, as a result of JP Morgan Chase’s difficulties. Our scheduled presentation on “Issues and Answers on Clawback Provisions” at the 20th Annual NASPP Conference in New Orleans suddenly got a whole lot more interesting and we are glad to be starting this blog to track thoughts and developments in the meantime.
Compensation clawback provisions have a long history and were developing nicely as a best practice for compensation committees before Dodd-Frank Act Section 954 made them the law of the land (pending the issuance of final rules by the SEC and revised listing standards by the stock exchanges). Reasonable minds, regulators, and courts are differing about how best to handle the design, taxation, and enforcement of clawback provisions.
Mark Poerio, Amylynn Flood, and I will focus our NASPP presentation on the many difficult legal and practical issues raised by a compensation clawback policy, including:
Documentation and drafting requirements,
Legal enforceability issues under state and foreign law,
Establishing procedures for applying the clawback policy,
The accounting consequences of a clawback to the company,
Problematic real-life scenarios for the board and the employees,
The continued applicability of Sarbanes Oxley Act to clawback provisions,
What forms of incentive compensation should be affected by the clawback,
The availability of D&O insurance and indemnification for clawback targets,
Deciding which employees the compensation clawback policy should cover,
The impact of the Dodd-Frank whistleblower bounties on future restatements and clawbacks,
The tax consequences of a clawback to the employee and the company (Code Sections 1341 and 409A),
Possible unintended consequences from the Dodd-Frank clawback provisions and their implementation,
The use of “holdbacks” and deferrals to implement and enforce a clawback policy (see also, Dodd-Frank Act Section 956),
The types of shareholder and employee litigation that are certain to result from a compensation clawback–or the lack of one, and
Balancing the interests of the employees and the company in designing a clawback policy, including protecting employees against an unjust clawback (complete with examples of unjust potential clawback scenarios).
If, as expected, the SEC has proposed rules under Dodd-Frank Section 954 by the time of the NASPP Conference, we will examine those rules in detail–as well as the open issues that are sure to remain under the rules.
Last Change for Early-Bird Rate on M&A Course The early-bird rate for our online program “Tackling Equity Compensation Issues Related to Mergers & Acquisitions” ends this Friday, June 8. We’ve already extended this rate once; we won’t extend it again. Don’t miss out–the next time your company is involved in a deal, you’ll be glad you took this course.
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.
Don’t miss your local NASPP chapter meetings in the Carolinas, DC/VA/MD, Ohio, Seattle, and Silicon Valley. Barbara Baksa will be at the Silicon Valley chapter meeting–be sure to say hello.
Today, we continue last week’s game of “Hot or Not,” this time with a focus on global stock plans. In the global stock plans space, we got a lot of great proposals that I’m sure we’ll include in the program–no question about it. But there were a few topics that are on the bubble. I’ve included a short survey listing the global topic ideas that I’m not sure about below; your job is to select the topics you would attend a panel on.
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.
I have something a little different for today’s blog entry. I’m currently mired in evaluating the 150+ speaking proposals we received for the 20th Annual NASPP Conference. There are definitely a lot of fabulous ideas that I’m sure we’re going to want to include in the program–no question about it. But there are also a few ideas that I’m just not sure about–are they hot or not? So today we’re going to play the “Hot or Not” game. I’ve created a short survey listing the topic ideas that I’m not sure about below; your job is to select the topics you would attend a panel on.
Stay tuned next week, when we’ll play round 2, focusing on global topics.
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.