Across my desk this week came highlights from the NCEO’s recent survey on equity compensation in private companies. The NCEO says that the survey was intended to cover a wider range of closely held companies and to look at granting practices not just to executives, but to all employees. For this week’s blog, I share a snapshot of the survey results.
Demographics
201 companies and 32 service providers completed the survey. The large majority of participating companies (81%) have been in business for 5 years or more. Over half the respondents (56%) indicated their likely exit strategy would be a sale to another firm; only 10% are planning an IPO. A wide demographic was represented, with 42% of respondents representing biotech, software or other technology industries; 16% in professional services; 12% in manufacturing; and 30% in other industries. Seventy-two percent (72%) of the companies have outside venture or angel capital investors.
Plan Operations
Over half the participating companies use an outside administrative firm for administering their stock plan(s). The rest use a variety of approaches for stock plan administration. 47% of respondents use an outside appraiser to value the company’s shares. Twenty percent (20%) rely on their board to determine stock value, using the assistance of outside professionals.
Equity Distribution
Nearly all of the responding companies give at least some of their C-level employees equity; 77% of the companies give equity to all of their C-level employees. Most companies give C-level employees and senior management grants on hire, but only 44% of supervisory employees and 29% of hourly/non-supervisory employees receive grants. About half of the companies make occasional or periodic grants to eligible employees. C-level executives receive an average of 56% of the awards; other management receives an average of 19%, supervisory and technical 12% and hourly/non-supervisory 4%. Two-thirds of the companies utilize stock options, whereas restricted stock was far less common, at just 29%. Phantom stock, stock appreciation rights and restricted stock units are all used by less than 10% of the companies. The mean percentage of equity held by non-founders through awards is 15%.
More Information
The survey seems to capture feedback from a broad representation of closely held companies, with representation from both small and large companies, as well as demographics in multiple industries. Additional highlights of the survey can be found in our Private and Pre-IPO portal. The complete survey results are available for purchase from the NCEO. NASPP members who wish to purchase the survey are eligible for the NCEO member price ($150 vs. $250 for non-members). To take advantage of this pricing, enter the discount code SURVEY during checkout.
I look forward to seeing many of you at the 19th Annual NASPP Conference in San Francisco next week!
-Jennifer
Tags: IPO, nceo, Pre-IPO, Private, Survey
I’m a big fan of learning from my own mistakes, but if given the opportunity, I’m an even bigger fan of learning from the mistakes of others. And frankly, when it comes to our jobs, it can cost everyone involved a lot less to learn from the mistakes others have made than repeating the mistakes ourselves. Thanks to the National Center for Employee Ownership, this is now possible!
Earlier this year, the NCEO asked some of the industry’s leading equity compensation lawyers, plan administrators (including yours truly), tax and accounting consultants and software vendors to share some of the mistakes they’ve made in equity compensation and what they did about them. The stories that came in were riveting and provided enough content for an entire book!
The book was recently published and is appropriately titled, “If I’d Only Known That.” It is information packed with a focus on better understanding the complex relationships between accounting, tax, securities law, plan design, administration, and humanity, using stories of how bad things happen to good people in equity compensation, and is written by industry professionals for people who work in the industry. It is arranged into three categories–communication and education; plan design and modifications; and administration, policy and process. So, for instance, you could expect to find stories about ESPP contribution carryover and fair market value nightmares (see below for a summary of a related story I contributed to the book) in the “administration, policy and process” chapter.
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Throughout my career I have been a big proponent of validating fair market values. This obsession derives from a story I share in the book titled, “Check and Double Check.” Here is an overview of the story and the lesson learned:
Summary of Story: A mid-size semiconductor company offers a tax qualified ESPP to its employees. Immediately following the close of the stock market on the day of purchase, the plan administrator entered the company’s stock price (obtained from Yahoo! Finance) in its stock plan system, which was the resulting purchase price for the offering. The purchase was processed, and shares were distributed to participants’ accounts. Several months later, an employee contacted the company because they had identified a difference between the company-referenced purchase price and various online resources, including Yahoo! Finance. The employee’s information was accurate. As a result, the company had to reverse and reprocess the purchase, which meant that all interim activity had to be reprocessed, e.g., reversing terminations/withdrawals that occurred following the purchase and communicating the mistake to employees.
Lesson: Companies should incorporate a FMV validation into their SOX controls, e.g., obtain a sign-off from a second person that FMV’s entered into the stock plan database agree to two primary credible sources.
Fair market values touch so many areas of stock compensation. Be sure you have processes in place to ensure the fair market values you use to do your jobs are accurate.
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“If I’d Only Known That” is a great resource for both service providers and plan administrators. For service providers, it’s a great marketing tool for conveying the necessity of professional assistance to clients and prospects. For plan administrators, it’s an invaluable tool to help skirt mistakes before they happen. Invest in your career–purchase a copy of this book now!
Special pricing on all book orders! The NCEO is offering special member pricing to all NASPP members who purchase a copy of the book. To get the NCEO member price ($25), add the book to your cart and then enter the appropriate code (“Known” for the print version and “KnownPDF” for the digital version) in the “Payment code” field on the shopping cart page and click the “Enter” button to the right. Codes are not case-sensitive.
-Robyn
Tags: book, fair market value, FMV, if i'd only known that, mistakes, nceo