How much of the stock plan administration process should your company outsource? It’s not a static question. It’s important to examine the issue periodically as both your company and your service provider offerings change. Although there are an infinite number of varying degrees of outsourcing stock plan administration, three basic avenues exist: full outsourcing, licensing software, and creating custom software. Here are some considerations for each:

Full Outsourcing

In a typical fully outsourced environment, the service provider houses the stock plan administration software and is responsible for the general administrative processes like transaction processing, valuations, and plan share reconciliation. The company maintains decision-making on and oversight of the management of its own stock plans.
This type of arrangement can be quite cost-effective for the company. The service provider is able to leverage a larger pool of personnel to manage the administration of the company’s stock plans as well as the technical aspect of maintaining the software and the data it houses. Although full outsourcing can be advantageous to companies of all sizes, it is ideal for medium to larger companies where the administrative burden is significant enough to really capitalize on the economy of full outsourcing. In addition, the service provider is intimately familiar with the capabilities of the stock plan administration software and can offer guidance on what can be managed within the database verses what might need to be an out-of-the-box solution.

When leveraging fully outsourced plan administration, a company must comply with the policies of the service provider, which may include issues like complying with specific procedures for transmitting data or restrictions on the timing or scope for modifying data without being subject to additional fees.

Licensing Software

Some companies house the stock plan administration software in-house and maintain responsibility for all or most of data and transactional management. The licensing includes a certain amount of technical support, but the company is responsible for creating and adhering to its own procedures to ensure the accuracy of the data housed in the software. The company has the advantage of flexibility regarding the timing and management of data–including customization of the software or report outputs–but with it comes the added burden of resolving technology issues, including coordinating any upgrades to the software that may be required.

Custom Software

Relatively few companies have the financial bandwidth to take on the process of creating and maintaining a custom software solution. The key advantage to this arrangement is the freedom of having software that conforms to the company’s specific needs in a way that no off-the-shelf software solution could. In addition, in-house custom software may include many automation features that can help ensure timely and accurate data flow or auditing functionality. However, the company takes on the cost of not only administering stock plans, but also maintenance and upgrades to the software. Instead of purchasing an upgrade package when new functionality is available or required, the company must budget for programming updates.

Making the Determination

There isn’t always a clear line between these three types of stock plan administration solutions. A company may employ pieces of each to accomplish the best fit for its stock plan management. For example, the company may license software to accommodate a specific aspect of plan management–like valuation or mobility tracking–and outsource the general administration to a service provider. It’s important to understand what the current advantages and hindrances are to the solution you’ve chosen as well as what issues may be resolved in the future and which may continue to require work-around processes. The company will need to balance accuracy, efficiency, and total cost (including the full cost of additional headcount).

The common theme among all solutions is the value in conducting a periodic review of your processes and your service providers. You can gauge how well your company evaluates service providers in this NASPP Compliance-‘O-Meter or view your peers’ results here. We also have a great whitepaper from Stock & Option Solutions in the NASPP Document Library. If you conclude that it’s time to change your service provider, you’ll want to check out the NASPP webcast, “Best Practices – Changing Service Providers Like a Pro“.

-Rachel