It’s not often that the job of stock plan administrator shows up in a list of top jobs; this is no reflection of the quality of the job but more because few people outside of the stock plan community know this job exists. I have commiserated with many stock plan administrators about the difficulties of trying to communicate what they do to the uninitiated. It is not dissimilar to trying to explain my own job (sometimes it feels like no one has ever heard of the concept of a membership association).
So imagine my surprise when Andrew Schwartz of Computershare forwarded me an article from ThinkAdvisor that ranks stock plan administrator as #6 on a list of best paying jobs for business majors (“15 Best Paying Jobs for College Business Majors: 2016.”
The list was compiled using data from Payscale.com, including their list of most popular jobs for business graduates and their College Salary Report (which considers a sample of 1.4 million college graduates). According to the article, the salary listed is comprised of base annual salary or hourly wage, bonuses, profit sharing, commissions, and other forms of cash earnings (ironically, equity compensation isn’t included). It’s also not a starting salary; it’s for someone who is mid-career (about 44 years old with 15 years of experience).
The article reports that the median mid-career pay for business administration majors working as stock plan administrators is $120,000. Some of the jobs that stock plan administrator came in ahead of include tax compliance manager; treasurer; and payroll, accounting, finance, and budget directors.
As an English Lit major, however, I take issue with the article’s suggestion that humanities majors need to change majors. I know plenty of liberal arts majors who have ended up in stock plan administration. So if you know any soon-to-be college graduates (business or humanities majors), you might want to suggest they follow in your footsteps.
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!
The Deja View: Game-Changing Technologies for Stock Plan Administration By Kim Kovacs of OptionEase
Recent technological advancements have propelled equity compensation administration and participation to new levels of convenience and effectiveness. Firms are now using “software as a service” to integrate brokerage platforms with equity compensation administration and financial reporting software. The growth in utilization of web-based software has improved results while reducing administrative hours.
Cloud computing, or the use of web-based software to access shared data, has long been a hot topic in the IT world. This model of network access eliminates the need for locally installed software while providing easier access to information. Recently, the focus of the “cloud computing” discussion has shifted from discussing the cloud itself to the utility and implications of moving to the cloud. In the context of equity compensation, the utility of the cloud includes ease of access for both participants and administrators to an always up-to-date, more cost effective online system. The questions become: at what pace should the equity compensation industry move to the cloud, and what model should it use? The debate over the pace of moving to the cloud stems from the perceived need to compromise between access and control. Companies want to give users the most flexible, user-friendly experience possible while maintaining data in a secure and controlled manner. Some firms are using a hybrid model combining locally installed systems with cloud computing, while others have been able to leverage the cloud fully to give participants and administrators the most convenient usage possible while maintaining data security.
Participants are rapidly increasing their use of tablet PCs and smartphones in a business context. As IT is increasingly “consumerized,” participants demand access via the device of their choosing, and expect connection on the go. The synergies between the consumerization of IT and the movement to software as a service are numerous: participants are able to view their award information in real time through participant portals and are able to take action in accepting grants and exercising awards. The end result is that participants have a greater sense of ownership over their awards, which enhances the effectiveness of the company’s equity compensation plan.
The user interface for equity compensation administration and compliance systems is changing along with the movement to a software as a service platform. Administrators expect customizable dashboard views that allow for quick and effective actions. Participants and administrators are increasingly intolerant of multiple sign-ons or dealing with separate interfaces for their equity compensation needs. Participants expect to initiate exercises via portal and to have access to tax withholding and scenario modeling information.
Our industry is poised to take advantage of these new developments to better communicate the value of equity compensation plans to participants. A more streamlined, accessible, and actionable system increases participant motivation, improves administrative accuracy and efficiency, and reduces expense.
Register for the 19th Annual NASPP Conference The 19th Annual NASPP Conference will be held from November 1-4 in San Francisco. The last time we were in San Francisco, the Conference sold out and this year promises to be just as exciting (but a lot roomier–we’ll be in a much bigger space). Register for the Conference today!
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“.
We’ve seen it so many times; the result of a “trial by fire” job. What happens when an intelligent, dedicated, hard-working person gets thrown into stock plan management with only minimal experience and knowledge? “Newbie” mistakes, that’s what. Fortunately for those of you starting your career in equity compensation now, there are many incredible resources to beef up your knowledge while you gain experience. There’s no need to face the challenges of equity compensation unprepared! To give you a little boost, these are my top five newbie traps:
Not knowing how accounting rules impact your stock plans.
If a stock plan administrator doesn’t fully understand how accounting rules impact stock plans, there is the risk that essential reports will be run incorrectly resulting in errors that could be minor enough to cause confusion and waste time or serious enough to require a financial reporting restatement. For example, the stock plan administrator may accidently run an expense report under APB 25 rules or may value options granted to a consultant using an expected term based on historical data rather than using the remaining contractual term. You can find all our accounting resources consolidated on our Stock Plan Expensing portal.
Not knowing tax rules
This newbie trap is particularly dangerous for the stock plan administrator who feels seasoned, but is now faced with a new equity vehicle or situation. The best example of this is the stock plan administrator who doesn’t know to coordinate with payroll to ensure timely tax withholding deposits when the total liability is over $100,000 or doesn’t realize that the three-day settlement grace period for deposits doesn’t apply to restricted stock. If you have questions on tax rules, check out our Tax Withholding and Reporting portal.
Assuming that existing procedures align with best practices
Just because there are well-documented procedures, doesn’t mean that those procedures are correct and consistent with best practices. An inexperienced stock plan administrator may permit questionable grant practices like creating an option record for a grant that was inadvertently left out the formal approval process or correcting errors without proper approval and documentation. Or, the stock plan administrator may not follow through on transactions to make sure that all steps have been taken (shares are deposited, taxes collected) because the procedures don’t require it.
Not recognizing the key data
Without a full understanding of how stock plan data is used, it’s easy for a new stock plan administrator to run a report with an incorrect filter, enter incorrect data, or neglect to catch errors while they are still correctable. Also, not knowing what the key data is means that the stock plan administrator won’t know which data points to double check, such as the FMV for an ESPP purchase.
Not keeping up with professional development
Ok, so this one counts for everyone, not just you newbies out there. It’s easy to feel so busy just doing the day-to-day work that you don’t have time to read newsletters and alerts. For new stock plan administrators it may not seem important to set time aside to keep up with changes while still learning the basic information, but it is. Setting time aside to read newsletters like the Stock Plan Advisor (the March-April edition went out on Wednesday), read e-mail alerts, attend a chapter meeting or webcast, or review Legislative Alerts on the NASPP homepage doesn’t have to be a major production, but it can have a major impact if the stock plan administrator is just “too busy” and misses new legislation that impacts equity compensation.
Stock Plan Fundamentals
If you are new to equity compensation, we’ve got just what you need to build a solid foundation. Get in on the valuable resources, quizzes, and exclusive discussion forum available through the NASPP’s online Stock Plan Fundamentals program. It’s like a six-week boot camp for equity compensation professionals! Register now because the early bird rate ends tomorrow–the deadline has already been extended once, it won’t be extended again. If you’re an experienced administrator, but you know people who are new to the industry, be a hero and forward this blog to them!