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:

1. 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.

2. 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.

3. 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.

4. 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.

5. 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!

-Rachel

Tags: equity professional, stock plan administration, stock plan fundamentals