This week’s NASPP webcast on Understanding Payroll Administration Related to Equity Compensation drew a great turnout, which suggests that the relationship between stock administration and Payroll is something that stock professionals aren’t taking lightly. In today’s blog I offer a few tips for enhancing the synergy between the two functions.
1. Replace ad hoc transaction reporting of option exercises with a routine, fail safe process. How often do you communicate exercises to Payroll? Consider a daily process that will let Payroll know with certainty whether actionable activity occurred or not. Communicating even when “not” provides a confirmation that no action is needed for that day. One best practice includes dropping a daily “transaction” file to a shared network folder, rather than simply emailing it to a designated contact. This is the fail safe part of the process. Sending an email to someone creates more possibility that transactions may be overlooked if the email recipient is absent from the office. Having a secure location accessible by all backup personnel will help avoid oversights or missed activity.
2. Send as much as possible to Payroll before year-end. Year-end is Payroll’s crunch time. Even though stock transactions can occur right up through 12/31, most activity for the year can be reported to Payroll far earlier. Take advantage of Payroll down times to send information and perform reconciliation, rather than attempt a big batch process in January. Payroll will thank you.
3. Watch out for close proximity transactions. If you have multiple transactions occurring in the same time frame, be sure any transaction data sent to Payroll provides clear guidance on the order in which the data is to be entered to Payroll’s system. For example, if a person has a stock option exercise and RSU vest within days of each other, be sure that Payroll knows which to enter first, and replicates the data in the stock system. Absent this guidance, assumptions could be made on the Payroll side that result in entries that do not match up to the stock system.
4. Follow up with former employees routinely to capture address changes. The company’s obligation to report stock plan related income to the IRS doesn’t cease with employment. Reportable ordinary income for former employees is captured on a Form W-2 at year-end, just like active employees. One challenge with this requirement is that former employees not only may need to be reactivated in the Payroll system (particularly if the transaction occurs in a calendar year where they had no other income from the company), but may forget to inform the company of address changes. Don’t wait until year-end to track down former employees – build a process to follow up periodically so that Payroll has plenty of time to ensure the person’s record is active and accurate. Placing a reminder message on the employee section of your vendor web site may be an option (explore this with your service provider) – when the former employee logs in, they see a message reminding them to keep their address information current with the company.
The materials and transcript from this webcast will be available soon (consider this blog a preview if you missed the webcast). As a reminder, our monthly webcasts are free to all NASPP members. Next month’s webcast (March 20th) will delve into one of the more complicated aspects of accounting for stock plans – journal entries and the general ledger.
It’s happened to me twice recently: someone approaches me, bright eyed, with a great idea: “The NASPP should really put together some chapters or guides for international countries.” Did I say it’s a great idea? It is, the only catch being that the idea has already been implemented – in the form of (a whopping) 33 country-specific chapters that are collectively entrenched as one of the crown jewels of our Global Stock Plans portal. It occurred to me that some of our members may not even fully realize the multitude of resources available to them, all included with their NASPP membership. In today’s blog, I’ll revisit some the gems available to NASPP members (test your knowledge – are you in the know about all of them?)
7 Lucky Resources (ok, I made up the “lucky” part, but they are still fabulous!)
1. International Discussion Forum: Did you know that the topic of global stock plans has its own discussion forum? On top of that, questions posted to the forum are answered by experts in the field – members of our Global Task Force (a list of those members exists in the Global Portal).
2. Country Chapters: We currently have 33 country-specific guides in our Global Stock Plans portal, and more under development. The guides cover the basic legal, tax and exchange control landscape in the covered jurisdiction. This is a great place to start when venturing into a new country or offering new equity types in an existing one.
3. 42 Portals: In the world of NASPP, a portal is a portion of the site dedicated to a particular equity compensation area of focus. This means we have portals on 42 different administration and regulatory topics (and more under development). A portal contains anything from applicable regulatory and tax information, to articles, sample documents, tools, and other resources. The full list of portals can be accessed from the NASPP home page, the drop down menu on the NASPP home page, or here.
4. Global Alerts: Members of our Global Task Force (all of whom are experts in Global Stock Plans) sponsor the NASPP Global Portal by supplying country-specific alerts, global updates and articles. This means that when something significant happens in a particular country that impacts stock compensation, we’re likely to receive an alert. The alerts are posted to our Global Portal and alert subscribers receive an email notifying them of the update. You can subscribe to alerts by individual country, allowing you to receive alerts only for your areas of focus. We currently offer alerts for 68 countries. You can visit the Alert Archive at any time to see past alerts.
5. Monthly Webcasts: If you aren’t taking advantage of the free monthly webcasts, don’t delay. The subjects cover timely administration, regulatory and best practice topics (next month’s is: “Understanding Payroll Administration Related to Equity Compensation”. The speakers represent the best and brightest of the industry. Can’t make a particular webcast? Want to recall something from a past webcast? You can access the archive and dig up the details. This is a huge resource. Did Legal just approach you and ask you about grant practices? Go access the relevant webcast archive on the topic (March 2012) and you’ll have the expert opinions right at your fingertips!
6. Enhancers: There are several features of our web site that I refer to as “enhancers”. They are designed to enhance your knowledge or awareness of stock compensation practices and requirements. They include our weekly Question of the Week quizzes (all of January’s quizzes are active until the end of the month, so if you haven’t started the contest, jump in today!), our Compliance-O-Meter (this month’s topic is Employee Communication Practices), and our Practice and Regulatory Alerts(found in the dead center of our home page).
7. Career Center: I blogged about this feature last week, so I’ll keep it short (you can visit that blog for additional detail). The Career Center is a forum where employers can post equity compensation jobs, and job seekers can post their resume details. If you’re an employer with an opening, or an individual looking for a job in the industry, visiting the Career Center is a must.
These are just a few of the great resources available to you, all the time, as an NASPP member. Be sure you are maximizing your membership – we’re here to help you navigate equity compensation’s many facets! Not a member? Join or renew today.
With so many proposed, pending, or newly finalized pieces of legislation right now, I feel a little overwhelmed trying to keep up. Fortunately, we have a couple great resources on our site to help me keep it all straight. First, there is the “Cheat Sheet” provided by OnSecurities.com (posted to the Say on Pay portal). There is also this article by Choate, which has a great chart that details the legislation and which parts of corporate governance it impacts.
Here are a couple of the latest developments, along with a little newsworthy item that caught my eye.
FASB Exposure Draft
As I’m sure you are all aware, the U.S. is moving toward the adoption of IFRS. Nobody is sure when we will adopt IFRS as the U.S. accounting standard, but we do occasionally see signs that progress is being made in that direction. The Exposure Draft issued by FASB on December 17th is a perfect example.
The Exposure Draft is a proposed clarification regarding companies that issue equity awards that are denominated in a foreign currency. If enacted, the amendment in this exposure draft won’t impact very many companies at all. This is because Topic 718 (formerly FAS123R) already addresses the more common situations of companies denominating their equity awards in a foreign currency: using the functional or the payroll currency of the foreign entity. The scenario missing from the current wording in Topic 718 is where a company denominates their equity awards in a currency that is neither the functional nor the payroll currency, but is instead the currency of the market in which a substantial amount of the company’s shares trade. This draft clarifies that such an award would also be considered an equity award, providing that it would otherwise qualify for equity treatment. (For more information, check out our alert.)
What FASB is attempting to do with the clarification offered in this proposed change to Topic 718 is create uniformity with respect to the expensing of certain equity awards. More importantly to me, however, is the fact that FASB specifically addresses how the proposed amendments compare with IFRS. The trouble is that neither Topic 718 nor IFRS currently specifically call out the situations in which this amendment would be applicable, but it is likely that if IFRS were to be updated to include this situation, it would be the same. This is because, as stated in the Exposure Draft, most companies currently reporting under IFRS already expense these awards as equity awards.
Facilitating Shareholder Director Nominations
The SEC recently reopened the comment period for the proposed rule, Facilitating Shareholder Director Nominations. The proposed rule is designed to empower certain shareholders (based on ownership thresholds and minimum holding periods) to influence (presumably to improve) corporate governance by means of introducing both director nominations and proposals to amend director nomination process or disclosure requirements.
Existing comments can be viewed here. One of the concerns being voiced are that the bar for determining which shareholders may submit nominations and proposals is set too low, which could potentially allow short-term investors (like hedge funds) to encourage inappropriate risk-taking. Another concern is the amount of time and energy boards may potentially need to divert from day-to-day business decisions in order to deal with the politicization of board elections.
Although it is unlikely that this rule, if adopted, would impact the daily responsibilities of most stock plan managers, it does highlight SEC efforts to create better corporate governance by giving shareholders more power to influence corporate business strategy. Maybe what it does mean for you stock plan managers out there is that it’s time to renew (or initiate) your relationship with your company’s investor relations group.
FAR Out!
I came across this interesting article in the Hedge Fund Law Report on the merits of granting hedge fund managers appreciation rights that would be similar to a stock appreciation right (although the article compares them to stock options), but track against the increase in the fund’s value.
Two things really struck me about this article. First, it’s encouraging and powerful to keep seeing the conviction that creating an ownership mentality improves the long-term success of a company by aligning employee interests with shareholder interests. Much like the Treasury Special Master’s determinations highlighted the preference of performance-based equity compensation over cash compensation, the idea of granting an appreciation right that pays out with the success of a hedge fund really highlights the importance of appropriate equity compensation as a motivating vehicle.
The second thing that really caught my eye is that the name “Fund Appreciation Right” (FAR) has actually been trademarked by a particular compensation administration company (Optcapital). So, it’s not that other administrators (or funds) can’t issue an equity vehicle that is in the form of an appreciation right; they just can’t call it a FAR. It makes me wonder what our conversations would sound like if someone had trademarked “stock option” or “restricted stock unit”, forcing each company to come up with their own nomenclature!
We have several fantastic webcasts planned between now and the end of April; two in January alone! All our webcasts are a complementary benefit provided to our members. Don’t miss out; renew today.