Author: Alec Bradford

Stock & Option Solutions

Stock & Option Solutions Hosts SOS Educational Webcast: IPO Success Strategies 

February 27, 2018

 
 

CAMPBELL, Calif. - January 29th, 2018 -Stock & Option Solutions (SOS), a leading provider of stock plan outsourcing, temporary staffing and professional services, today announced their upcoming webcast, IPO Success Strategies.  is scheduled for February 27th, 2018 at 11am PST.

In this webcast, Stock & Option Solutions will show you how, with the right preparation, an IPO can be a seamless event for the company and employees involved. Register to learn the strategies employed in successful IPOs and how you can use them to make your IPO a smashing success!

Sorrell Johnson of SOS says, "Preparing for a successful IPO starts at least a year before the company starts trading publicly. Waiting until a couple of months prior to the IPO date will put you behind the curve. Make sure you aren’t caught out at this time when all eyes are on the equity department!"

For more details on Aspirations, please contact Shawna Casey at scasey@sos-team.com or 408-979-8700.

SOS is a leading stock administration staffing, consulting and outsourcing firm within the equity compensation marketplace.  SOS provides temporary stock plan staffingexpert project resources, and total outsourcing solutions. To learn more you can visit us online at http://www.sos-team.com or call us at 888-SOS-0199.

Contact a Sales Representative Directly

Michael McDonald, Associate Director, Sales
(408) 385-8773
mmcdonald@sos-team.com

Ryan Moore, Associate, Sales & Marketing
(408) 385-8772
rmoore@sos-team.com

Clint Goodin, Junior Sales Executive
(629) 999-4438
cgoodin@sos-team.com

 

 

Fill Out This Form to Receive Our Next Press Release

New Year, New Tax Changes

It’s been a wild ride in the equity compensation world over the last few months. 

In November, Congress debated about abolishing AMT and Section 409A of the Internal Revenue Code.  Many participants would love to not worry about AMT, but abolishing 409A would have made options taxable at vest, not exercise.  This would have upset the equity compensation apple cart.  Thankfully the final bill passed by Congress (Tax Cut and Jobs Act) did not contain any earth shattering changes.  It did contain some changes that will impact the lives of equity compensation professionals.

The most visible changes are the new tax withholding rates published in the IRS Notice 1036, which provides withholding guidance for the new tax brackets and how to implement them.  At this time of year an equity professional’s plate is already full, but the IRS added to it, as these rates are effective February 15!  Make sure to check in with your Payroll department to confirm when they will be switching to the new rates.  It will be less confusing to employees if Equity and Payroll make the switch at the same time.

Meet your friends out on the slopes this ski season and let SOS step nimbly into your shoes while you’re gone.

Restricted Stock Awards ("RSAs")

In this fourth part of our Beginner’s Equity Series we are discussing Restricted Stock Awards (“RSAs”). 

Grant:  The Board of Directors or an authorized sub-committee grants the number RSAs and the time based vesting schedule.  Shares are issued at grant by the company in the name of the grantee, but held in escrow until vesting.  RSAs can be granted to employees or non-employees, US or non-US residents.  In the case of non-US residents, most countries consider the taxable event when the shares are issued and taxes would in effect be due at grant.

Additionally, RSAs normally have no “exercise price” unlike options.  The US taxpayer who receives an RSA has the choice to pay the taxes at grant or at vest.  If the choice is made to pay at grant, the recipient must file an election under Section 83(b) of the Internal Revenue Code with the IRS within 30 days of grant along with the taxes due on the difference between the price paid for the shares and the fair market value of the shares.  If the recipient forfeits the shares prior to vest, the IRS does not refund the taxes paid.

If the RSAs are granted to a Section 16 reporter at a publicly traded company[i], Legal will disclose the terms of the RSAs on a public filing (Form 4) due two days after the date of grant.

Vest and Release:   At release the shares of already issued common stock are distributed to the employee, usually deposited directly into a brokerage account.  This event can be called by one of several names:  vesting, release or lapse, although some systems may refer to this as an exercise due to system capabilities.

If the employee made a filing under Section 83(b), then the company does not withhold any taxes and simply releases all of the shares to the employee.

If the employee did not make a filing under Section 83(b) and already paid the taxes due, the full value of the shares released (market value multiplied by the number of shares released) or gain becomes taxable to the employee at regular income rates (Federal, State, Social Security, Medicare taxes are due on the gain)[ii].   Unlike stock options, the employee has no choice regarding the timing of this income and the release of the shares.

Payroll provides Stock Administration the year to date taxes for each employee and Stock Administration calculates taxes, collects taxes and releases shares to employees, usually into the employee’s brokerage account.  Employees may pay taxes by several methods:

● Electing to allow the company to withhold money from their paycheck(s).

● Electing to write a check payable to the company for the amount of taxes due.

● Electing to have enough of the shares sold on the open market to cover the taxes due. The broker then remits the funds to the company.  This election is usually available only to publicly traded companies.

● Electing to have all of the shares sold on the open market. The broker then remits the funds to cover the taxes to the company and gives the employee the remainder of the proceeds.  This election is usually available only to publicly traded companies.

● The company withholds shares in value equal to the amount of taxes due and deposits the remainder of the shares in the employee’s account. This is called either “withholding shares” or “net settlement”.

Accounting/Treasury reconciles the corporate bank accounts to ensure tax monies are collected.  Payroll pays the taxes collected over to the federal, state and local tax authorities and reports the taxes collected and gain on the release on the employee’s Form W-2.  The RSA taxes collected are subject to the same submission deadlines as taxes collected on stock options at exercise.  The taxes are due within 48 hours of vest/release, if the total Federal tax amount due from the all of the day’s stock transactions total $100,000 or more.  If the day’s taxes do not total $100,000 or more, Payroll may turn over the taxes on the next regularly scheduled payroll.

If shares are withheld to cover taxes for a Section 16 reporter, Legal will need to report the information in a public filing two days after the date of the transaction.

Share sale tracking after release:  Since the taxable event occurred at vest/release, there is no need to track the sale of shares for regular employees.  Sales must be tracked for Section 16 reporters, as they must be publicly reported two business days after the sale.

Tax implications for the company:  Generally, when the company reports income on behalf of the employee at vest, the company is able to take that income as a tax deduction on corporate tax returns.

Company’s US reporting obligations[iii]Once the company reports the income and taxes paid on the employee’s Form W-2, they are not statutorily obligated to make any further reporting.  As a courtesy, most companies do send a statement at year end to the employees that vested during the year, detailing the transaction.


[i] Section 16 reporters:  Section 16 of the Securities and Exchange Act of 1934 regulates the trading of company securities by key corporate insiders.  These insiders will usually be the entire Board of Directors, the CEO, CFO, General Counsel and others deemed to have broad decision making power in the company.

[ii] Non-Employee Board of Directors and Non-Employees are not subject to tax withholdings.  The company is required to report income from the gain on a 1099-MISC at year end.  For Non-US participants, taxes may be due at exercise or possibly at grant or vesting depending upon country tax laws which is outside the scope of this document.

[iii] International reporting obligations vary from country to country.  This document only addresses IRS reporting obligations for US taxpayers.

Upcoming Equity Compensation Webcast

Our webcasts cover high-priority equity compensation topics

SOS Educational Webcast: IPO Success Strategies

Tuesday, February 27, 2018 11:00 AM PST

An IPO is one of the biggest events in equity. But there are so many areas where something could go wrong at a time of high visibility. However, with the right preparation, an IPO can be a seamless event for the company/employees and time for the equity department to demonstrate preparedness and professionalism. 

Looking for tips on how to prepare? Join SOS’s Sorrell Johnson and Certent’s Michael Mauro to hear them discuss the strategies employed in successful IPOs and how you can use them to make your IPO a smashing success!

(One hour of Certified Equity Professional continuing education credit is available for attending. See the 
CEPI website for more information on CEP continuing education requirements.)

So Quotable:
"Preparing for a successful IPO starts at least a year before the company starts trading publicly. Waiting until a couple of months prior to the IPO date will put you behind the curve. Make sure you aren’t caught out at this time when all eyes are on the equity department!" - Sorrell Johnson, CEP, Stock & Option Solutions, Inc.

Speakers:

●  Sorrell Johnson, CEP, Stock & Option Solutions, Inc.

●  Michael Mauro, Certent, Inc.

SOS is the only true outsourcing firm within the equity compensation marketplace. We deliver a team-based approach to filling that empty chair in your department. SOS takes away the burden of hiring, retaining, managing, and replacing a direct hire.

SOS Product Spotlight: DTA Balance Application

Get your time back using SOS's DTA Balance Application. Tasks that would previously take experienced stock plan administrators hours to complete, can now be done in minutes!

Have you ever gotten this question from your tax or accounting team: “Can you give me the cumulative/life to date amount of expense booked for all the currently outstanding stock options?” If not, start getting ready for it since it’s coming up for more and more and more SOS clients. This is the tax accountant’s way of asking for the data they need to “prove out” or “validate” the Deferred Tax Asset (DTA) balance related to equity in your General Ledger.  Most systems don’t have a report that readily provides this number, but it IS something you can do in a spreadsheet (and sometimes in a custom report), generally bringing in data from two to three standard system reports.

Let SOS help you with your DTA Balance.

Read our white paper on this topic and see our data sheet for more information.

Watch the demo here.

SOS Front & Center: Sarah Roberts

Sarah began her focus on equity compensation following a successful earlier career as a finance and accounting professional. She has more than fifteen years’ experience as an equity specialist, and has worked as a Senior Equity Plan Consultant at SOS for over seven years.

Sarah is a well-rounded, experienced equity consultant who adapts easily to a variety of client work environments. In addition to equity accounting, Sarah has proven to be extremely effective in stock administration, process improvement, ESPP implementation, employee training, and other related areas. She is also experienced in a variety of equity platforms.

Sarah has presented the NCEO Level 1 Tax Webinar for the CEP exam for the past 3 years, and has spoken in a number of equity events.  She holds an MBA in Finance and Accounting from the Anderson School at UCLA, and received her CEP designation in 2007.

Here’s what Sarah’s clients are saying about her:

“I deeply appreciate all the hard work Sarah Roberts completed for Deckers Brands during the past year.  Her efforts helped us to stabilize and improve our stock administration function during an important and busy time for Deckers Brands.  Specifically, Sarah helped us improve, update and streamline many process and provided strong support as we updated our system for the implementation of ASU 2016-09.  In addition, she assisted our stock administration team to ensure all stock related tasks were completed accurately and on time.  Thank you Sarah!”  James Moesker, Accounting Manager, Deckers Brands

“I have had the pleasure of working with Sarah at various opportunities.   The last time she and I worked together, she was originally brought in to assist us during a vendor transition.  As is often the case, when you have someone as talented and knowledgeable as Sarah, you usually find that it’s helpful to keep them around longer than planned.   This was definitely the case with Sarah.  Since we decided to implement an option exercise extension program, RSUs, design an ESPP and go public during her stay with us, there was plenty of help needed and she met the challenges.  We were working with a young-ish employee population and there were many opportunities to educate them about equity compensation – understanding stock options, RSUs, ESPP and not to mention how a dual class structure would impact them when we came out of the lockup.  Sarah was there through it all and was a real asset to our team!  I will definitely ask for her again!”  Laura Reis, Director of Equity Administration, Cylance Inc.

Across Our Desk

Love those ESPPs!  ComputerShare is holding an ESPP day.

The SEC does actually extend some deadlines.  Click here to see who gets extra time to comply with new rules.

News about performance grants from MyStockOptions

Why you really shouldn’t be checking email while on vacation.

While everyone in equity compensation was worried about the tax rates going into effect, the accounting department realized the tax bill impacted them too.

CEO Pay ratio disclosures are looming.  Check out the details here.

10b5-1 plans are supposed to protect executives from allegations of insider trading.  But what happens when the exec keeps changing the plan?

NASPP warns us that phishing schemes may hit a little close to home for our liking.

SOS Xposé

...tender tidbits about people and players in our industry...

New Year, new job… Robyn Shutak is with Computershare as the Equity Advisory Services Practice Leader. Brit Wittman is the General Manager of Executive Compensation for Chevron.  Stacey Lombardi is now at Brady Corporation and serving as head of global compensation & benefits. Laura Gallerane is the Sr. Manager, Global Compensation at Haemonetics. Mo Febre is the Stock Plan Manager for Natera. Karen Marier is an Associate Compensation Analyst at Medtronic. In addition to his day job at Waller Lansden Dortch and Davis LLP, Ron Snitker is also the new President of the Board at Nashville LGBT Chamber of Commerce, which has more than 350 members and is celebrating its twentieth anniversary this year.

Animation looks good on you… Emily Cervino of Fidelity Stock Plan Services discusses broad-based employee equity and ESPPs in this fun, animated video with John Hammond of Aon.

Let it snowSOS’s Tim Nguyen vacationed in Colorado this month and skied Breckenridge and Arapahoe Basin. Check out the pic of him and his buddies in Arapahoe Basin. Shawna Casey of SOS vacationed in Lake Tahoe in late December with her two kiddos where they went tubing and ice skating at Heavenly Village.

Horsing around…Donna Hammer of Yelp is the proud new owner (as of October) of a new horse! Her name is Suzie Q, she's 15 and a registered thoroughbred.  Fun facts: her sire (father) was a stallion named Dance Floor who placed third in the 1992 Kentucky Derby, and at the time, he was owned by MC Hammer.  See Donna riding her in this great pic.

It’s a boy…Moe Zohny of SOS and his wife Brittany welcomed a baby boy, Zachariah in October.

Industry News… NASPP has new chapter presidents! Aftab Ibrahim in Seattle and Michael McComas in Salt Lake City. The 26th Annual NASPP Conference is headed to sunny San Diego!  The Conference will be held from Sept 25-28; register by April 13 for the early-bird discount.

SOS’s newest team members…

Alex Florea, Sales Team

Asia Leak, Outsourcing Team

Carol Pleva, People Solutions Team

From the SOS Library Vendor Analysis and Evaluation

From the SOS Webcast Archive… The Spin Cycle: Don’t Let Your Transaction Fade

Stock & Option Solutions Logo


SOS Xtra Editor: Shawna Casey
Did you miss an issue of Xtra? View our complete newsletter archive from our website here.
Miss a webcast? You can find links to recordings, as well as the materials, on our webcast page.


Information provided in this newsletter is designed for educational and entertainment purposes only and is not provided as professional service or advice. Moreover, this newsletter should not be relied on as legal, accounting, auditing, or tax advice. Anyone reading this newsletter should not act upon this information without seeking professional counsel and/or input from their advisers. The preceding information does not necessarily represent the official views of Stock & Option Solutions, Inc. with respect to any of the issues addressed.

Stock & Option Solutions

Stock & Option Solutions Hosts SOS Educational Webcast: Hire Away: Top Hiring Tips for Your Equity Comp Dept. 

December 12, 2017

 
 

CAMPBELL, Calif. - November 14, 2017 -Stock & Option Solutions (SOS), a leading provider of stock plan outsourcing, temporary staffing and professional services, today announced their upcoming webcast, "Hire Away: Top Hiring Tips for Your Equity Comp Dept. " is scheduled for December 12th, 2017 at 11am PST.

In this webcast, Stock & Options Solutions will share their best practices for successfully hiring the right equity compensation professional for the job. Attendees will walk away with strategies for assessing team needs, ideas for evaluating interviewees, strategies for negotiating compensation, approaches for integrating new hires to create team synergies and more. Don’t miss this!Andrea Best of SOS says, "Today, more than ever before, cultural fit trumps expertise in determining the long-term success of a hire."For more details on Aspirations, please contact Shawna Casey at scasey@sos-team.com or 408-979-8700.

SOS is a leading stock administration staffing, consulting and outsourcing firm within the equity compensation marketplace.  SOS provides temporary stock plan staffingexpert project resources, and total outsourcing solutions. To learn more you can visit us online at http://www.sos-team.com or call us at 888-SOS-0199.

Contact a Sales Representative Directly

Michael McDonald, Associate Director, Sales
(408) 385-8773
mmcdonald@sos-team.com

Ryan Moore, Associate, Sales & Marketing
(408) 385-8772
rmoore@sos-team.com

Clint Goodin, Junior Sales Executive
(629) 999-4438
cgoodin@sos-team.com

 

 

Fill Out This Form to Receive Our Next Press Release

Stock & Option Solutions

Stock & Option Solutions Hosts SOS Educational Webcast: Basic Training: A Day in the Life of a Stock Admin 

September 20, 2017

CAMPBELL, Calif. – September 20, 2017 -Stock & Option Solutions (SOS), a leading provider of stock plan outsourcing, temporary staffing and professional services, today announced their upcoming webcast, Basic Training: A Day in the Life of a Stock Admin is scheduled for Oct 26, 2017 at 11am PDT.

Sally Fivecoat of KLA-Tencor Corporation, Kathryn Randall of Stock & Option Solutions, Inc. and Carol Rose-Guerin of Stock & Option Solutions, Inc. will dive into stock administration (and what is all included in this multi-faceted role) in this “back to basics” session. They’ll explore how to enroll in an ESPP, the definition of a stock option, what a restricted stock award is, and more. Find out the reports you’ll need to run, taxes you’ll have to pay, and what should be on your checklist in this educational webcast.

Carol Rose-Guerin states, "Stock administration is relevant to finance as it touches so many areas, from payroll tax withholding to common stock outstanding to valuation of granted equity.  We are very excited to share our knowledge of the basics with you to further your understanding of this field that is so important to employees." 

For more details on this webcast, please contact Shawna Casey at scasey@sos-team.com or 408-979-8700.

Stock & Option Solutions (SOS) has built a team of extremely qualified and dedicated professionals for the outsourced management or staffing of your stock plans and special projects. SOS’s Stock Plan Outsourcing Solution is the most comprehensive outsourcing service in the marketplace, making the choice easy. Beyond our total outsourcing solutions, we are focused on helping companies like yours through challenging steps with temporary staffing, permanent placement, expert project resources, and high level project management. Call us today at 408.979.8700 to learn more or visit us online at www.sos-team.com.

Contact a Sales Representative Directly

Scott McDonald, Director, Sales & Marketing
(408) 979-8715
smcdonald@sos-team.com

Michael McDonald, Associate Director, Sales
(408) 385-8773
mmcdonald@sos-team.com

Ryan Moore, Associate, Sales & Marketing
(408) 385-8772
rmoore@sos-team.com

 

 

 

Fill Out This Form to Receive Our Next Press Release

Good-bye Summer, Hello Fall!

With the change of the seasons, come many opportunities to stay up-to-date on those continuing education credits you promised yourself you’d get through before the end of the year. We’ll first mention The 25th Annual NASPP Conference (since this event is always the talk of the season).  This year’s conference promises to be exceptional. From exciting presentations on hot topics such as tax, accounting and regulatory changes to a jam-packed vendor hall, to extreme networking opportunities, this event is not to be missed. SOS’s own Madori Playford will present this year in “Euros, Yens & Pesos:  Managing Foreign Exchange Ratios, Controls, and Employee Issues”. Bill Storey, also from SOS, will also be speaking on accounting topics in “Financial Reporting & Accounting Playbook:  Winning Plays from the Pros” and “Valuation 101:  A Beginner’s Guide to Equity Valuation”. See the full schedule here and don’t forget to register! We’ll be in booth 6 this year with oodles of fun giveaways, games, and information to share.

What else is happening this fall?

  • ● On September 27th, SOS’s Sorrell Johnson will be speaking at the SVC NASPP meeting: “Preparing for Mergers, Acquisitions and Spin-Offs”. Register here.
  • ● A back to basics refresher webcast on equity basics. Sign up here for our October 26th webcast: Basic Training: A Day in the Life of a Stock Admin.
  • ● Come see SOS’s Mike McDonald October 12th & 13th in sunny Anaheim at the California Payroll Conference. Two full days of educational workshops and great networking at this event will leave you feeling ready to take on the last few months of the year.
  • ● Local NASPP chapter meetings will also be in full swing. Check out this link for your local chapter meetings.
  • ● Be sure to check out GEO’s website for their upcoming webcasts.

Grab your pencil and paper, there’s a lot to learn.

6039... It’s getting to be that time of year again

How Could a Type 1 Modification Have No Incremental Expense?

It is not uncommon for a company to accelerate vesting on a stock option when a senior member of management leaves the company.  This is a Type III modification (Improbable to Probable) because the participant is receiving shares they wouldn’t normally receive under the original terms of the grant.  However, when shares are accelerated but the participant is not leaving the company, it is a Type I modification (Probable to Probable) because the assumption is that the participant would have received the shares over the normal course of time.

With a Type I modification, you need to determine if the modification results in any incremental expense.  To do this, a Black-Scholes fair value calculation is done just prior to (i.e., BEFORE) the modification and another is done immediately AFTER the modification.  If there is any positive incremental value, you need to recognize it over the remaining service period of the modified option.

While it may seem counter-intuitive, the acceleration of vesting (that is, the participant is now going to be able to exercise shares sooner) does not always result in additional value or incremental expense.  To understand why, we need to understand how changes to the input values of the Black-Scholes model impact the fair value calculation.

With this type of modification, the values of both the Exercise Price and the Fair Market Value do not change BEFORE and AFTER the modification.  What is really changing is the Expected Term value.  Because Expected Term is based on when the shares are vesting, the AFTER Expected Term value is now shorter/less than the BEFORE Expected Term value.  As you can see below, a decrease in the Expected Term value will decrease the AFTER fair value.

 

Input

 

Action

Impact on Fair Value

(at the money option)

Exercise Price Decrease Decreases
Fair Market Value Decrease Decreases
Expected Term Decrease Decreases
Volatility Decrease Decreases
Dividend Yield Decrease Increases
Risk-Free Interest Rate Decrease Decreases

The Expected Term drives the values of the remaining three inputs (Volatility, Dividend Yield and Risk-Free Interest Rate).  While each company’s stock price is impacted by internal/external events, it is not uncommon for a company stock price to be more volatile when you look at the values over a longer period of time.  Under this assumption, reducing the Expected Term would result in less Volatility and, thus, decrease the AFTER fair value.  The same is true for Risk-Free Interest Rates; the shorter the Expected Term, the lower the Risk-Free Interest Rate (see below actual example).

  1 year 2 year 3 year 4 year 5 year
6/30/2017 1.24 1.38 1.55 1.72 1.89

Accelerating the vesting on shares decreases the Expected Term which often results in less Volatility and a lower Risk-Free Interest Rate.  Based on these factors, the AFTER fair value may very well be less than the BEFORE fair value.  So, don’t be surprised or think you must have done something wrong if you calculate incremental expense in this type of situation and find that there isn’t any.

Barbara Richley, CEP, Senior Equity Compensation Consultant, Stock & Option Solutions, Inc.

We've Got an App for That!

The Stock & Option Solutions Volatility Calculator provides a detailed auditable volatility calculation in just a few minutes, enabling our clients to free up valuable time at month, quarter, or year end close.

SOS Consultant Corner: Incentive Stock Options Could be Making a Comeback. Will You Be Ready?

Over the past fifteen or twenty years, Incentive Stock Options (ISOs) have lost popularity as a form of equity compensation. But, if the current proposed tax reforms are enacted – thus increasing the tax-effectiveness of ISOs - we might start to see more ISOs included in equity compensation packages in the future. The full requirements for a stock option to qualify as an ISO, and the tax treatment of an ISO, can be found in the Internal Revenue Code section 422. The code section and helpful supplemental materials can also be found in the Incentive Stock Options portal at www.NASPP.com. For anybody not familiar with ISOs, the “I” in ISO is the “incentive” optionees have to hold onto their ISO shares for at least two years after grant and one year after exercise/purchase. If the holding requirement is met, the optionee receives preferential tax treatment on the gain, if any, upon sale. Simply put, the gain will be subject to capital gains rates instead of higher W-2 income tax rates. That being said, whenever an optionee meets the holding requirement, and receives preferential tax treatment, the issuing company loses the tax deduction it would have been entitled to had the optionee not met the holding requirement, resulting in W-2 income subject to higher tax rates. This is a disincentive for companies to issue ISOs. (To ensure receiving tax credits, companies will issue Non-qualified Stock Options, or NSOs.) Further, there is a disincentive for optionees to meet the holding requirement. That is, under current tax rules, the exercise of an ISO is subject to the Alternative Minimum Tax (AMT). In order for the holding requirement to be met, the ISO shares cannot be sold in the same tax year as they are exercised/purchased. This results in the possibility of tax being owed under the AMT for the tax year in which the exercise/purchase took place. The AMT is complicated, and optionees who plan to hold ISO shares should contact their tax advisors prior to exercise. Given the above disincentives to optionees and issuing companies, the proposed tax reforms are worth noting, because they would include (1) elimination of the AMT - making ISOs more popular with optionees, and (2) lowering corporate tax rates- making the loss of tax deductions less of a loss for issuing companies when optionees meet the holding requirement. Some equity experts have suggested that, if the proposed tax reforms are enacted, ISOs will become “the most tax-effective way” to deliver equity compensation. In case they’re right, it would be a good idea for equity specialists to familiarize, or re-familiarize, ourselves with the ISO issuance requirements and administrative challenges of ISOs. Some of the administrative challenges include:

1. Understanding the $100,000 Rule

2. Tracking disqualifying dispositions

3. Calculating W-2 reportable income

4. Meeting 6039 filing requirements

5. Knowing how to treat ISOs after death or divorce Information on all of the above can be found in many places. The portal at www.NASPP.com is a user-friendly place to start. Janet Bernard, Equity Compensation Consultant, Stock & Option Solutions, Inc.

Upcoming Equity Compensation Webcast

Our webcasts cover high-priority equity compensation topics

SOS Educational Webcast: Basic Training: A Day in the Life of a Stock Admin

Thursday, October 26, 2017 11:00 AM PST

Description: 

We’re scratching the surface on stock administration (and what is all included in this multi-faceted role) in this “back to basics” session. We’ll dive into how to enroll in an ESPP, the definition of a stock option, what a restricted stock award is, and more. The reports you’ll need to run, taxes you’ll have to pay, and what should be on your checklist will all be detailed in this educational webcast.

Speakers:

Sally Fivecoat, CEP, KLA-Tencor Corporation

Kathryn Randall, CEP, Stock & Option Solutions, Inc

Carol Rose-Guerin, Stock & Option Solutions, Inc

So Quotable:
“Stock administration is relevant to finance as it touches so many areas, from payroll tax withholding to common stock outstanding to valuation of granted equity. We are very excited to share our knowledge of the basics with you to further your understanding of this field that is so important to employees.”

Carol Rose-Guerin, Stock & Option Solutions, Inc.

SOS Stock Plan Outsourcing

We're here when you need us

Taking the Fear Factor out of Accounting Tasks

What is the very first thing you do as a Stock Plan Administrator when you are asked to assist with an account reconciliation for accounting? Panic? Well, don’t! Not all accounting tasks are “scary”. I must say, fright and panic is a very common reaction. I’ve seen it from my colleagues, from clients I’ve worked with, even had that reaction myself a few times, and I’m a CPA. To help minimize that panicked reaction learn to understand how equity data flows for financial reporting purposes, learn some of the general accounting terms we often hear, and be aware of what tasks we perform that support our accounting/financial reporting teams.

Below is how I visualize the flow of equity data, starting with the information being accumulated in the equity database. Journal entries are used to summarize and post our equity data activity to the general ledger (GL) which is the accounting system and is used to prepare company financial statements and footnotes. 

Equity Data Flow for Financial Reporting or Accounting

Financial statements show the company’s financial performance and the footnotes and disclosures provide explanations or additional detail to help a reader understand what the financial statements mean. Reconciliations between data in the equity database and data in the GL are often critical to the accounting team and auditors because reconciliations help confirm equity data is reported accurately in the financial statements.

General Accounting Tasks for Stock Plan Administrators

Here are some of those general accounting tasks that I’ve been asked to do to support the accounting and financial reporting teams.

Equity database validation – Is the equity data that flows to the financials complete and accurate? These processes and reconciliations help validate all equity data is captured:

• Shares outstanding reconciliation to GL and Transfer Agent balances
• Options/RSUs granted compared to BOD/Compensation Committee minutes
• Updating equity database with management’s performance assessment (i.e. Target Payout %, Expense %)
• Options/RSUs forfeited due to terminations (verify with HR)
• Options/RSUs that are cancelled/expired


Journal entries support – Is the equity data recorded accurately in the GL and financial statements? These actions and reports assist in validation:

• Reports to support stock-based compensation expense entries (employee, nonemployee and ESPP expense reports)
• Reports showing year-to-date option exercise proceeds, taxable income/gain (intrinsic value) and tax withholdings
• Enter assumptions/valuations in equity database to support Black Scholes valuations

General Ledger (GL) account reconciliations - Although you may not be completing the actual account reconciliation, understanding what your accounting team is reconciling will help you support them by providing the detail reports they need to complete the reconciliation. Just ask!

Don’t hesitate to offer information if there are discrepancies. Send that FYI email to the accounting/financial reporting team just in case it’s something they need to be aware of. These items may include late transactions, corrections or timing differences. Some of the accounts being reconciled monthly, quarterly and/or annually:

• ESPP Withholding Liability (contributions held by the company on behalf of the employees prior to purchase)
• Stock option exercise proceeds (taxes and exercise funds received during the period)
• Tax Withholding Liability accounts (taxes collected from participant transactions by the broker for the company to remit to the tax authorities)
• Deferred Tax Asset (DTA)
• Common stock shares outstanding
• Options/RSUs Outstanding (vested and unvested)

Footnotes or Financial Disclosure support - The accounting/financial reporting team will ask: Are the disclosures complete and accurate? These actions and reports assist in validation:

• Run disclosure (i.e. ASC 718 Disclosure) and equity activity and expense reports
• Prepare share roll forward
• Run Diluted EPS reports

Lastly, don’t forget, there are tons of resources if you need them. I often reach out and talk to the accounting team, auditors, equity database providers or do research myself in the SOS Library or NASPP resources. So, don’t fear accounting, I’m sure you aren’t the first to ask these questions!
Laura Kreman, Equity Compensation Consultant, Stock & Option Solutions, Inc.

If not now, when? Call us today to discuss your needs.

408.979.8700

SOS Service Spotlight: Temporary Staffing

We offer high level equity compensation expertise to a full range of company types, both onsite and remote. Unlike traditional staffing firms, our people are employees of SOS who have undergone an extensive interview, skills assessment, and background check process. We can jump in at a moment's notice and help for as little or as long as you need.

Why You Need Temporary Stock Administration Staffing

● Additional Help During Peak Periods-Adding temporary support gives you additional flexibility and raises productivity.

● Unexpected Position Vacancy-On average it takes 52 days to fill an open position, up from 48 in 2011. The longer a position is open the bigger the impact it has on the business.

● Upcoming Equity Project-It is the most efficient way to support your workforce and close skills gaps.

Why Choose SOS Temporary Stock Administration Staffing?

● Cost Effective-Instead of hiring a permanent employee with benefits, you only pay for the time you need.

● Flexibility-Don't be left short-handed, we can jump in at a moment’s notice and help for a few weeks or several months.

● Top Industry Talent- With 20 CEPs, SOS is the largest consulting firm dedicated to equity compensation in the United States.

● Extensive Equity Professional Network-SOS has the largest network of equity professionals. Allowing us to connect you with the very best local (or national) talent.

● Peace of Mind- Our consultants are pre-screened through extensive interviews, skills assessment, and background checks.

SOS Front & Center: Moe Zohny, CEP

Moe is one of our most versatile consultants with over 10 years of experience serving in various stock plan roles throughout his career. His vendor experience includes Stock Plan Broker Services, Corporate Support Services, Corporate Training, Implementation, and Account Management. On the issuer side, he has managed equity plans in both an outsourced model and a co-sourced model. He has administered plans within HR departments with emphasis on Executive Compensation, Compensation Planning, and Design and has administered plans within legal departments with emphasis on Global Stock Plan Compliance, Taxation, and Mobility. As a consultant, he has served in Stock Administration, Implementations, Mergers & Acquisitions, ASC 718 Consulting, and Product Management/Development.

Here is what some of Moe's clients have shared about their experiences while working with him:

"Moe is an excellent certified stock plan professional. He proactively implemented process improvements, systems, and technology while ensuring accuracy and compliance with our equity plan. He made significant contributions to our regulatory disclosures such as Section 16 filings and the proxy statement and his level of accuracy and attention to detail were unprecedented. Moe's understanding of complex stock matters is exemplary and, as one example, was demonstrated when our company was acquired by a complex, combined stock and cash sale. Moe's ability to comprehend the terms, process the transaction, and explain and educate others, including senior executives, was impressive and critical to the successful transition/sale of our company." -Debbie Colia, formerly VP-HR, Compensation, Benefits, and HRIS at Health Net, Inc.

"Moe joined the team at a pivotal moment in our equity program. He flawlessly executed on our extremely complicated equity vesting events, ESPP enrollment (including multiple webinars and trainings) and ESPP purchase. He optimized our equity administration software by re-configuring the system and enhancing reporting. He diagnosed and fixed numerous issues across our stock, payroll and HR tools efficiently and with little to no supervision. He would make a great addition to any team and I highly recommend him." -Courtney Mathes, Assistant General Counsel, MINDBODY, Inc.

The possibilities are endless…

Across Our Desk

Shift from non-GAAP bottom lines could be good for stock prices, which features a quote from Equity Methods’ Takis Makridis.

Barbara Klementz of Baker McKenzie discusses Total Reward Statements and Equity Awards.

Kate Wharton of Baker McKenzie writes “Think Your Employees' Equity Compensation Isn't Taxable in a Spinoff? Think Outside the US

From Forbes, advice on for private company employees as to whether you should take a bigger salary or employee stock options.  See if you agree with his take.

Second Circuit reaffirms broad scope of bankruptcy code’s subordination of shareholder claims, which affects the rights of RSU holders.

A look at the future(?):Tokenizing startup equity, Part 1 — Employee Stock Options Plan on Ethereum Blockchain…More on the use of tokens from Morrison Foerster here.

Finally, The NASPP Blog has had a wonderful “Meet the Speaker” series leading up to their conference in October.  SOS’s own Madori Playford was recently featured here.

SOS Xposé

...tender tidbits about people and players in our industry...

Fitting in somewhere new… Catherine Wells is now a Director of Equity at SOAProjects, Inc. Marcel Provencher is now the Director, Stock Plan Services at Gilead Sciences. Denise Ledbetter is a Senior Global Equity Program Manager for MINDBODY, Inc.

Rescued… Achaessa James of Equity Plan Solutions, LLP rescued a couple of new animals this summer, a terrier-mix named Boris and a kitten named NalaBani. The great dane, Nenna, rescued a year ago, has gone from tiny to enormous.

Carpe Diem… Carol Rose-Guerin of SOS will be retiring after 25 years in the industry. She hopes to spend more time traveling with her husband, reading, baking and gardening.

#NASPP25… Come visit the SOS booth (#6) in Washington, D.C. next month! Fun giveaways, a colonial themed booth, Bill Storey as our accounting and proxy reporting expert (available during two breaks for questions), trick-or-treat candy (lifesavers, anyone?), and just good ol’ fashion fun with our team. And don’t miss SOS’s Madori Playford and Bill Storey in their sessions. Check out the agenda for their time slots. Hope to see you there

Pulling double duty...Jon Burg of Aon Hewitt and his wife, Cindy, welcomed a baby boy, Tristan James, on August 13, 2017. Tristan weighed 7 lbs, 3oz and was 20.5 inches in length. Tristan is doing well and Sebastian (age 3) loves being a big brother.

Industry News… bendystraw llc has been acquired by Aon Equity Services. John Hammond will now be leading a video communications practice there and their new animated equity compensation talk show, Amongst the Shrubbery, gave a hint.   The Certified Equity Professional Institute announced their list of newest CEPs and the winners of the 2017 Marilyn J. Perkins Claassen Memorial Scholarships. See here for all the latest news. Our friend Gil Szeto would like you to join The Meetup. It's a social network intended to bring together individuals in the equity compensation space including stock plan admins, folks from payroll, legal, compliance, and more. This space allows people to share experiences and also trade "war" stories. Check it out.

SOS’s newest team members…

Colin Bass, Outsourcing

Carole Dubas, Talent Acquisition & Client Relationship Specialist

Christian Bell, Outsourcing

Steven Goodin, Outsourcing

Alec Bradford, Sales & Marketing

From the SOS LibraryOutsourcing: Outrageous or Outstanding

From the SOS Webcast Archive...SOS Educational Webcast: Market Trends in ESPP Design

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SOS Xtra Editor: Shawna Casey
Did you miss an issue of Xtra? View our complete newsletter archive from our website here.
Miss a webcast? You can find links to recordings, as well as the materials, on our webcast page.


Information provided in this newsletter is designed for educational and entertainment purposes only and is not provided as professional service or advice. Moreover, this newsletter should not be relied on as legal, accounting, auditing, or tax advice. Anyone reading this newsletter should not act upon this information without seeking professional counsel and/or input from their advisers. The preceding information does not necessarily represent the official views of Stock & Option Solutions, Inc. with respect to any of the issues addressed.