Author: Tim Nguyen

Summertime is Here!

Well, not really.  It feels like tax season just ended and the evenings still have a chill in the air.  But the time to plan for summer is definitely here.  And here are some things to check off your list before summer arrives: 

 

1. Who is covering for you on your summer vacation? Are you cross training a colleague or do you need to call in coverage?

 

2. Are your procedures and checklists up to date so your coverage knows what to do and when to do it?

 

3. Read notes from Janet Bernard on Form SSA:131: Employer Report of Special Wage Payments 

 

4. Has your stock plan had its annual check-up yet? If not, take a look at some of the things you should be thinking about.

 

5. Does your payroll reporting process flow smoothly or do you need help? Check out our product spotlight: Payroll Xpress.

 

6. Are you ready to hand off HR, Payroll and Stock work to someone else? In our June webcast Vanessa Harrison, Tonya Epps and John Cunningham of Oclaro will discuss the pros and cons of outsourcing the stock, payroll and HR functions in their webcast: Questions to Ask When Considering Outsourcing

 

Dust off your flip flops and start planning, summertime is just around the corner!

Our most recent Aspirations Fling was a success!

Check out some snapshots of the event

SOS Consultant Corner: Notes from Janet Bernard on Form SSA-131: Employer Report of Special Wage Payments

I was recently contacted by an old friend, the stock plan administrator I had trained to fill my position with a former employer. She was in receipt of a request to complete Form SSA-131 and wasn’t sure what to do about it. It wasn’t on the list of regular duties I had left behind, because I didn’t – and don’t – see much of them. If you’re unfamiliar with this form, it is likely because the responsibility for completing and issuing them often falls on a company’s payroll department. Although there is no deadline for completing the form, if you receive one, it’s not something you want to casually set aside, thinking you’ll get to it later.

Form SSA-131 is used to report special wage payments (SWPs) made in the previous tax year. An SWP is an amount paid to an employee or former employee, which was earned in prior years. Take, for example, non-qualified stock options (NQs):

● An employee’s NQs vested (or, were earned) 2012 – 2016

● The employee retired December 31, 2016

● The retiree exercised the NQs in 2017 The W-2 income from the exercise would be considered an SWP; and the SWP income would be reported to the Social Security Administration (SSA) in early 2018. The company reports SWPs to the SSA electronically (or by paper listing in some instances).  The company, of course, also reports the ordinary income from NQ exercises, and the related tax paid, on the W-2 for the year of exercise.  In some cases, as when a company is not made aware that an employee or former employee has begun receiving social security benefits and does not report the SWP appropriately, the SSA may reduce the benefits according to the wages reported on the W-2.  For this reason, it is in the best interest of optionees that the equity team be familiar with Form SSA-131 and be prepared to issue the information timely upon request.  The form will let the SSA know that income reported on the W-2 was earned prior to receiving social security benefits.  The completed form can be sent directly to the SSA office nearest the company but is often provided to the employee who requests it so that the employee can submit it to the SSA office handling the claim.  In any case, the SSA benefits will not be reconsidered until the SSA is in receipt of the SWP details. Because SWPs can include much more than just income from NQ exercises, it makes sense that the payroll department would be responsible for annual reporting.  However, in the interest of time, if the equity department receives a request for information, and payroll is processing that week, the equity team could manually complete a Form SSA-131.  Even a form letter from the company may be accepted:

● The form letter should include all of the elements of Form SSA-131 (name, address, SSN, date of retirement, etc.).

● The letter should state that the SWP amount being provided was related to NQs only and that the team is not aware of any additional SWP amount that might have been paid during the year in question.

● Also, if the employee still holds outstanding NQs, the letter should provide the number of NQs, exercise price and expiration date of the outstanding equity. Please note that Form SSA-131 is not used to report non-qualified deferred compensation which is reported in box 11 of Form W-2.  IRS Publication 957 is the best source for more information about reporting SWPs.  It can be found, with a sample Form SSA-131, at https://www.irs.gov/pub/irs-pdf/p957.pdf or https://www.irs.gov/publications/p957/index.html. -Janet Bernard, CEP, Stock & Option Solutions, Inc., Equity Compensation Consultant

 

Upcoming Equity Compensation Webcast

Our webcasts cover high-priority equity compensation topics

SOS Educational Webcast: HR, Payroll or Stock: Questions to Ask When Considering Outsourcing

Tuesday, June 6, 2017 11:00 AM PST

Description: 

How do you best provide HR, Payroll and Stock Administration services for your company? If your company is very small, has employees in many locations, or is trying to cut costs, having full time on-site HR, Payroll and Stock Administration employees may not be practical or cost effective. In this webcast we will uncover the questions you should ask yourself, those around you and potential service providers to help you decide if outsourcing these functions is right for your company. Who, what, where, why and how will all be revealed.

Speakers:

John Cunningham, Oclaro

Tonya Epps, CEP, Stock & Option Solutions, Inc.

Vanessa Harrison, Stock & Option Solutions, Inc.

(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.)

Why SOS?

Let's Get Physical: Is Your Equity Plan Healthy?

Has your equity plan had its annual physical?  For most of you, the proxy and year-end reporting is now complete, tax season is over and now is the time for you to take a look at all those items that were pushed out of the way because there wasn’t enough time.  Now is the time for your equity plan annual check-up.  

What kind of health is your equity plan in? 

● Does the plan have enough shares for the fiscal year? Ideally this is a question that would have been asked prior to proxy season.  But looking forward, is there a request for shares in the future for the next proxy?  If so, make sure to speak up now.  Actions that companies take throughout the year may trigger negative votes or cost points on the ISS scorecard. 

● Is my plan expiring anytime soon? If you have a plan that has an expiration date, what is the strategy for granting equity after the expiration date?  A new plan?  Again, ideally this question would have been asked prior to the proxy season, but remember, it never hurts to look into the future for the next proxy season. 

● How’s your data quality? In the November issue of Xtra we talked about data quality. If you have acquired another company or changed your HR or Payroll systems recently, it might be worth auditing your data for cleanliness and completeness.

● Regulatory changes: How’s your share withholding?  Most companies were excited to see that ASU 2016-09 now permitted share withholding at the maximum rate without triggering liability accounting.  For the international employee population who were traditionally under withheld, the news was especially welcome.  But wait, what does your equity plan say about share withholding?  Some plans are silent, but many specifically call out that tax withholding should be at the minimum rate like this:

“provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum individual statutory tax rate in the applicable jurisdiction”.

Depending on how your plan is structured, this language may appear in more than one section.  If your company is planning on allowing for the maximum withholding rate, make sure to document each occurrence that needs to be changed and consult the Legal department on the right way to update this language.

● Documentation: are your grant agreements up to date?  Now is the time to make sure you have updated grant agreements, country specific supplements or translations for all countries.  And don’t forget to upload them to your equity software provider or broker if you are using online grant agreements!

● How old is this version of the plan? We’ve all found documents that were before our time, but sometimes you find agreements and plans from 10, 15 or even 20 years ago.  How long do you keep it?  Does the company have a records retention policy?  Generally, financial professionals advise keeping documents for 7 years, but your lawyers may want you to retain them for a longer period of time.  Check in with Legal before you start to purge paper or electronic documents.

What kind of health is your equity platform in?

All administrators know that your plan is only as healthy and effective as the equity platform that you use to administer your plan.  A tired, run down equity platform won’t contribute to the overall health of your equity plan.  Take a look at your equity platform as well and ask these questions:

● Are you utilizing all the features of your equity platform correctly? Enhancements to platforms occur regularly and because of timing, you just have not explored what those enhancements mean for your plan administration.  Now is a great time to dig deeper into these updates and learn if you are utilizing them to your advantage.  One area we always see under-utilized is the fungible share tools in some platforms. Even if the enhancement can’t handle your situation 100%, it may be able to provide more functionality than you thought.

● Are the plan shares reflected correctly within your equity platform? If you received shares in the proxy season, validate that they were added in your equity platform.  Additionally, you should validate with Legal that they were properly registered on an S-8 and the transfer agent has also been notified.

For most administrators, down time is approaching and it is the perfect chance to do a thorough equity plan check-up.  Remember this process includes not only the condition of your plan, but an equity platform check-up as well.   Finding and correcting any health related issues now will save time and improve accuracy down the road.  An ounce of prevention is worth a pound of cure!

 

Volatility Calculator Application

Detailed, auditable volatility calculation in just a few minutes

Product Spotlight: SOS Payroll Xpress

To help you avoid errors, and to help you save time, SOS Payroll Xpress has been developed to assist stock departments by instantly generating importable files and providing audit reports for review prior to loading the data into the payroll system. The application can generate the files in both CSV and XML depending on the preferred format. SOS Payroll Xpress is an MS Access application which does not require any installation. A few setup steps quickly automate the process of generating the files.

SOS Payroll Xpress Features and Benefits:

● SOS Payroll Xpress is an MS Access application and therefore does not require any installation if you already have MS Access installed. With minimal IT support this application can easily be deployed on your network.

● Since SOS Payroll Xpress is deployed at your site, data security is guaranteed. Data never passes beyond your firewall.

● Reports generated by the current equity administration platform provide the data for SOS Payroll Xpress.

● SOS Payroll Xpress currently supports standard reports from the most popular equity administration platforms.  SOS Payroll Xpress can be easily customized to support source reports from other equity administration platforms.

● SOS will assist and directly work with the client's stock administrators to implement SOS Payroll Xpress.

● Data diagnostics generated by SOS Payroll Xpress can be used to review and correct any data issues prior to uploading the data to the payroll system.

● Automatic generation of import files ensures data accuracy with no manual intervention.

● Since the SOS Payroll Xpress supports standard reports from equity administration platforms, data preparation time is limited to generating the required source reports.

Check out our SOS Solutions Webcast: Savin’ Time with Tech Tools where we review Payroll Xpress in detail.

SOS Payroll Xpress is a solution that works. Reduce your time and frustration. Call us today. 408.979.8700.

Front & Center: Juanita Medina

Juanita started working for SOS in 2004 at Foundry Networks, as a replacement for the departing stock administrator.  Foundry was so pleased with Juanita that they retained her services for several years.  When Brocade acquired Foundry in 2008, Juanita stayed to help with the transition, but Brocade found her assistance so valuable that they retained her past the merger integration and she has been there ever since.

“Juanita is an enthusiastic team player who is dedicated to her work and I’ve never met anyone like her in all my years of working. Juanita truly has an amazing work ethic and always had our best interest in mind.”

-Diana Castro, formerly Foundry Networks

“I have greatly appreciated Juanita’s knowledge on complex stock administration issues, her ability to handle tough questions from employees, and her positive attitude each day no matter what task she is handling in the moment.“

-Chris Hanson, Brocade

SOS Stock Plan Outsourcing

Full-time expertise at a part-time cost

Across Our Desk

FASB issues update on modification accounting for shared-based payment awards…If you are really into accounting, you can dig into it here.

M&A: Court questions accelerated vesting of equity compensation.

From the NASPP Blog: Trump’s tax reform planFive trends in restricted stock units.

Fred Whittlesey covers the landmines found in equity compensation in private companies.

Another reminder that director limits set forth in equity plans allow director compensation to be reviewed under more lenient business judgment rule.

And finally, something that should unite us: You would actually die without your coffee, research says.

 

SOS Xposé

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

Updating profiles… JoAnne Zinman is the Senior Manager, Stock Administration for Okta, Inc. Jennifer Lim is now a Stock Administrator for iRhythm Technologies, Inc. Brianne Kostielney has joined Solium as the new Manager of Client Education in the US. She has relocated from the Bay Area down to Tempe and can’t wait for the summer heat! Rob Pawlick is the new VP, Corporate Controller for Gainsight. Jeff Graham has returned to E*TRADE handling sales in the mid-market as an Account Executive after spending the last nine years at Certent/EASi.

Head of the classSOS’s Tim Nguyen is graduating June 17th from Santa Clara University with a major in Economics. 

Earning awardsSOS’s Scott McDonald’s daughter, Savannah Louie, and her class won the St. Cecilia Academy Award in the category of Life at St. Cecilia for “We Love Our 8th Grade Buddies”.  See the video and acceptance speech featuring Savannah. Congratulations!

Taking more walks… Shawna Casey of SOS and her family recently adopted a 5-month-old puppy and named him Ranger. This Labrador and German Shepard mix is a fun addition to the family and is keeping them active! LoAn Nguyen of SOS just adopted a 2-year-old Siberian Husky named Dakota (Kota for short!). What a cute pup!

Industry News… The NASPP is celebrating its silver anniversary in the city where it all began! The 25th Annual NASPP Conference will be in Washington, DC from October 17-20. Register before June 9th for a discount!  Enhancing a long-standing relationship, Solium and UBS have entered into an agreement to offer Shareworks as the underlying software platform for UBS’ US-listed clients. Read the press release. Intuitive Surgical recently rolled out a new annual grant program that allows each employee to choose the mix of equity (RSUs and NQs) that best fits their needs and tax strategy. The Annual Nor Cal GEO Forum is set for June 15th at Devil's Canyon Brewery in San Carlos.  Last year, they sold out, so register soon if you want to join! Register now for this special one day event. The 9th Annual New England NASPP Regional Event is on July 14th and thanks to the sponsors, this event is FREE! CEP and CPE credit will be offered. Register today.

SOS’s newest team members…

Hannah Brown, Outsourcing and Sales & Marketing Teams

EJ Haggerty, People Solutions Team

From the SOS LibraryTop 10 Proxy Pitfalls

From the SOS Webcast Archive...SOS Educational Webcast: Documenting the Process: Why You Shouldn’t Rely on Memory Alone

 

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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.

Stock & Option Solutions

Stock & Option Solutions Hosts SOS Educational Webcast:The Whole Enchilada: Accounting for PSUs from Top to Bottom

April 13, 2017

Navigating through the process of accounting for Performance Share Units

 
 

CAMPBELL, Calif. - April 13, 2017 -Stock & Option Solutions (SOS), a leading provider of stock plan outsourcing, temporary staffing and professional services, today announced their upcoming webcast, "The Whole Enchilada: Accounting for PSUs from Top to Bottom" is scheduled for April 25th, 2017 at 11am PT.

Elizabeth Dodge from Equity Plan Solutions, Michael Esposito from Solium, and Bill Storey from Stock & Option Solutions will walk you through the entire process of accounting for PSUs: from fair values to attribution (regular and spicy - delayed service inceptions, reverse FIN 28, and time-based vesting after goal achievement), forfeiture rates, application and true up, to tax accounting (even the impact of 162(m)), diluted EPS (when to include/exclude and other FAQs) and even disclosure reporting under ASC 718.Storey states, "Accounting for Performance Share Units or PSUs can be quite tricky. The accounting treatment is different for PSUs with performance conditions (company/individual specific metrics/milestones) and PSUs with market conditions (stock price/total shareholder return metrics). I'm looking forward to discussing this topic with Elizabeth and Michael and providing insight to those attending the webcast or catching a replay of the webcast down the road."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

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

I'll Race Ya to The Deadline

With tax season in full swing, employees are racing to complete their taxes prior to the filing deadline. 

With all the questions and requests, here are some key dates regarding tax related items:

February 15, 2017:  Oops! This deadline already passed!  Brokers should have sent out Form 1099s by this date if they were going to mail them. If an employee has opted in for electronic delivery of statements, that employee should see this in their brokerage account already.  If employees don’t have their Form 1099s yet, they need to contact their broker.

March 31, 2017:  This is the deadline for the electronic filings for 6039. The company’s 6039 provider probably already made this filing on the company’s behalf (but this should be confirmed!). 

April 18, 2017:  This is the deadline to file personal tax returns for 2016 with the IRS.  The regularly scheduled tax return filing deadline remains April 15. However, April 15 falls on a Saturday and Washington D.C.’s Emancipation Day holiday is observed on April 17 instead of April 16.  This pushes the IRS filing deadline to the following Tuesday.

Hope all these dates help, happy filing!

 

Pre-IPO Luncheon in San Francisco-Earn CEP & CPE Credit

Aspirations Fling with SF NASPP Chapter

April 20, 2017 |11:30am-2pm| 211 Main Street San Francisco

Accounting Update

This summary is intended only for a high-level overview. It is not intended to be accounting or tax advice. SOS recommends its clients consult their qualified accounting and tax advisors before taking action in order to understand the impact new accounting guidance will have on their company’s stock based compensation accounting, tax, financial reporting and equity systems/databases.

FASB Issues Proposed ASU on Improvements to Non-Employee Accounting

On March 7, 2017, the Financial Accounting Standards Board (“FASB”) issued an exposure draft of a proposed Accounting Standard Update (“ASU”) that is intended to reduce cost and complexity and to improve financial reporting for non-employee equity awards. The proposed ASU would supersede the accounting guidance in ASC 505-501 and include non-employee equity awards under the scope of ASC 7182. In short, non-employee equity awards will be treated similar to employee equity awards with certain exceptions. Here are links to the FASB's Press Release, FASB In Focus Summary and the proposed ASU. The FASB is accepting public comments on this proposed ASU until June 5, 2017. Stay tuned… there’s light at the end of the tunnel, but don’t make any changes yet!!

FASB Approves ASU That Simplifies the Scope of Modification Accounting

Per the February 22, 2017 Meeting Minutes, the FASB voted to approve the exposure draft of the proposed ASU that is intended to simplify the modification accounting guidance in ASC 718. Basically, if certain modifications are made to equity awards, but the fair value, vesting conditions and equity (or liability) classification of the award all remain unchanged before and after the modification, then modification accounting is not required. Look for the FASB to issue a final ASU on or before June 30, 2017.

Bill Storey, CPA, Manager, Outsourcing Services and Financial Reporting & Accounting Leader

Stock & Option Solutions, Inc.

Footnotes:

1- ASC 505-50 = FASB ASC Topic 505-50, Equity-Based Payments to Non-Employees

2- ASC 718 = FASB ASC Topic 718, Compensation- Stock Compensation

 

Upcoming Equity Compensation Webcast

Our webcasts cover high-priority equity compensation topics

SOS Educational Webcast: The Whole Enchilada: Accounting for PSUs from Top to Bottom

Tuesday, April 25, 2017 11:00 AM PST

Description: 

This heated presentation will walk you through the entire process of accounting for PSUs: from fair values to attribution (regular and spicy - delayed service inceptions, reverse FIN 28, and time-based vesting after goal achievement), forfeiture rates, application and true up, to tax accounting (even the impact of 162(m)), diluted EPS (when to include/exclude and other FAQs) and even disclosure reporting under ASC 718. Join our expert panel as they layer in the flavors of accounting for PSUs like building a mole sauce from scratch.

Speakers:

          Elizabeth Dodge, CEP, Equity Plan Solutions

          Michael Esposito, CEP, Solium

          Bill Storey, CPA, Stock & Option Solutions, Inc.

So Quotable:

"Accounting for Performance Share Units or PSUs can be quite tricky. The accounting treatment is different for PSUs with performance conditions (company/individual specific metrics/milestones) and PSUs with market conditions (stock price/total shareholder return metrics). I’m looking forward to discussing this topic with Elizabeth and Michael and providing insight to those attending the webcast or catching a replay of the webcast down the road." 
-Bill Storey, CPA, Stock & Option Solutions, Inc.

 

(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.)

Temporary Staffing

We're here when you need us

Consultant Corner: Mobility – Does it Scare You?

I don’t know about you, but mobility does scare me because of the expanded attention by various state and federal agencies that this subject has received. Each company handles employee mobility differently from not tracking mobile employees at all to extensive reporting programs.  Incorrect tracking or pro-rating of gain can result in the tax man knocking at the company’s door as well as the employee’s! Making sure that mobility is done correctly requires accurate inter-departmental cooperation that doesn’t always exist. 

This article applies to state-to-state transfers as well as country-to-country transfers.  I will not address expats in this article as that is an entire subject within itself. 

Many companies use outside vendors to track and maintain their mobile programs, but even if your company has contracted with a vendor, stock administration will be required to supply data to that vendor on a regular basis. 

What are several of the important pieces of data that require accurate reporting?

Addresses:  Maintaining employee work and residence addresses in your stock administration software is extremely important information to ensure your tax withholding data on any transaction is correct.  This will impact your payroll department reporting, expense information for your accounting department and an employee’s individual tax return.  Make sure you have good communication with your HR Department or Global Mobility Department and are being updated with employee work and resident addresses on a regular basis.

Some software vendors currently track both resident and work addresses.  You can indicate which type of address it is for each employee and it makes tracking much easier.  An effective date for each address is noted so that any vesting of an equity award can be tied back to when the employee was in a particular state or country.

Taxes:  To effectively manage taxes for mobile employees internally, your stock administration software must be able to allow the setup of transfer taxes that are prorated for the amount of time the employee was specifically in a country.  For example, an employee is granted an RSU while in Germany and then transfers to the UK when the RSU is 50% vested.  Check to make sure there is no reciprocity tax agreement between these two countries.  If not, you would want to prorate the percentage of tax payable to Germany and the percentage of tax payable to the UK on the second 50% of the vesting of the RSU.  The same applies to state-to-state transfers and prorating taxes.

If you are responsible internally for managing mobile employees within your stock administration software, you may want to discuss mobility with your internal or external legal counsel to obtain specific tax information for each state and country in which you have mobile employees and the tax percentages that must be withheld on each type of equity award granted.  Remember to include your payroll representative in these discussions so that their input is also considered.

Accounting:  Your accounting department are the professionals when it comes to determining any expense associated with the grant or vesting of any equity awards.  Bring them into the employee mobility program if they are not already involved.  However, it is stock administration’s responsibility to maintain accurate records.

Mobility can be scary, especially if departments don’t work together to keep one another informed.  It is vital to communicate across departmental lines to ensure that everyone who is involved in the process receives updated and timely information regarding mobile employee information.  Once this is accomplished, mobility won’t be quite as scary.

Carol Rose-Guerin, CEP, Equity Compensation Consultant

Stock & Option Solutions, Inc.

March Market Research Survey

Complete the survey and be entered into a drawing for a $100 Visa gift card!

 

Periodically, SOS will ask for issuing companies' participation in a market research survey to enhance our understanding of current practices and trends in the industry and to provide our clients insight into the practices of other issuing firms. Our surveys are brief, taking no more than 5 to 10 minutes to complete.

 

Please note that only issuing companies, not vendors or consultants, should complete the survey and are eligible for the drawing. Thank you for your cooperation!

ESPP Expensing Edge

A better way to manage your ESPP

Service Plug: SOS Stock Plan Outsourcing

Would you hire a plumber to mow your lawn? Call a dentist if you had the flu? Or would you ask an arborist to fix your roof? If you answered no to these questions, then why would you “hire” someone from your HR, legal, or finance department to manage your stock plans?  

With an SOS expert by your side, your stock plans will get the attention they require. Take this responsibility off the shoulders of your team members that already have fulltime jobs, and partner with the SOS Team. 

With experience with every system, our team is confident, knowledgeable and dedicated to being your partner every step of the way. 

Thinking about it? Want more info? Check out these resources below, and we’d be happy to jump on a call with you to answer any questions you may have and to help you get back to your fulltime job. 

 

Watch a quick video on how it all works

Hear from our own Madori Playford, CEP and Scott McDonald in this SOS Solutions Webcast

Read an article on how the SOS Outsourcing Team can take on your ESPP!

Check out the SOS Stock Plan Outsourcing page on our website

The time is now, don’t waste another minute. Call us at 408.979.8700. We see a partnership in your future.

 

Tender Offer Valuations:  The Bite-Sized Morsels

Tender offer valuations are considered a Type I modification under ASC 718 and can be confusing to even the most seasoned equity accounting professional, let alone someone whose specialty is not accounting.  However, once you break the subject down into bite-sized pieces, it becomes an easier meal to digest.  In this article we will examine each of the pieces of the fair value needed to calculate the post-tender offer valuation for expensing purposes.  For purposes of this discussion, we will assume that a company has outstanding underwater options that they want to cancel and issue new at-the-money options to employees.

The Appetizer:  Unamortized Expense from the Tendered Option

In the era of expensing for a Type I modification under ASC 718, companies are obligated to recognize all of the originally calculated expense once they issue an option.  If the company decides to offer employees a chance to tender their underwater options, any expense not yet recognized for unvested underwater options doesn’t magically disappear at cancellation.  It has to be recognized, even though the underwater option will be cancelled and no longer outstanding.  This “leftover” isn’t destined to be shoved to the back of the fridge and forgotten.  It will become part of the new valuation for the newly issued option.

The Main Course:  Incremental Expense 

An evaluation needs to be done to see if the newly issued option will be worth more than the tendered option at the time of the modification.  It requires determining the appropriate “before” and “after” expected terms which will drive the volatility and risk-free interest rate inputs to the Black-Scholes calculations we all have seen on the menu repeatedly.  There are a few different entrees to choose from when it comes to determining the appropriate “before” expected term.  You should read the menu carefully to make sure you know exactly what you’re getting.  The “after” expected term is simply what you would normally order when faced with a new option. 

So, let’s say that the Black-Scholes value of the underwater option just before the modification is $2 and the Black-Scholes value of the new option will be $3.  The difference ($1 per share) is the incremental expense that must be recognized over the service period of the new option.

Dessert:  Number of Shares in the New Option

The cherry on the top of the valuation is the number of shares in the new option.  All of the valuation inputs are known, so all that is left is to add them up and divide by the number of shares in the new option.  (And possibly sit back and enjoy a cup of coffee or after dinner glass of port while you do!)

The new valuation is equal to:

Unamortized Expense (tendered option)  +  Incremental Expense

Number of Shares in the New Option

Or, to make this easier to swallow:

Appetizer  + Main Course

Dessert

Tender offer valuations are not the tough to digest meal that many believe them to be.  Breaking them down to the basics (Unamortized Expense of the tendered option, Incremental Expense and the shares in the new option) makes them more palatable.  When you next encounter these on a menu, don’t be afraid they will leave you with heartburn!

 

 

 

SOS Stock Plan Outsourcing

Full-time expertise at a part-time cost

Across Our Desk

FASB happenings: FASB proposes simplifying accounting for share-based payments to nonemployees…From The NASPP Blog -  FASB Votes on Modification Accounting ASU and Modification Accounting Update: Is it in Time? 

Equity comp at startups: Interesting discussion of the “work for equity” model…Dan Walter wraps up his fourteen(!) part series on startup equity

Taxes: From the myStockOptions.com blog - The top 10 questions you should ask about reporting stock sales on your tax return 

Legal happenings: Another Federal Court affirms the enforceability of restrictive covenants in electronically delivered equity award agreements

SOS Xposé

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

On a new team… Laura Reis is the Director of Equity Administration at Cylance Inc. Jill Gilmer is now the Director of Executive Compensation at Acuity Brands, Inc. Susi Gibbons is the new Manager Stock Plan Administration and Treasury for CallidusCloud. Pam Chernoff is back working as the Curriculum Coordinator for the Certified Equity Professional Institute, SCU while still working as a Freelance Technical Writer and Editor.

Time to smell the roses…Veena Bhatia is finishing some integration tasks for Pfizer (formally Medivation, Inc.) but is enjoying being temporarily “fun-employed” and she is getting out to do some travelling and volunteering.

It’s a big one…Solium’s Jeremy Wright celebrated the BIG 4-0 this month! His team got him a Darth Vadar singing telegram who joined his birthday lunch, check out the video!

Take me back… Lydia Terrill of Vocera and her family recently enjoyed visiting family in Hawaii. They visited the southernmost point in the U.S., had dinner overlooking a volcano, and Lydia came home with as dark a tan as she expected. Check out this great pic! Marlene Zobayan of Rutlen Associates toured Havana last month with her son, Joey. They learned about the culture, history and life of Cubans under the embargo, did a lot of sightseeing and shopping and, of course, Marlene got to drink plenty of Mojitos (no cigars for this gal!). This pic shows the view from Ernest Hemmingway’s office, how cool! Vanessa Harrison of SOS and her family enjoyed a fabulous vacation at the Aulani Resort in Kapolei, HI on Oahu.

#Goals…Carine Schneider of WWFConnect is one of the "17 Women to Watch in 2017" and she also is listed in the Top 100 Influential Women in Silicon Valley by the Silicon Valley Business Journal. Congrats on being recognized, Carine!

Industry News… Certent Summit 2017 registration is open. Planning your conference and travel budget for 2017? Be sure to include the 6th Annual Certent Summit, May 22 – 24 in Nashville, TN. Gather new tips and tricks, brush up on the latest trends in financial compliance and equity compensation, sign-up for a one-on-one consulting session with Certent experts, and network with industry peers. Visit certentsummit.com for information on the agenda, travel arrangements, and more.  Register today for the 13th Annual CEP and Silicon Valley NASPP Symposium–the best one-day event in Equity Compensation.  Visit the CEPI website for more details. The NASPP is celebrating its silver anniversary in the city where it all began! The 25th Annual NASPP Conference will be in Washington, DC from October 17-20. Register by March 31 for the early-bird rate. 

From the SOS Library Savvy Stock Plan Spreadsheets 

From the SOS Webcast Archive... SOS Educational Webcast: Defeat Disturbing and Dastardly Disclosures 

 

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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.
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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

SOS Announces Aspirations Fling with SF NASPP Chapter

March 7, 2017

Stock & Option Solutions Announces an Aspirations Fling with the San Francisco NASPP Chapter

 

This Aspirations Fling with the SF NASPP Chapter is a must-attend event that will give attendees a good look into what changes are coming with moving from a private company to a public company

 

Campbell, California, March 7th, 2017 - Stock & Option Solutions (SOS), a leading provider of stock plan administration, management and consulting services, today announced an Aspirations Fling—a luncheon meeting geared towards private companies that provide equity compensation. The meeting will include lunch, networking and a topic dedicated to detailing what changes to expect during each stage of preparation of an IPO.

 

This Aspirations Fling with the San Francisco NASPP Chapter will bring together executives and stock plan staff from finance, accounting, HR, legal, and executive compensation on April 20th, 2017 at Charles Schwab at 211 Main Street in San Francisco, California.

 

“The differences between private company and public company stock administration are as different as night and day. Preparation for these changes involves work far in advance of the actual IPO date. Anyone involved in the stock administration function needs to know what to expect and how to prepare for the changes that lie ahead,” said scheduled presenter, Sorrell Johnson, CEP, of SOS.

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

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

 

 

 

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