July 18, 2017 Tim Nguyen

Continuing Education's Best Offerings

Looking to get out and network with peers this summer? Want to catch up on continuing education? Anxious to hear the latest on industry hot topics? Check out these upcoming events:

July 31-August 1, 2017:  Second Annual CEPI East Coast Symposium in New Brunswick, New Jersey

August 24, 2017:  Atlanta NASPP chapter meeting and San Francisco NASPP chapter meeting

August 31, 2017:  SOS Aspirations Fling with Fidelity in San Francisco

September 12, 2017:  Philadelphia NASPP chapter meeting

September 13-15, 2017:  GEO’s NECF conference in Rancho Palos Verdes, California

September 14, 2017:  Houston NASPP chapter meeting and Atlanta NASPP chapter meeting

September 21, 2017:  Twin Cities NASPP chapter meeting

September 28, 2017:  Los Angeles NASPP chapter meeting

October 11, 2017:  Houston NASPP chapter meeting

October 17-20, 2017:  25th Annual NASPP National Conference, Washington, DC.

Stuck in the office?  No problem, you still can take advantage of webinars!  NASPP and GEO members are spoiled for choice in the webcast archives.  The SOS webcast archives are free to all and located at: SOS webcast library.  If you want to listen live, on August 31, 2017, SOS will broadcast: SOS Educational Webcast: RSU Base Camp - Your Staging Area for the Climb Ahead.

Check out our new spin-off whitepaper!

We've teamed up with Aon Equity Solutions for a two-part spin-off whitepaper.

Our whitepaper covers the administration impact of employee equity awards in a spin-off, while  Aon's explains the valuation and accounting considerations for employee equity awards.

The Life Cycle of the "Units" (Restricted Stock Units):

A lot of attention is given to complex equity topics.  But what about the basics?  We are going back to basics with a series of articles entitled the “Beginner’s Equity Series” and are scheduling beginner’s webinars in August (Restricted Stock Units) and October (Options and Employee Stock Purchase Plans).  Please drop us a line if you would like to see any other topics included in the Beginner’s Equity Series.

In Part I of our Beginner’s Equity Series we are covering Restricted Stock Units (“RSUs”).  Please note that this a very high level view of RSUs and is not meant to cover every detail regarding these types of equity instruments.

Grant:  The Board of Directors or an authorized committee grants the number RSUs and the time based vesting schedule.  A restricted stock unit represents a number of shares to be issued later to the employee.  Usually under equity plans one (1) restricted stock unit will be redeemed for one (1) share of the company’s common stock.  Additionally, RSUs normally have no “exercise price” unlike options.  RSUs can be granted to employees or non-employees, US or non-US residents[i].

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

Vest and Release[iii]:   At release the RSUs are converted to shares of common stock.  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.

The full value of the shares released (market value multiplied by the number of shares released) or gain becomes taxable to the employee (Federal, State, Social Security, Medicare taxes are due)[iv].   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 along with the appropriate state and local tax authorities, 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 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”.

● 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.

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 RSU 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 the release is for a Section 16 reporter, Legal may need to report the information in a public filing two days after the release date. While vesting alone does not trigger a filing, the type of tax payment may.

Finance reports in the 10-Q/K information about the releases.  This process is repeated until all of the RSUs released or the RSUs are cancelled (most likely due to employee termination).

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.

Stock Based Compensation Expense:  Finance will start calculating and disclosing expense until either the RSUs are forfeited (due to employee termination) or the RSUs are fully expensed.  The expense of RSU grants is much easier to calculate than that of stock options.  The expense per share for an RSU is the fair market value on the date of grant.  If the company issuing the RSUs pays dividends, the expense per share is reduced due to expected dividend payments.

Company’s US reporting obligations[v]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.

Looking for more RSU information?  Join Tim McCleskey and Carrie Kovac on August 31 for the webinar:  RSU Base Camp - Your Staging Area for the Climb Ahead.  Join us in the next issue of Xtra for Beginner’s Equity Series:  Stock Options.

[i] If the plan and local securities law permit.
[ii] 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.
[iii] For purposes of this discussion, we will assume that the vest date and release date are the same date.  Sometimes they are not, if the plan/grant allows the release date to be deferred to the employee’s choice of dates.  This is an advanced topic in equity education.
[iv] 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.
[v] International reporting obligations vary from country to country.  This document only addresses IRS reporting obligations for US taxpayers.

Pre-IPO Meeting and Reception in San Francisco-Earn CEP & CPE Credit

Aspirations Fling with Fidelity

August 31, 2017 | 3:00pm-6:30pm | 100 California Street, STE 1200 San Francisco, California 94111

And the Survey Says...

In the March 2017 Xtra, SOS conducted a quick survey of its readers regarding the new accounting guidance in FASB ASU 2016-09[1] that was issued in March 2016. Below are some of the key takeaways from the survey:

● Approx. 73% of respondents indicated their intention to wait until they were required to adopt ASU 2016-09. For public companies with a fiscal year end in December 2016, that adoption date was January 1, 2017. The remaining 27% of respondents did not hesitate to take advantage of ASU 2016-09 and early adopted the new guidance. The primary reason for early adopting was to remove the “noise” and record forfeitures when they occur using a 0% forfeiture rate vs. continuing to estimate forfeitures. As for the 73% of respondents who told us they did not early adopt, they have some Form 10-K and Form 10-Q footnote examples to look at before making their decisions on how to apply the new guidance.

● Another item to be mindful of is the “maximum statutory rate” withholding amendment for companies that allow net share settlement. Triggering liability accounting is no longer an issue if the withholding is under the “maximum tax rate” in the respective jurisdiction. But keep in mind, the IRS tax rules did not change because of these accounting rules. Don’t worry too much though, with the FASB release of simpler Modification Accounting rules in May 2017[2], amending the equity plan documents for this tax withholding change should not trigger modification accounting. Even the two major U.S. stock exchanges, NASDAQ and NYSE, have both indicated this change in the tax withholding language would not be a material amendment to the plan and thus not require shareholder approval. Nonetheless, please consult your accounting, tax and legal advisors before taking any action.

Hopefully we’ll get some good news on the FASB’s proposal to simplify the Non-Employee Share-based Accounting rules[3]. If you haven’t already, check out the comment letter we submitted.

Bill Storey, CPA,
Manager, Outsourcing Services,
Stock & Option Solutions, Inc.

[1] FASB ASU No. 2016-09, Compensation- Stock Compensation (Topic 718): Improvements to Employee Share Based Payment Accounting.
[2] FASB ASU No. 2017-09, Compensation- Stock Compensation (Topic 718): Scope of Modification Accounting.
[3] SOS Comment Letter to the FASB’s Exposure Draft, Compensation- Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.

Upcoming Equity Compensation Webcast

Our webcasts cover high-priority equity compensation topics

SOS Educational Webcast: RSU Base Camp - Your Staging Area for the Climb Ahead

Thursday, August 31, 2017 11:00 AM PST


What do carabiners, chalk, and #optoutside hashtags have to do with Restricted Stock Units? Well, close to nothing, but we’re going to try anyway! SOS is taking you back to the basics with this presentation designed to help those who might be new to the Equity field, those who interact with stock administrators, or those who just need to get a refresher on these popular equity vehicles.

RSUs are among the most widely used types of grants right now, and knowing what is involved, who is affected, and what to plan for can help you conquer many of the mountains in your day-to-day equity climbs, all from the comfort of your office or cubicle.


Tim McCleskey, CEP, Stock & Option Solutions, Inc.

Carrie Kovac, CEP, E*TRADE Financial Services

(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

Product Spotlight: ESPP Expense Application

Expensing can be one of the more difficult aspects of administering an Employee Stock Purchase Plan depending upon your equity software and your plan rules.  Many current equity platforms limit your ability to determine ESPP expense at a participant level, handle modifications due to contribution increases or plan reset and rollover features.  Some platforms offer no ESPP expense assistance at all.

SOS has been assisting clients with their ESPP expensing needs by creating excel files that can be extremely cumbersome and prone to human error. We have used those experiences to design a more systematic approach using client source files and an Access based application to develop detailed and summarized output to support your expense needs. 

Here are some features of the SOS ESPP Expense Application:

1. Consistent client source input files
2. Automated output in Excel format for easy review
● Details on a participant level
● Summary at client specified user field
3. Modification Accounting details
● New grant expense related to contribution increases
● Incremental expense for each reset or rollover event
4. Documentation for auditors
● Application White Paper
● Output field definitions
5. Timely Reporting
● SOS will establish client calendar for each purchase period

Call us today at 408.979.8700 to learn more about the application and how SOS can help with your ESPP expense.

SOS Front & Center: Chris O'Harra

For Chris O'Harra at Coherent, the two month assignment turned into more than a nine year assignment. Highlights of that tenure include reinitiating the suspended ESPP plan, retirement of two equity plans, and implementing the issuance of both RSU and PSU grants for the first time at the company.

“I have worked with Chris on stock compensation for about 3 years and he has been great to work with. He is responsive, patient and very knowledgeable about EE reports. He did a good job on researching EE software reporting related issues, and helped our company transitioning EE from software to online version smoothly. I have relied on him to compile all EE data required for the quarterly stock compensation calculation. I highly recommend him for your project.” -Sarah Yi, Coherent

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


SOS Xposé

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

Driving to a new office…Jennifer George is now a Partner at PwC. Kevin Roberts is now the Senior Vice President-Financial Advisor, Corporate and Executive Services Group at RBC Wealth Management. Cindy Birse is a Senior Stock Plan Administrator for Neurocrine Biosciences, Inc. Laura Shields has joined Symantec as a Stock Administrator, based in LifeLock's Tempe Arizona location. LifeLock was acquired by Symantec in February 2017. She joins the team based at Symantec's headquarters in Mountain View California. Pete Macias is now a Stock Administration Manager at Marvell Semiconductor. Sara Spengler is now a Director, Global Equity Administration for Fitbit. Achaessa James is now working for Equity Plan Solutions, LLC as Senior Equity Plan Consultant. Jack Tice is working for Itron, Inc. as a Sr. Compensation Analyst. Veena Bhatia is the new Head of Global Stock Administration for Atlassian.

All smiles… SOS’s Bill Storey’s daughter, Rali, is 8 months old now and sporting her SOS onesie. What a cutie!

Nashville news… Tommy Swindle of UBS Financial Services Inc. is the new president of the NASPP Nashville Chapter.

It’s a boy!... Moe Zohny of SOS and his wife are expecting their second child this October. This time it’s a boy so they will now have one of each! Jon Burg of Aon Hewitt and his wife, Cindy, are expecting their second baby (another boy) in early August!

Commenting aroundCheck out SOS’s Bill Storey’s comments to FASB on non-employee accounting.

Working together… Achaessa James of Equity Plan Solutions, LLC writes about the combined efforts it takes to make up the CEP Exam Prep Course. 

Industry News… If you coordinate your company’s option exercises and RSU releases, are your processes ready for the new T+2 settlement rules? Coming 9.5.17…. 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 NOW! If you haven’t seen this Global Relative TSR Plan Design survey from Aon, we highly recommend checking it out. The survey is open and accepting responses through July 28.  Everyone who completes the survey will receive a copy of the results, available in September.

SOS’s newest team member...

Colleen Ledesma, People Solutions Team

From the SOS LibraryEquity Roll Forwards

From the SOS Webcast Archive...SOS Educational Webcast: Adding Access to Your Stock Plan Professional Quiver

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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.