March 20, 2018 Tim Nguyen

Marching on in March

The old saying is that March comes in like a lion and goes out like a lamb. We are mid-way through the month and the lion has yet to depart. While the East Coast is being buffeted by snow and storms, the West Coast is seeing rain, rain and more rain. No matter what coast you are on, while the weather rages outside, stay warm and dry while enjoying this edition of Xtra.

For those of you on the West Coast, don’t forget that the 14th Annual CEP and Silicon Valley NASPP Symposium will be held on March 27 in Santa Clara, California. And on March 30, Nasdaq and the NYSE will be closed in observance of Good Friday.

And what March Xtra would be complete without a reminder of the April income tax filing deadline? This year the 15th falls on a Sunday. With Washington, D.C.’s holiday on the 16th, procrastinators will be rushing to the post office to file on the deadline of April 17.

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.

It's All About the Non-Qual

Part III of our Beginner’s Equity Series covers another type of stock option:  the Non-Statutory Stock Option or NSO.  NSOs are also referred to as “non-quals”, “NQs” or “NQSOs”.  NSOs are governed by fewer rules than ISOs (see Part II of the series here on ISOs) and are a more flexible type of stock option. 

Grant:  The eligible participant is granted an NSO, which is approved by the Board of Directors or any authorized sub-committee of the Board.  NSOs can be granted to employees or non-employees.  NSOs also can be granted to either US employees or non-US employees.  There is no statutory limit on the number of shares that may be granted under an NSO, but the equity plan may place a limit on the number of shares that may be granted.

If the NSO is granted to a Section 16 reporter at a publicly traded company[1], Legal will disclose the terms of the NSO on a public filing (Form 4) due two days after the date of grant.

Vest:  At vest, there is no taxable event for the employee.  The taxable event occurs at exercise.

Exercise:  Federal and state taxes are due at exercise of an NSO by an employee[2].  Depending on the plan’s guidance, the gain may be either the difference between the fair market value and the exercise price or the actual sale price and the exercise price.  The gain is compensation income and all applicable taxes (Federal, State, Social Security, Medicare) should be withheld by Payroll.

Employees may have any of the below listed choices regarding payment of taxes and exercise price at exercise.

● Electing to have enough of the shares sold on the open market to cover the option cost and 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 option cost and 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 the option cost and the 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 the option cost and the taxes due.

Accounting/Treasury reconciles the bank account to ensure the correct amount of money was received from employees for the option cost (shares exercised multiplied by the exercise price) plus taxes owed and deposits the purchase funds into the company’s general account. 

Legal will report the exercise of the NSO on a Form 4 filing within two business days of the exercise date, if the company is publicly traded.

Share tracking after exercise:  Since the taxable event for US employees occurs at the exercise of shares no tracking is required.      

Tax implications for the company:  At the exercise, the company is entitled to a corporate tax deduction in the amount of compensation they report on behalf of the employee.   The Tax Department will request reports from Stock Administration regarding the amount of a NSO exercise on a regular (monthly, quarterly or annually) basis to estimate the tax deduction for the year.

Stock Based Compensation Expense:  At grant, Finance will start calculating and disclosing expense (in the financials) until either the NSO is forfeited (due to employee termination) or the NSO is fully expensed.  The expense can be calculated by different methods, but the most popular is the use of an option valuing model called the Black-Scholes model.  No matter what model is used, Accounting Standards Codification Topic 718, Stock Compensation states that the following factors should be taken into account when calculating the expense of an option: 

● The option’s exercise price;

● The option’s expected term or life;

● The fair market value of the company’s stock;

● The volatility of the company’s stock;

● The dividend payment of the company’s stock; and

● The risk free interest rate.

Company’s US reporting obligations[3]For US employees, the company reports the gain as income on the employee’s Form W-2 in the year of sale.   There is no statutory reporting required for NSOs under the Internal Revenue Code other than the Form W-2 reporting at exercise.  Companies frequently send courtesy statements to employees at year end with the NSO exercise information in them.  However, this is not required.

Option Expiration:  An option is no longer outstanding if:

● It is fully vested and fully exercised;

● The life of the option passes and it expires without being exercised; or

● The option’s life is terminated due to the employee no longer providing service to the Company.

We hope you have a better understanding of Non-Statutory Stock Options. If you have a topic you would like to see included in our Beginner’s Equity Series, please let us know at

[1] 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. 

[2] 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.

[3] 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: Do This, Not That: How Do Your Procedures Measure Up?

Thursday, April 12, 2018 11:00 AM PDT

When was the last time you measured your procedures against the yardstick of industry best practices? Are your procedures stagnant and unchanging because it “has always been done this way?” Join us for a discussion on the importance of including best practices in your day-to-day administration.

(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:
"Just because you’ve always done something a certain way, doesn’t mean you should continue to do it that way. Spending a little time to look at your current processes will most always result in big steps towards improvement. Implementing best practices can not only mitigate risk, but improve efficiencies." - Laura Kreman, Stock & Option Solutions, Inc.


●  Laura Kreman, Stock & Option Solutions, Inc.

●  Kathryn Randall, CEP, Stock & Option Solutions, Inc.

Our Educational Webcast Series will help you boost your CEP credit in no time.

SOS Consultant Corner: Creating a User-Friendly User Guide

When clients ask me to write a stock administration user guide, it’s because they either want to be prepared for auditors or they want to avoid knowledge loss that comes with employee turnover.  While I’ve tried a variety of platforms such as word processors and spreadsheets, I have found that presentation applications like Google Slides or PowerPoint work best when developing a user guide.

Find 4 reasons below on why I prefer building a user guide with a presentation application and why you should consider doing the same.

1. Slides are visual. Slides tend to use screenshots, highlights and captions to communicate information, which is easier to follow as oppose to a Word doc filled with paragraphs and outlines.

2. You can use a slide deck as a presentation. Slides are easier to share on a screen to a large group or in a web conference.  This will force you to focus on keeping instructions clear and concise.

3. You can update slides quickly. Writing the guide is half the battle, editing is the other half. Whether it’s new controls, changing regulations, or an updated version of your equity software, this can alter the steps in your process.  Working with slides makes it easy to add, delete, or shuffle sections.  Even reorganizing items within a slide is easy since many items only need to be dragged and dropped.

4. Building strong documentation conveys organization, efficiency and care. You’ll leave a positive lasting impression with your client with your attention to detail, knowledge of useful applications and a user guide that can be updated quickly.

-Nate Tang, Equity Compensation Consultant, Stock & Option Solutions, Inc.

SOS Service Plug: SOS True Stock Plan Outsourcing

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

What we do for you:

● We free up your valuable time, allowing you to focus on the things only you can do to help your business.

● We are accountable. Each member of the team is accountable to you as well as each other, working as a unit to provide your business with the best service.

● We are specialized. We know every facet of stock plan administration.

● We are high performing and focused. Full attention is given to every detail to ensure accuracy and auditability.

● We help reduce risk by keeping up with industry trends, rules, and regulations.

● We have a reliable system and structure. Why reinvent the wheel? We have been doing this since 1999 and are a well-oiled machine.

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 full-time job. 

Watch a quick video on how it all works

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

Check out the SOS True Stock Plan Outsourcing page on our website

SOS Front & Center: Kathryn Randall, CEP

Kathryn started her career in stock administration 20 years ago and has worked with a wide variety of small and midsized companies. She has extensive knowledge in all aspects of stock administration, from IPO preparation to ASC 718, from employee communication to data integrity in software systems. Kathryn earned her CEP designation in 2002 and currently works with Stock & Option Solutions.

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

“Katherine has a “can do” attitude. She dove right into the job and proved she can handle all aspects of stock administration with ease, knowledge and skill. Her attention to detail is incredible and she loves a good puzzle to solve. I was out unexpectedly and Katherine stepped right up and took the reins getting everything done efficiently and effectively. Katherine is a pleasure to work with and an asset to any company.”  -Terry L. Piccolo, Stock Administration, Cloud Based Software Provider

“I have known Kathryn for one year in my capacity as Sr. Manager for Global Stock Administration at [Cloud Based Software Provider]. Kathryn managed the administration of our global equity plans during a complicated transition period and excelled in the role. She exhibits the highest levels of productivity while consistently maintaining high standards for quality and accuracy. Kathryn possesses the ultimate "can do" attitude while taking on all tasks with a positive energy and a smile. Her upbeat personality and engaging personal style enable her to interact effectively with employees and cross-functional colleagues. She is very well organized and proactive, and takes initiative to go beyond the expected parameters of her job.”  -Sharon Orlando, Sr. Manager Global Stock Administration, Cloud Based Software Provider

Across Our Desk

An argument for everyone having an office window……. 

Another tech giant brings cash back onshore.  Who is it and what will it be used for?

After conquering e-commerce, the auto industry and aerospace, what is Elon Musk taking on now?  Click here to find out. 

Career development can keep employees with a company.  But how does the company get started on the road to career development?

Help support our old friend’s family during this difficult time...

A loss of $92 billion for corporations? 

Merger of two tech titans blocked due to national security concerns.

SOS Xposé

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

A fresh start… Emily Del Toro is the new Head of Executive Compensation and Equity for Atlassian.  Juanita Medina is a Senior Stock Administrator for Synaptics Incorporated. Jonathan Brooks is a Senior Business Development Manager for E*TRADE.

She said yes! … SOS’s LoAn Nguyen is newly engaged to Kurtis Kloosterman. They plan to wed early September on a cruise to the Bahamas. We’re so happy for this cute couple.

Vacationing… Barbara Baksa of The NASPP just returned from her annual spring training trip, where she and her husband had seats six rows back behind home plate. The A’s scored five runs with two outs in the bottom of the ninth to tie things up against the White Sox, how exciting! They also visited Tucson and Bisbee, AZ, check out this cool pic! SOS’s Vanessa Harrison and family “Goofing” around at Disney’s Aulani Resort in Kapolei, HI.

Industry News… SOS has a top local stock plan administration consultant who just came off assignment and is available in the Bay Area. Schedule a call today  to let us know if you have a vacancy, short-term project, vacation coverage needed or any other need we can assist with. The CEP Institute is recruiting for a new Director. See here for the job posting. The NASPP has a snazzy new website! The NASPP also has new chapter presidents.  Michael Hayes of Brighthouse Financial for the Carolinas Chapter and Alana Miller of Solium for the Florida Chapter. 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 is looking to hire a Financial Reporting and Accounting Manager who will lead a cross-functional team on multiple FRA client assignments, including month-end, quarter-end and year end period close. For a full job description contact Carole Dubas.

SOS’s newest team members…

Benjamin Needham, People Solutions Team

David Hanes, Outsourcing Team

Karol Peake, Outsourcing Team

Jarmaine Betts, Outsourcing Team

From the SOS Library Mobility-Does It Scare You?

From the SOS Webcast Archive… IPO Success Strategies

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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.