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.





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

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 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


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.


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.


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

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.