An Abundance of Education

With kids and adults returning to school, we’re excited to continue learning!  Keep up on the latest trends, tidbits, and educational opportunities with Xtra.

In this issue, we discuss how companies are implementing the simplification of nonemployee expense under ASU 2018-07, share industry updates and articles that have sparked our interest, dive into who has a new job and we provide details about our next SOS Educational Webcast. This month we are also focused on educating you on our 6039 reporting services and solutions. Are YOU ready for this requirement?

Clearly education is the focus at the 26th Annual NASPP Conference & Exhibition in San Diego next week. Planning to attend? If so, please stop by the SOS booth #706 to learn more about us, play a game, win prizes, & more. Fill out our drawing entry form before the event (NOW!) to be entered into our pre-event drawing for a $250 Amazon gift card. With your advanced entry your name will automatically be added to into the pool for the post-event drawing after the conference. (You could win $500!). Catch SOS’s Jim Lecher in the SOS booth to answer questions on ASC 718 Valuations and Shareworks and in his session, Valuation 201. Hope to see you there!

ASU 2018-07: Improvements to Nonemployee Share-Based Payment Accounting

The Financial Accounting Standards Board (“FASB”) continues to issue releases as part of its Simplification Initiative.  These words are music to the ears of anyone dealing with accounting for equity compensation.   

ASU 2016-09 brought the welcome relief of eliminating the need to estimating forfeiture rates.  ASU 2017-09 clarified exactly when a company should account for the effects of a modification to an award.   And now FASB has released ASU 2018-07, which will again offer welcome relief – this time for companies dealing with nonemployee accounting.    

Nonemployee accounting (that is, mark-to-market) has been required whenever a company grants an award to an outside consultant or an employee converts to being a nonemployee.  Nonemployee accounting has been the bane to many an equity compensation professional’s existence.  To start with, it leads to uncertain expense over the service period of the award because the fair value (which, multiplied by total shares, results in total expense to be recognized) is recalculated each quarter based on new inputs like fair market value and remaining contractual term.  Initially, primarily due to the use of a contractual term (e.g., 10 years) instead of an expected term (e.g., 6 years) which also drives volatility calculations and interest rates, the Black-Scholes fair value for these grants is often higher than it would be if the fair value was calculated using “employee” inputs.  Finally, depending upon the functionality available in the equity compensation software used by the company, some if not all of the calculations required each quarter may need to be done manually outside of the software. 

ASU 2018-07 expands Topic 718 so that it now includes “share-based payment transactions for acquiring goods and services from nonemployees.”  What this basically means is that companies can now calculate a grant-date fair value for nonemployee awards the same way they do for employee awards and they will no longer need to recalculate this fair value each quarter until vesting. 

Upon adoption, the company will simply conduct one final fair value calculation for any nonemployee award that is still being expensed and then recognize that final total expense through the remaining service period. 

All equity compensation professionals dealing with accounting should read the entire release in order to understand fully all of the requirements of adopting the new standard.   However, some interesting highlights are: 

  • Unlike employee awards where the company uses an expected term to estimate fair value, companies can elect to use either an expected term or the contractual term when estimating the fair value for nonemployee awards. 
  • Awards with performance conditions can now be measured based on the probability of satisfying the performance conditions just like employee performance awards. 
  • Change-in-status accounting goes away completely under ASU 2018-07.  So, if an employee becomes a nonemployee and the award is not modified as a result of this change in status, the company will simply continue to expense the award based on the original grant-date fair value. 
  • ASU 2018-07 becomes effective for public entities for fiscal years beginning after December 15, 2018, and for fiscal years beginning after December 15, 2019, for all other entities.  Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606 (Revenue from Contracts with Customers).

    Upcoming Equity Compensation Webcast

    Our webcasts cover high-priority equity compensation topics

    SOS Educational Webcast: Stock Administration: Taxation, Year-End, & Some Things In Between

    Tuesday, October 16, 2018 11:00 AM PDT

    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 the difference between Incentive & Non-Qualified stock options, awards and how they work, form filings, and more. The documents employees need for their taxes, qualified versus non-qualified transactions, and what should be on your checklist will all be detailed in this educational webcast.

    So Quotable:

    “Equity has become a mainstay for both retaining employees and enticing new hires. As stock administrators, it helps to not only have that knowledge, but to be capable to deliver that information in a way all employees can understand. Whether that employee be an insider or standard, this webcast intends to educate you or brush up your knowledge, at a high-level, of how to approach award types, year-end, taxation, and form filings.” Colin Bass, 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.)

    Speakers:

    ●  Colin Bass, Stock & Option Solutions, Inc.

    ●  Chris Cox, Stock & Option Solutions, Inc.

    Get through the end of the year without pulling out your hair.

    SOS Consultant Corner: Preparing for Quarter-End

    One of the busiest and most stressful times as a Stock Plan Administrator is when you are preparing for and completing your quarter-end tasks.  Close coordination is required between the Compensation, Finance, Tax, HR and other teams.  While quarter close will always be stressful, are there things you can do to make this process run smoother and that offer the ability to catch potential mistakes early in the process?  Here are some things that you can implement that can help:

      1. Prepare a checklist of all deliverables.  Indicate due dates and mark when each task is complete.  As the quarter-end tasks pile up, it’s handy to have the checklist to remind yourself of what is still outstanding.  Also, the checklist is a good place to make reminders, such as report parameters, distribution list, etc.  If you save these reminders and notes to your checklist template, they’ll be there for each subsequent close.
      2. Schedule reports and save report parameters. Many equity software platforms offer the ability to save report parameters—and even allow you to schedule reports—ahead of time.  This can be a big timesaver if you have multiple reports to run.  For example, if you sort your expense report by department code and grant type, you may be able to save these sorting and grouping options so they’ll already be there when you’re ready to generate your reports.  In addition, you may be able to have many (if not all) of your quarterly activity reports (such as, granted, exercised, cancelled and released) scheduled to run the morning of the first business day of the new month.  This way, you won’t need to generate each one individually.
      3. Keep your roll-forward up to date throughout the quarter. It’s a simple step, but it can save a lot of time if you’re searching for a discrepancy with the transfer agent. Having this already up to date when you begin quarter-end reconciliation may keep you from having the double task of populating the roll-forward and reconciling it at the same time.
      4. Do what you can do ahead of time throughout the quarter. If you’ve granted options, you can gather the valuation inputs and either apply them or have them ready to go when it’s time to start running reports.  Having missing items can prevent other tasks from being performed (in this example, the expense reports).  Do it in advance and save time when the time crunch really comes.

    Quarter-end close will never be an easy time for those of us in the equity compensation field.  However, I hope these steps help you develop your own plan (or enhance the plan you already have) for making your life a little easier.

    -Michael Forbes, CEP, Stock & Option Solutions, Inc.

    SOS Front & Center: Tanya Barnes

    Tanya Barnes has been a member of the Stock & Option Solutions team since 2014 and is currently a member of the Outsourcing Team working from the SOS Nashville office as an Operations Specialist. Tanya has expanded her knowledge in equity compensation and is passionate about day-to-day tasks of stock administration and interacting with multiple clients. Tanya is currently working to earn her CEP designation.

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

    “Tanya’s attention to detail and positive can-do attitude made the transition away from in-house stock administration a seamless process.  Thanks to Tanya and her team, I was able to focus on the bigger picture and leave the day-to-day administration to the professionals!  Thanks Tanya! -Hilary Romero, Sonos, Inc.

    “Tanya is a fantastic partner and consummate professional.  She is always looking for ways to streamline and build processes to ensure we are working efficiently.  She is clear and concise in her communication and adeptly answers questions from participants as well as the accounting and human resources teams.  We are very lucky to have her supporting our transition from a private to public company.”-Jackie Hill, Sonos, Inc.

    Across Our Desk

    Rutgers Webinar on Equity Compensation  

    Tax reforms and how they might impact employee financial planning.   

    Equilar Executive Compensation Summit Highlights 

    Raising the threshold requirement for delivery of additional disclosure under Rule 701(e) details from Cooley and Mayer Brown 

    ASU 2018-07 and related articles from Deloitte and PwC 

    Employee understanding of equity compensation  

    High level overview of options vs. restricted stock and a discussion on basic equity compensation definitions 

    The impact of Pay Ratio disclosure  

    Aiming High” on Stock Plan approval 

    Reminder:  EU Prospectus Exemption Changes on the horizon 

    Changes to 162(m) provisions under IRS Notice 2018-68 on 162(m) 

    Evaluating the effectiveness of performance grants and a recap of how “Say on Pay” has impacted 2018 proxy season to date 

    ISS annual policy survey and potential 2019 proxy voting policy changes 

    SOS Xposé

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

    Hard working… Anna Sotnikova is a Senior Consultant, Equity Management with CFO Advisery Services for Armanino LLP. Stephanie Trunk is a Global Equity Consultant at Syneos Health. Kody Adams, CEP is the Stock Plan Administrator for Qualtrics. Khang Diep is now working with Cutera, Inc. in the Equity Department. Josh Lurie recently founded JL Advisory, a mid-market advisory firm focused on the human capital, technology enabled services, software and data markets. Daniel Kapinos is now a Partner for Aon. SOS’s Andrea Best has been promoted to Vice President of Client Experience. In her new role she is responsible for leading SOS’ future growth by ensuring SOS understands our clients’ priorities and delivers an optimum client experience. Read the full press release here. New team leads have been created at SOS to support SOS team members and clients with a more direct, personalized experience. Promoted from within to fill these new roles are: Laura Kreman, CPA, Sarah Roberts, CEP, Tim McCleskey, CEP and Srinivas Kalakoti, CEP. Help us congratulate them!

    Industry News SOS is hiring for a 12-18 month project in Nashville area (onsite or remote), we’ve got a great contract to direct with pre-IPO company in San Francisco and a full time/direct hire Stock Administrator in the Bay Area/Peninsula. For more details contact Carole Dubas. We’re just weeks away from the 26th Annual NASPP Conference and Exhibition! Join your stock plan professional community Sept. 25-28 in San Diego to network and learn the latest best practices, solutions, and other tricks of the trade – including just-issued 162(m) guidance direct from the IRS itself. View Sessions and Keynotes  |  Register Today

    SOS’s newest team members…
    Michele Wortham, SOS Outsourcing Team
    Ronald Foltz, Jr., SOS Outsourcing Team
    Tamara Brooks-Lawrence, SOS Outsourcing Team

    From the SOS Webcast Archive...
    SOS Solutions Webcast: Your 6039 Dream Team
    SOS Educational Webcast: The End is Near: Preparing and Checking Your Year-end List (twice!)

    From the SOS Equity Compensation Library...
    Consenting Adults? Tackling the Challenges of Electronic Delivery of 3921/3922

    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.