June 11, 2009
Volume 2, No.6
In this Issue:
SOS' 10th Anniversary
Webinar on June 24th: M&A's
SOS Focus: India FBT
CEPI/NCEO ESPP Survey
Data & Technology Solutions
Ideas or Questions:
Do you have ideas for our next newsletter or webinar? Topics you're dying to see addressed but haven't yet? Please
send us an e-mail with your ideas to: email@example.com.
SOS' 10th Anniversary!
As we celebrate our 10th anniversary (June 3), we are reminded how fast time flies - and what an amazing organization we have built here in the last
decade. We started in 1999 with a small report customization project, which branched into the first of many engagements including managing an entire
stock plan department with a multi-person team. The following years brought the dot.com bust and our first recession, during which we learned what it
took to emerge as an even stronger company. We used the time to develop our people, enhance our service offerings, and increase awareness of
the SOS brand. By 2005, we saw our hard work come to fruition as the company doubled in size and we were able to diversify into multiple divisions to address
the growing specialized needs of the industry and our clients. By 2007, the company experienced tremendous growth by again doubling and by
expanding across the U.S. into twelve states. This brings us to 2009, a current environment with great potential for some and uncertainty for others.
With our incredible employees, loyal clients, extensive network of industry partners, and a wealth of experience in the equity compensation field,
we are uniquely positioned for an even greater future.
We attribute our success to many things, but always the most significant factor is PEOPLE. These include our clients, our partners, and, of course,
all of the fantastic employees who have contributed to our success and excellence over the last ten years. We are both humbled and awed by the level of
commitment and trust our clients place in us every day, the confidence and support our partners provide us in a constantly evolving and competitive
industry, and the broad range of talents the SOS Team offers. The experiences we have had together and the knowledge gained along the way
have been tremendous. We thank you all for this grand journey and feel our life experience has been enriched by your involvement. Here's to the next
ten years, as we continue to transform the equity compensation industry together!
Marianne Snook, Principal
Stock & Option Solutions
Caution! Dangerous Merge Ahead:
M&A Must-knows for Stock Plans
Click here to register.
Please join us for our next free webinar on Wednesday, June 24th at 11am Pacific Time.
With the current market instability, some experts predict that the summer and fall of 2009 may see an unprecedented number of mergers and acquisitions - fire sale prices on market share or new products! Are you ready to acquire or be acquired? Do you understand the different types of mergers, the various treatments of equity and their ramifications? Do you have a clear understanding of the accounting ramifications? How do you simplify the administrative challenges of these transactions?
This panel of experts will provide a high-level overview of the various types of combinations, the different treatments that stock plans may receive, the legal considerations of these transactions, a plain English explanation of the accounting for mergers and the real-world "gotchas" that can significantly impact your administration (if you're not ready for them).
(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.)
Money Makes the World Go 'Round, Part II: India FBT
Last month, Xtra looked at China SAFE registration requirements and challenges in detail. This month, we're going to cover the India Fringe Benefits Tax ("FBT"). As mentioned last month, the Indian Tax Authorities extended the existing FBT to include equity-based compensation. This was generally seen as a way to ensure the government received all tax monies due on equity income since it transferred liability for payment from the employee to the employer. While an individual may "hide" taxable income, a corporation is significantly less likely to do so.
India FBT: What & Who?
What exactly is FBT? As mentioned above, it is the Fringe Benefits Tax, which is generally paid by employers on non-cash benefits in kind such as housing or car
allowances, gym memberships, and other such perks. Many countries have such a tax. Effective April 1, 2007, the rules in India were amended to include income from
all equity awards settled in shares. This includes stock options, ESPP, Restricted Stock Awards & Units (RSAs & RSUs), and Stock-settled Stock Appreciation Rights
Under the updated requirements, the tax is payable by the employer on the taxable event: stock option exercise, ESPP purchase, and RSA/RSU vesting, but is calculated
on the spread at vest. To make matters worse, the spread is not necessarily based on the company's definition of the fair market value (FMV), but is based on a market valuation provided by a Category I registered merchant banker in India. Valuation for options must be obtained for each vesting date. Issuers with monthly vesting schedules beware! Additionally, there was no grandfathering for existing awards: the new rules affect any award made in India for which the taxable event occurs on or after April 1, 2007.
The employer is allowed to pass through the tax to the employee, but be careful — it is not like the U.K. NIC Joint Election which transfers legal liability
for the payment of employer social taxes from the employer to the employee. In the case of the Indian FBT, the employer is still legally responsible for ensuring
the payment is made, so it is more of a recovery of payment than a pass-through. U.S. issuers have the additional problem of how to handle a pass-through on
existing awards. Unless grant agreements already contained provisions for payment of the FBT, implementing a pass-through after the award has been made may be
considered a modification to the terms of the grant.
Issuer Challenges and Concerns
Interestingly, the administrative challenges of calculating the FBT do not seem to have affected granting practices in India. From a survey conducted by SOS in
October 2008, of 30 firms who currently grant or have granted in India, 63% have not altered their granting practices, while only 7% have stopped granting there.
40% of respondents pass through the tax while an almost equal number (32%) do not.
What are the most challenging aspects of the India FBT? Certainly obtaining a valuation from a Category 1 merchant banker is difficult: an issuing company can
try to find a merchant banker who will agree to use the company's definition of FMV as the market value, but what if that is not possible? Many equity
recordkeeping systems do not have the ability to store multiple market values so this data must be kept outside the system. Additionally, most systems do not
calculate or store the spread at vest, especially when it is not based on the FMV. Stock plan managers must then track market values and perform calculations
in a manual fashion. The merchant banker valuation must be communicated to employees in a timely manner as it becomes their cost basis for purposes of
calculating capital gains at sale. Employees must file and pay capital gains on a quarterly basis, so it is very important to convey this data quickly.
If your company decides to pass through the FBT to employees, what is the process for doing so? It can be handled as part of the settlement process if you have
a quick way to calculate the spread for each vesting tranche (a larger issue for stock option exercises than ESPP purchases or RSU vesting). Another consideration
is how to handle the pass-through and tax payment when the stock price has declined. The spread at exercise may be less than the sum total of the spread at each
vesting tranche, resulting in a negative benefit to employees. Understandably, employees may not be pleased with this outcome.
As with China SAFE registration, if your company is starting to review these requirements, proceed carefully. Consider alternative forms of compensation such
as cash-settled or phantom awards for the future, especially if you have small numbers of employees in India. Engage your vendors or other consultants, as they
may have solutions or tools that can help you manage existing awards. FBT cannot be ignored: it must be included with corporate tax returns in India.
For more information, please feel free to contact us at firstname.lastname@example.org.
NCEO/CEPI ESPP Survey
In these difficult economic times, one thing is for certain - companies will be re-evaluating how they use equity compensation. The National Center for Employee Ownership (NCEO) and the Certified Equity Professional Institute (CEPI) are partnering to collect information in this effort.
Employee stock purchase plans (ESPPs) are getting more focus as equity compensation plans are being reevaluated. Many advocates are suggesting ESPPs may be a more cost-effective, shareholder-friendly way to provide for broad-based equity that is more immune to the rapid downward swings in stock prices. Others say these plans should play only a nominal role and offer minimal discounts. In the midst of this discussion, there are no current data on plan practices to help companies make more effective decisions. That's what this survey is designed to do.
The survey results will be like no others. By partnering with key industry supporters (including Stock & Option Solutions) in this effort, this survey will result in a sizable survey population and fulfill a critical unmet need for ESPP data.
Please take a few minutes to complete this important survey today. All survey participants will receive a free summary of survey data after the survey has closed. This survey is intended for issuing companies that offer ESPPs (Section 423 and non-Section 423 plans). Please complete the survey only if your company offers an ESPP that is open to 50% or more of your employees. Service providers - please do NOT complete this survey.
Xtra Profile: Debbie Tsoi-A-Sue at Yahoo!
With her involvement in a variety of industry groups, and overall longevity in the profession, Debbie Tsoi-A-Sue of Yahoo! is a familiar face in the world of
equity compensation. She also has deep roots with SOS, having started her career focus within the equity world with us before we even owned a desk. We had a
chance to learn more about what she has been up to, and how things are going at Yahoo!
What is your equity compensation background? How did you initially get involved in this profession?
Prior to focusing on Equity Compensation, I managed the Human Resources function for a small private company in San Mateo. I had my first taste of equity when we rolled out a broad-based stock option plan and an executive restricted stock program. We were acquired by a corporation traded on the London Stock Exchange and were amidst the process of converting options and restricted stock. I found myself ready to leave post-acquisition, looking for a slightly different direction for my career. I focused my career on equity compensation. I spent a few years consulting with SOS while taking my CEP exams and getting involved with the NASPP. I went on to hold posts leading the Stock Plan groups at Sun Microsystems, Genentech and have been settled here at Yahoo! Inc. since early 2007. I'm currently also coordinating the Northern California region for the Global Equity Organization (GEO) and serve as co-Chairperson of the Silicon Valley chapter of GEO.
Tell us about equity compensation at Yahoo!. Where is it handled? What are your responsibilities? What are the challenges you have worked to overcome internally?
We are under Finance. In addition to administration of the programs and global compliance, we are responsible for SEC filings, inputs for the 10K and 10Q as well as proxy,
preparing 123R journal entries, analysis around share dilution. In the administration of our programs, we're also responsible for employee communication and education.
In large part, our biggest challenge now is, like everyone else, maintaining the perceived value of equity compensation in our participants.
Over the last year, we have really been working to educate Yahoos on the value of our programs despite the declining stock price that we, like many other companies,
are experiencing. We have really emphasized our ESPP and restricted stock programs, for instance, which are still valuable despite market conditions.
What industry-specific issues do you feel are having, or will have, the biggest impact on the way equity programs are managed? How are you or will you be coping
with those challenges?
IFRS 2 - definitely IFRS 2! My team is heavily involved in the accounting for stockbased compensation and all of the statutory reporting required by our
local country subsidiaries. The accounting implications that IFRS 2 has in store for us (and the current trickling of adoption by the various countries) are
really keeping us on our toes. We're also experiencing a trickledown effect on how we shape our grant administration (net share issuance vs. sell to cover,
etc.), and our worldwide reporting practices. Oh — and let's not forget our plan design! For example, will IFRS 2 change our granting strategies or will we look
at other types of awards? The ever popular question... what are other companies doing in light of the pending implementation that seems to be looming in the 2013
timeframe and what do we need to do to prepare? Currently, we are taking a proactive approach to be prepared. We have assembled a crossfunctional
implementation team of the usual suspects... Compensation, Accounting Policy, Legal, Tax, and of course — Stock Plan! We are collectively charged with looking
at the administrative and compensation impact, as well as identifying opportunities for modification of our programs that we can do in advance of these changes
while maintaining the value for our Yahoos.
What are the trends or changes in equity compensation that you think will have the most positive impact?
From a holistic, company point of view (and not an administrative one!), it would definitely be the trend towards performance–based equity compensation. I am all for
the idea of pay–for–performance and I believe it should continue to have a positive impact if it's designed right.
Tell us about your work and experience with SOS.
I started the stock compensation branch of my career with SOS so I'll always be glad to have had that opportunity. I've also had the pleasure to work with a lot of
great people who worked for SOS on various assignments while I was at Sun and currently at Yahoo! SOS has a lot of great industry talent on their payroll!
How did you hear about us?
I initially heard about SOS when I started my career focus within the equity compensation world. I was recruited in by Henley Hom, one of the founders.
In the early days, it was a very modest start and setting. I recall my interview with SOS was at one of the founder's kitchen table! To see the progress now, it's
kind of fun to liken my interview to a one of the corporate icons who got their start in a garage somewhere. I'm not saying that SOS has become a corporate icon
but more just likening that to measuring SOS then vs. SOS today.
Actually, it was scary at the time... the SOS interview was my only kitchen table interview in my career and I really felt I was taking a big leap... but to offset the
risk, I was also pretty intrigued about equity compensation and the opportunity presented to me so I gladly jumped on the band wagon. SOS probably doesn't have to
spend a lot of marketing dollars on me... but as an ex-employee, I probably like to tell them how to run their business too much (ha–ha — just kidding!).
Seriously, clearly SOS has some great talent assembled and I enjoy working with and meeting SOS employees.
tidbits about people and players in our industry...
Sheryl Gray, of Symantec, is engaged! Her fiancé Rob, proposed during a hike on a Thursday afternoon in May...
Rajal and Keyoor Mankad, of My Equity Comp, travelled to India last month to pick up their newly
adopted son, Nathan... Sheila Lyons (now Sheila Frierson subject to paperwork, etc.) of BNY Mellon
Shareowner Services, was married May 2nd, and has been adventuring
around Italy for the past 2 weeks....
On the Move!...
Craig Rubino has joined E*TRADE Corporate Services as the Senior Manager of Product Support...
As a result of the merger of Gilead with CV Therapeutics, Marilyn Pasquinelli is now part of Gilead's stock plan team. Marilyn's new title is Manager, Stock Administration...
Brett Harsen, of Radford Consulting, is moving from Chicago to (sometimes) sunny California!
The CEPI is now accepting speaking proposals for its December 8th CEP Symposium. Proposals will be accepted until July 15th. The CEPI Marilyn Perkins Scholarship is also accepting applications.
E*TRADE Corporate Services would like to thank all of the speakers and issuers that supported E*TRADE
Directions 2009! With close to 500 attendees and over 50 sessions, the event was a success!
Charles Schwab has expanded its stock administration services to include a
Co-Sourced offering, which allows you to use the web-based EquiView® system to maintain control of your stock plan administration in-house and outsource
specific functions to improve efficiency while reducing the workload on internal staff.
Equity Methods is pleased to announce the upcoming release of version 5.5.0 of Option NavigatorTM,
which includes full accounting and reporting for modified equity compensation awards and awards assumed in a merger or acquisition.
June 11th: Twin Cities NASPP Mobile Employees – Practical International Considerations
June 11th: Dallas NASPP Wall Street Journal / Hay Group 2008 CEO Compensation Study
June 16th: NY/NJ NASPP Results, Analysis, and Key Observations of the 2008 International Stock Plan Design and Administration Survey
June 16th: Denver NASPP CEO Compensation Study for the Wall Street Journal
June 17th: Orange County NASPP Traunch Warfare: The Battle Against Bad Data, Policies and Procedures
June 18th: Relevante Accounting Symposium Bridging the GAAP to IFRS
June 18th: Silicon Valley NASPP 2009 All-day Conference
June 19th: Philadelphia NASPP Global Stock Plan Administration Survey Results and Administration Issues
June 23rd: Sacramento NASPP Global Updates
June 25th: San Fernando Valley NASPP Latest Developments and New Trends for Global Equity Plans
June 25th: San Diego NASPP Convergence of U.S. Accounting Rules with the International Financial Reporting Standards (IFRS) and the Impact on the Compensation Plan Design and Operation
June 28th - July 1st: Society for Human Resource Management 2009 SHRM Annual Conference & Exposition