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May 27th, 2010
Volume 3, No. 5

In this Issue:

Lazy Hazy Days of Summer

Webcast on June 23rd - Getting Crafty with Crystal: Solving Stock Plan Reporting Issues with Crystal Reports

Out and About

ESPP for Everyone!

Product Spotlight: ESPP Services and Solutions

SOS Across Our Desk

SOS Xposé

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Latest Webcast Materials:

Bridge Over Troubled Water: Easing the Turmoil of Stock Plan Transitions:
Presented on May 18th



SOS Employment Opportunities
A recorded demo of "Email Xpress", the SOS automated solution for emailing participant stock plan confirmations and statements, is now available:

Email Xpress Demo

Our Services:

People Solutions

Data & Technology Solutions

Strategic Solutions

Contact Us:


Ideas or Questions:

Do you have ideas for our next newsletter or webcast? Topics you're dying to see addressed but haven't yet? Please send us an e-mail with your ideas to:

Those Lazy Hazy Crazy Days Of Summer Are Almost Here!

Summertime images are among my favorite - school is out and what fills the space feels like an endless supply of weekends. Oh how I wished it would go on forever! As a child it meant running around barefoot, swimming, camping, fireworks, catching fireflies, lazing in a hammock with a good book, baseball games, and cookouts. Now, (sadly those golden dreamy days are long gone) it still means that school is out for the kids, but in the adult world of equity plans, school never lets out, and work never really lets up.

The school of equity is always open, in fact, it's on the year-round schedule - there's always more to learn and some transition is just around the corner. Keeping up with rule and regulation changes is challenging enough, but if you want to go back to those golden dreamy days of childhood for just a week or two, it can feel a bit overwhelming just in the preparation for that time off. What event will occur while you are away? You quietly think, "I hope they wait until I get back before making a decision that rocks my equity world."

In the typical corporate fashion, taking a vacation translates into several weeks of preparation: there's bringing your backup resource current on outstanding items and updated processes - spending some time to document things that have changed since the last great escape - arranging for the right person to fill in on specialty projects - and just getting all of those last minute details dealt with before departure. The time off will fly by, and when you get back to work it will take at least a week, maybe two, before you will feel caught up again! Is it all worth it?

Yes, indeed! Everyone needs the time to rejuvenate, relax, dream and enjoy, so be sure to take the time off. After all, equity school will still be in session when you return and you'll have the rest of the year to keep on learning. You'll be better for it, and so will the company.

"Roll out those lazy, hazy, crazy days of summer
Those days of soda and pretzels and beer
Roll out those lazy, hazy, crazy days of summer
Dust off the sun and moon and sing a song of cheer.....

You'll wish that summer could always be here
Roll out those lazy, hazy, crazy days of summer
You'll wish that summer could always be here..." - Nat King Cole

Laura Reis
Director, Data Solutions
Stock & Option Solutions

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Free Webcast:

Getting Crafty with Crystal: Solving Stock Plan Reporting Issues with Crystal Reports

June 23rd, 2010

Click here to register.

Please join us for our next free webcast on June 23rd at 11am Pacific Time, 2pm Eastern Time


One of the most common complaints about Stock Plan systems is that the reports just don't give me the data I need, or give it in the format I need, or use the terms with which I'm familiar. And yet in two of today's most popular in-house stock plan softwares, many report customizations are relatively simple to accomplish with just a little time and effort.

Our expert panel will de-mystify the use of Crystal Reports for report customizations within two popular in-house softwares and get you started down the road to report bliss.

Customization examples will be selected on-the-fly based on user polling during the webcast and may include: reformatting reports to get them to export cleanly to a spreadsheet (without extra rows and columns or merged fields), changing column titles / labels, adding fields to a report, using formulas to tweak report calculations, using report input parameters, using sub-reports and summary fields, and many more.


(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.)

SOS Out and About

SOS is excited to announce our involvement in these industry events:

Silicon Valley Chapter NASPP Annual All-Day Conference, June 17th

More Information

Ten Tricks for Tackling Tricky Territories


Fun with Forfeiture Rates


Recent Appearances:

Jennifer Namazi was a featured panelist on a recent NASPP webcast, Getting the Most Out of Your Consultants and Advisors. NASPP members can access a recording of the webcast here.

Elizabeth Dodge spoke on the Option Administration session of the NASPP Fundamentals course. You can register for the course here.

ESPP for Everyone!

Here at SOS we are firm believers in broad-based employee stock purchase plans, both qualified and non-qualified. In this era of dramatic and frenzied market volatility there's a lot to be said for an equity instrument that encourages employees to save money, is never underwater, generates cash flow and tax deductions for the company while being (usually) fairly well understood, and generally valued by employees.

Just to refresh those unfamiliar with the difference between 423-qualified and non-qualified plans: qualified plans are designed in compliance with IRC Section 423 and give tax-advantaged treatment to participants if they hold the shares more than one year from purchase and two years from enrollment (grant). There are regulations on length of offering period, eligibility requirements, and many other facets of qualified plans. Non-qualified plans are not designed in accordance with any IRC section and may be structured in many different ways.

In this SOS Xtra, we thought we'd highlight a few of the results from the NCEO / CEPI 2009 Employee Stock Purchase Plan Survey (conducted last summer) to give our readers a sense of what companies are (and aren't) doing with their ESPPs. In general, qualified plan offerings seem to be a bit "richer" for employees, but then again, the flexibility of non-qualified plans is appealing to many companies. (In fact, some companies elect to have a non-qualified plan even if the terms look like at 423 plan!)

The online questionnaire was available from June 9 to July 24, 2009. Data was compiled from 412 respondents -

The full report and survey data set is available on the NCEO website.

Options in Offering Periods

Companies with non-qualified ESPPs tend to have shorter offering period than those with 423-qualified ESPPs. Fifty-three percent of all companies with qualified plans have 6-month offering periods, while only 26% of non-qualified plans have 6-month offerings. Non-423 plans have much higher rates of monthly and quarterly purchases, at 32% each.

Anecdotally, here at SOS, we have definitely seen the average length of an offering period drop since the halcyon pre-expensing days (decreasing the offering period is one way to reduce the expense, since the term of the "option" is shorter, the fair value is also less). But many had predicted the demise of ESPPs and that prediction has thankfully proved false.

Other ways we've seen companies reduce expense include: reducing the discount, eliminating the lookback (which is generally not as well understood as the discount, so often perceived as "less valuable" by employees), eliminating the "reset provision", and adding a beginning price limit, which prevents the employee from buying more shares if the price drops during the purchase period.

Delightful Discounts

Again with 423 plans it seems the employee benefit is a bit higher than those of non-qualified plans with 78% of all 423 plans offering between discounts ranging between 11% and 15%. Non-423 plans ran the gamut as the chart below illustrates.

The Sky's the Limit!

A data byte that surprised us was the number of 423 plans that use the "conservative approach" to apply the mandated $25K limit. Many of the plans in the Silicon Valley, where SOS is headquartered, apply the "liberal" approach - which allows the inclusion of any unused portion of the $25,000 limit to "roll into" the next year when the offering period spans the calendar year. The "conservative" approach does not roll forward any amounts from previous years, but simply counts the $25K limit on a straight calendar-year basis for the year in which the purchase occurs.

There was much ado about nothing last year when the proposed revisions to the 423 regulations said that the liberal approach was not appropriate. The final regulations clarified that the liberal approach is acceptable. From the data shown, only 29% of respondents use the liberal approach in any case.

Limits of a Different Color

Something that does look concerning at the outset is that 45% of respondents did not have a limit other than the $25K limit in place per participant per purchase period. However, under the revised 423 regulations, such a limit is required in order to establish a "grant date" at the beginning of the offering period.

Hopefully all those respondents have reviewed their plans and made some changes in order to avoid having the grant date set at the time of purchase (and triggering negative accounting and tax holding period consequences).

Daunting Dispositions

Probably the biggest downside to 423-qualified plans is the requirement to track and report dispositions, even after the holding period for preferential tax treatment has passed. (Honestly, who can track dispositions on shares for employees who terminated 10 years ago? Is that really realistic? But then who ever said the tax code was realistic?) Many companies surveyed reported that they do not report qualified-disposition income on W-2s, as is required by the tax code.

Our experience has been that most companies use their designated broker to track and report dispositions via a report download. Some companies go so far as to restrict participants from transferring shares out of the designated brokerage account while they are employed at the company. The participants can sell anytime they want, but cannot transfer the shares out, so that dispositions can be easily tracked by the broker - sometimes just during the holding period, sometimes beyond. Some even go so far as to restrict sales AFTER the participant has terminated. While this approach seems draconian to some, it does facilitate and ease compliance with IRS regulations.

Give us your thoughts! Does your company restrict transfers? If not, why not? Complete our Xpress survey today.

All-in-all, though some features of ESPPs may be cumbersome, we still see many companies (and participants, for that matter) that are devoted to their plans. These companies feel that the benefits really do outweigh the headaches and the hassles.

Elizabeth Dodge, CEP, Vice President
Stock & Option Solutions

Elizabeth is the Vice President of Product Management for Stock & Option Solutions, Inc. (SOS). Her responsibilities include monitoring new developments in the equity compensation arena, performing market research, speaking at industry events and helping to define the product roadmap for SOS.

Elizabeth regularly speaks on industry trends and product development at client and industry events including NASPP and NCEO webcasts, GEO and NASPP Chapter meetings, and the NASPP Annual Conference. She was also selected to speak at the West Coast FASB Roundtable on FAS 123(R) and has recently co-authored the chapter on accounting for equity compensation in The Stock Options Book, 11th edition, by Alisa Baker. She became a Certified Equity Professional in 1999 and continues to volunteer for the Certified Equity Professional Institute. She also volunteers for the Silicon Valley Chapter of the NASPP and serves on the Board of Directors of the NCEO.

Product Spotlight: ESPP Services and Solutions

Last August's webcast, The Time Has Come for ESPP! was a great success, while Five Common ESPP Compliance Errors is among the most popular downloads from the SOS Library. Elizabeth Dodge's excellent article in this newsletter, as well as an upcoming webcast we are planning on ESPP modification accounting, have been our latest responses to calls for more information on this form of equity compensation. This month's Product Spotlight will focus on the myriad ways we have assisted our clients who offer an ESPP to their employees.

Our line of ESPP solutions and services will simplify your life, save you time and reduce your company's risk by streamlining your processes, helping you stay in compliance with accounting standards and tax regulations, and facilitating effective participant communication and education.

Participant Communications

SOS Email Xpress

Allows you to email ESPP communications to your participants, saving hours of tedious and risky manual labor and significant costs associated with hardcopy mailing. Additional static documents (such as FAQs, etc.) can be attached to these communications as well.
SOS Email Xpress communications may include:

  • Confirmations of Purchase
  • Year-end Tax Summaries
  • Form 3922 (To distribute forms only electronically, participant consent must be obtained)

Form 3922

For in-house software, a custom report can be installed, allowing you to print these forms just as easily as you print a Confirmation of Purchase.

Other Participant Communications

We can prepare a wide range of roll-out or ongoing communications beyond enrollment forms and presentations. May include FAQs, cover letters, email text, explanations of tax treatment, supplemental materials to assist in accessing brokerage accounts (web URL, contact info, commission rates, step-by-step account activation instructions, etc.).

ESPP Online Enrollment

If your provider's solution for online enrollment does not meet your company's needs, we can tailor an ESPP enrollment website to your plan and specific requirements to allow your participants to enroll and change their enrollment online.

Online Disposition Surveys

Tired of paper surveys? Put your surveys online! Automate the collection and import of disposition data into your stock plans database. We can tailor a Disposition Survey website to your plan and specific requirements, allowing your participants an easy way to notify you about their sales.

Participant Education

Customized to the features of your plan, our ESPP Participant Education Program helps domestic and international participants understand plan basics, the finer points of taxation, and builds an understanding and appreciation of the value and benefits of the ESPP. May also be combined with similar SOS programs for options, restricted stock, or performance shares, as needed.

Participant Call Centers

Whether your ESPP plan is new, or you are trying to find better ways to handle the flood of participant inquiries around your enrollment window or purchase dates, SOS can help manage your workload better. We can establish a dedicated call center staffed by equity compensation experts trained in the specifics of your plan to provide your participants with the answers they need. Email support can also be included. The centers can be scaled up or down based on the needs of your company.

ESPP Plan Rollout

Is your ESPP new to your company? Our consultants have developed project plans for implementing these plans end-to-end. We work with decision makers to develop timelines, communications, process documentation, tax compliance, custom reports, and interface files. We can also provide assistance with, or complete management of, the ongoing processing of purchases.

Stock Plan Personnel Training

Customized to the features of your plan to help your staff understand ESPP basic and advanced topics.

  • ESPP Basics
    Administration, global taxation (withholding/reporting requirements for US and non-US locations), common issues, contribution file reconciliation.
  • Advanced ESPP Issues
    Accounting for ESPPs, Diluted/Basic EPS Treatment, Tax Accounting, mobility issues.
*Formats include live / onsite or webcasts/conference calls.

Process Improvement / Automation

Modification Accounting

If your plan contains an "automatic reset" or "auto-re-enrollment" when the stock price drops during an offering period, or if participants can increase their contributions during the period, modification accounting is required. Many systems cannot support this accounting requirement. We can customize an MS Access-based application and deploy it at your company site, allowing you to keep your sensitive participant data inside your firewall. Data is extracted from your in-house system or downloaded from your vendor to a pre-specified location. The SOS ESPP Modification Accounting application will retrieve the data, supplement it with additional information, as necessary, and produce reports customized to your needs.

IRS Filing of Form 3922

Beginning in 2011 you will be required to report ESPP "transfers"* to the IRS for transactions that occur in 2010 and beyond. If you have over 250 transactions to report, you will also be required to report electronically and SOS can help.

  • Form 3922
  • Form 3921
*For most companies the transfer can/should be reported as of the date of purchase. Please contact SOS for more information.

6039 Xpress for IRS Filing

Our MS Access-based application can be deployed at your company site, allowing you to keep your sensitive participant data inside your firewall. Participant and income data is downloaded from your stock plan database to a pre-specified location. The 6039 Xpress application retrieves the data, formats it per the detailed IRS file specification, and then can either print hard copies or email the statement to your participants.

$25K Limit Review

Work with stock plans group and other departments to refine or develop documented processes and procedures. Can include development of customized reports and/or feeds to automate the movement of data between stock plan system and payroll.

Disposition Survey/Reporting Process Review

Are you capturing as much of the valuable tax deduction as you can from disqualifying dispositions? We can work with the stock plans group and others to determine the best way to track down this data.

SOX Review

Assist in identifying key controls that may be needed for and/or impact SOX 404 documentation/processes

International Assistance

  • Current Process Review
    Provide a preliminary, cost-effective review of tax procedures in jurisdictions where you currently offer the ESPP, and assess your current compliance level.
  • Due Diligence Review / Feasibility Analysis
    Provide preliminary, cost-effective review of tax treatments in jurisdictions where you are considering offering an ESPP.
  • Tax Withholding Review
    Review your current tax payment obligations and procedures in various jurisdictions in regard to compliance with local law. Identify areas that may trigger unintended accounting consequences.
  • Mobility Tracking
    Provide preliminary review of current process for tracking participant movement and recommend process changes/ improvements to attain higher level of compliance.

SOS Across Our Desk: Equity Compensation in the News...

Equity Comp Diversification
Great results from a recent Culpepper survey on equity compensation and long-term incentives practices.

Option Backdating...we bring you at least one every month
Interesting article on the challenges faced in prosecuting backdating cases.

Equity Compensation: Retention
How Google retains top talent with equity programs. Even better than the usual articles because you can listen to this one here

Fun Facts...
about Forms 3921 and 3922 from the NASPP.

Executive Compensation
Investors reject Motorola's Pay Practices.

Web Tools in Stock Plans
Jeremy Wright, who recently discussed leveraging web-based tools for stock plan administration on a panel with SOSer Elizabeth Dodge, continues the discussion in a blog post linked here.

Domestic Mobility
A brief discussion over at the NASPP blog

Want to get these updates as we find them? Follow us on Twitter or become a fan on Facebook.

SOS Xposé

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

New Additions... Ed Burmeister of Baker & McKenzie and his wife Jeannette are looking forward to the arrival of a baby girl in June. Congratulations!

Transcentive gets their own section this month... Transcentive has a lot to celebrate these days...This year's edition of The Source Conference was a tremendous success, and just prior to that came their release of version 12.0 of the Express Equity™ suite of products, with new features related to performance awards. In the past two weeks, they've also celebrated two new additions: Denean Geer from their sales staff had a baby girl, Bella Marie (7 lbs 3 oz), on May 10th, and Financial Reporting and Compliance Manager Jennifer Baehr, CEP, also had a baby girl, Olivia Angeline (7 lbs, 15 oz) on May 20th. Congratulations all around!

Staying Busy...Sam Bongiovanni of Flextronics has been invited to speak at two upcoming seminars, "Navigating the Mobility and Tax Quagmire" on June 3rd, and a Denver NASPP Chapter meeting being hosted by Flextronics, and covering a couple of topics (details here).

On the Move...Stacy Romain-Bishop has a new job at VistaPrint...John Hammond has taken the role of Senior Vice President, Strategic Initiatives for AST Equity Plan Solutions (EPS). John will be based in EPS' Philadelphia headquarters and will be focused on developing and expanding the company's strategic partner relationships as well as managing the product development function.

REALLY On the Move...From April 30 to May 2, Jon Burg of Radford ran 200 miles(!) to benefit Organs R' Us, which promotes the need for organ donors. To learn more about this amazing fundraising effort, as well as make a donation, please visit this webpage.

Coming and going...Emily Cervino, CEP, (and of the CEPI) spent a little time in Costa Rica recently and described it thusly: "zip lines, monkeys, volcanoes, beaches and bugs the size of your head!" Even better, she brought us some pics (see here, here, and here.) Welcome back, Emily!...Laura Verri of Computershare will be heading over to Milan, Italy for some R&R, and plans to enjoy food, laughs, and fun with family and friends. Bon Voyage, Laura!

Happy Father's Day!

Did you miss an issue of Xtra? View our complete newsletter archive here
Miss a webcast? You can find links to recordings, as well as the materials, on our Events 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 advisors. The preceding information does not necessarily represent the official views of Stock & Option Solutions, Inc. with respect to any of the issues addressed.
Stock & Option Solutions | (888)SOS-0199