October 18, 2011
Volume 4, No. 7

In this Issue:

How SOS Does It!

SOS Out and About

Special Dividends for Option Holders

Free SOS Educational Webcast - Data Do's and Don'ts: How to Keep Your Employee Data Safe

Product Spotlight: 6039 Outsourcing and Inhouse Solutions from SOS

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

SOS Xposé

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SOS Xtranormal Participant 6039 Education Videos:

SOS Employment Opportunities
From the SOS Xtra Archive:

Product Spotlight: Customized Year-end Tax Statements

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

Email Xpress Demo

From the SOS Webcast Archive -

Resolutions and Solutions for Accounting for Equity Awards

Our Services:


Equity Compensation Projects/Consulting

SOS-TEAM Outsourcing

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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: xtra@sos-team.com.

How SOS does it!

It was crunch time, the IPO was imminent, financials flying, excitement abounded, and no one knew how the outsourced stock department was going to open up an employee call center within a few days. The service provider could not roll out a call center to manage the expected flood of employee questions in time to deal with the IPO. The Company knew it was the first time the employees could see the actual value from their years of service and the Company didn't want to miss the chance to reinforce how thankful they were to the employees for the success.

The Company faced issues such as making sure the call center personnel were trained on the intricacies of the plan, company culture, and the details of the corporate transaction all in a matter of days. It was imperative to assure a quality employee experience for each and every participant. Everywhere the Company looked there were no industry solutions that could meet these demands in the time period required.

Luckily, they found Stock & Option Solutions. Leveraging the depth of our consulting group, and relying on our expertise in both the IPO/equity compensation arena, as well as in employee communications, SOS implemented a Call Center in two days with trained experts that came up to speed on the IPO transaction details and company culture in hours. The SOS consultants staffing the Call Center engaged with Client management and provided real time feedback on the status of the Call Center and Company employees. Company Management now had direct information regarding trends and employee feelings regarding the success of their IPO and equity plans. This feedback allowed company management to be responsive to employee needs at this critical time and showed that participants were thrilled with the IPO and plans. Management communicated this information to inspire employees to keep their energy focused on the Company success.

In an industry based around standard service solutions, SOS is proud to be able to immediately respond to its customers needs and create customized solutions for the impossible. With team members like Tim McCleskey, Susan Garvin and Sarah Roberts (a few of SOS's Certified Equity Professionals with over 50 years of equity experience between the three of them) on the front line every day solving customer issues, SOS can help you, our Clients, quickly climb the ladder of success.

Barrett Scott, Principal
Stock & Option Solutions


SOS Out and About

Where we've been...

  • On September 12-14, Elizabeth Dodge spoke as part of three sessions at the Solium Capital / Solium Transcentive Synergy 2011 Conference.The sessions she participated in were "Equity Comp Smackdown", "Watering Down Diluted EPS", and "Performance Problems? Addressing the Emerging Issues Related to Performance Plans". For more details, click here.
  • Elizabeth also presented two sessions at the first National Equity Compensation Forum in Scottsdale, Arizona on September 14-16 presented by GEO. She participated in: "The Next Generation of Performance Plans? Fixing Governance Ups and Downs", and "Mergers--The Real Deal--The Stuff You Need to Make Your Decisions.
Where we're going...
  • On November 1-4, SOS will be a sponsor at the 19th Annual NASPP Conference in San Francisco, CA. We will have a booth again this year with plenty of fun and prizes, so make sure to stop by and enter to win an iPad 2!
  • We will also be presenting the following topics at the NASPP Conference in San Francisco, CA. We will be presenting the following topics:
    • "Diluted Dilemmas: Understanding and Solving Complexities in Diluted EPS" - Elizabeth Dodge
    • "So You Think You Can RSU? Prove It!" - Tim McCleskey
    • "Tax Accounting Troubles and Solutions" - Elizabeth Dodge
    • "Indecent Disclosures: Polishing and Perfecting Disclosures under ASC 718" - Elizabeth Dodge
  • On November 8th, SOS will be featured as part of the NCEO webcast: Accounting 203: Tax Accounting Basics
  • On December 8th, Elizabeth will be speaking on the NASPP webcast, "6039 - The Sequel: Putting Lessons learned in 2010 to Use in 2011"

SOS Solutions Webcast: Diluted EPS - Let SOS Dilute Your EPS Problems

SOS Solutions Webcast: 6039: Nifty Ways to Make it Better SOS Educational Webcast: Best in Show: Pedigreed Practices for Section 6039 Compliance
Need an easy way to stay up-to-date on industry news? Follow us on Twitter or become a fan on Facebook.

Special Dividends for Option Holders

The Special Dividend

Over the course of the last year, SOS assisted several clients with processing a special dividend on their company stock which also impacted for their stock plan participants. While the shareholders receive the dividend payout, these dividends impact equity instruments. While the impact to optionees varies between companies, the one constant is that those who hold options or awards see a change to their grants that is equivalent to the dividend payout.

This process begins when a company decides to reward their shareholders for investing in the company, often when a company has cash on hand but the share price has not delivered the desired value. The board of directors determines the payout (on a per share basis) to provide and give that amount in either cash or stock to shareholders of the company. This payment is known as a special dividend. The clients with whom we have worked most recently provided cash dividends to their shareholders and adjusted the outstanding stock grants accordingly.

How do they work?

With most of our clients the adjustment to the stock option or restricted stock unit was as follows:

Employees who hold an unexercised stock option have the exercise price reduced by the amount of the special dividend. In cases where there is a $0.00 share price, as in the case of an unvested restricted stock unit award, or the exercise price is under a particular threshold (as determined by the dividend), then an increase to the underlying shares of the option or award is applied to provide an equivalent ratio for those holders.

In doing so, the total value (including fair value) of the grants is not changed and in the cases with which SOS has assisted, the original expiration date, vesting and all other terms under the agreement remain the same. Likewise, the expense that has been recognized is not impacted nor requires adjustment.

How do you update the database?

While on the surface it may appear to be a fairly straight-forward concept, the closer you look you find that the devil is in the details. And few, if any systems, can automatically process such a transaction. The following pointers will help you to prepare and make the necessary changes resulting from a special dividend:

  1. Understand the rules of the dividend: The board of directors will be very specific about the treatment that the options and restricted stock units outstanding are to receive. If you were not involved before the announcement, take the time to read through everything that the company has distributed on the subject. Think about how you will update the system, and begin to compile your questions. For example, in a case where the dividend is $2.00, the board may announce that all outstanding options having an exercise price greater than $2.00 will be reduced by the amount of the dividend ($2.00), while all outstanding options with a price less than or equal to $2.00 will receive an adjustment to the exercise price and an adjustment to the number of shares outstanding of the underlying award based on a ratio to be determined on payment date. All other terms and conditions remain the same.

  2. Analysis of the population impacted: In most cases, before the board has made the announcement, stock plan professionals may have found themselves responding to a series of requests for information, so while the management may have taken the time to review and analyze the information, it's now stock plan's turn to perform their own analysis. Questions that arise will be many!
    1. Which population will be impacted?
    2. How, by whom, and when will the ratio be determined?
    3. How many different scenarios and, therefore, kinds of adjustments are required?
    4. Will there be a blackout?
    5. How quickly must the data be adjusted?
    6. How will this impact the stock plan data sent to the broker or service provider?
    7. Since the change is to outstanding grants only, what happens to an option that has previously exercised shares but still has an outstanding balance and how should the database be updated?
    8. What happens to the outstanding restricted stock units that have had a previous vesting and release and how should the database be updated?
    9. What happens to grants of employees who terminate on or before the dividend payment date, but after the in-dividend date (the last day that existing shareholders will receive the dividend)?
    10. How many groups of grants will require different share and price adjustments?
    11. What will be the source for reconciling these changes?
    12. How will the expense remain unchanged?

  3. Prepare the database: Take the time to prepare a plan and step through it from beginning to end - this will help you to uncover most of the issues that will arise on the dividend payment date. Think in terms of doing as much prep work as possible and as soon as possible and whenever possible TEST, TEST and then TEST again! If you have multiple scenarios, you may find that setting up a custom field with assorted labels may help you to get to know the data. Understand how the end results should appear so that as you step through it you will be able to determine if the results are accurate. Consider creating tags and /or labels within your database to help with addressing the issues for the following groups:
    1. Options that require a price change only, how will the price adjustment be made?
    2. Options/Awards that have historical exercises/releases and still have outstanding shares - a split of the grant is likely necessary to retain the historical exercise details and change only the outstanding portion - so what is involved in splitting a grant and retaining all proper vesting (and expense accrual) going forward?
    3. For the grants that are under the dividend threshold, how will you change the price and the shares while retaining the same vesting and expense - and if these have had historical exercises/releases, that will add complexity to the solution.
    4. Employees who leave or have left the company, where does their termination fall with respect to the dividend dates - will their award receive the dividend, all or only a portion, and when is the last day to exercise?

  4. Expense management: Adjusting for the special dividend does not impact your valuations or expense, however, knowing how your database will treat the valuation and expense when you make the necessary adjustments is another key step. When making a price adjustment to an option grant is required, that change should not change the overall value per share of your option for expense purposes, however, you database may not be able to recognize the change and value customization may be necessary. Likewise if you are adjusting shares and exercise price, then the value per share will need to be recalculated to reflect any share change so as not to change your total valuation if your database is using a pre-established value per share.

    Further complicating the expense management during this work is the need to retain the expense associated with any portion of an option or restricted stock unit that was previously exercised or released and the portion that remains outstanding. When splitting the option or restricted stock unit the expense must be split accordingly. One of the more complicated aspects is preventing the split grants from beginning the accrual of expense too early. Sometimes changes to the vest schedule, and even the grant date, may be necessary.

  5. Test and Reconciliation: Testing your processes as soon as possible will help you to understand where you will have issues and what additional steps may be required to ensure your data remains in sync. Reconciliation will be required for compliance purposes and you will want to develop a process to satisfy your auditors. Remember, reconciling the shares, prices, vesting schedules, etc. is only one area of reconciliation. You will need to develop a reconciliation of your valuations and expense per option and restricted stock unit to ensure you have not changed expense.

Julie Kenia, CEP
Stock & Option Solutions


Julie is a Senior Equity Consultant for Stock & Option Solutions, Inc. (SOS). Julie has helped countless clients with projects ranging from special dividends to stock splits and option exchanges as well as data conversions related to software vendor changes. Julie has also provided clients with interim stock plan support during leaves. Prior to joining SOS Julie was Manager of Long Term Equity Plans at AT&T Corp.

Free SOS Educational Webcast

Data Do's and Don'ts: How to Keep Your Employee Data Safe

November 10th, 2011

Click here to register.

Please join us for our next educational webcast on November 10th at 11am Pacific Time, 2pm Eastern Time.


One of the many responsibilities of a stock plan professional involves the maintenance of Personal Identifying Information ("PII"), such as social security numbers, home addresses, wage information, and tax withholdings. This data is passed across multiple systems, departments, internal and external parties, resulting in numerous opportunities for sensitive information to be lost or mishandled.

Who's responsible for keeping this information private? Guess what: YOU ARE. You and everyone who comes in contact with this data have an obligation to protect your company from a costly data breach and your fellow employees from destructive identity theft. Whether or not you are directly touching employee PII on a daily basis, it is everyone's responsibility to understand the importance of shielding this data and knowing how to safeguard it.

In this webcast, we'll discuss what constitutes PII, US regulations governing the handling of such data, and the consequences of a loss or breach. We'll look closely at the most common areas of risk in equity plans and best practices for addressing these concerns. Finally, we'll arm you with questions to ask and things to think about as you evaluate the level of data security within your own stock plan group.


(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.)

We will save you time, reduce your company's risk and make compliance with Section 6039 as easy as answering these questions:

  1. How many UNIQUE employees have ISO exercises in 2011?
  2. How many UNIQUE employees have ESPP purchases in 2011?
  3. Paper or email participant statements?
    • If paper, are you interested in our 6039 fulfillment services (printing/mailing of employee statements)?
    • If email, are you interested in the 6039 consent collection website?
Send your answers to us at salesteam@sos-team.com and we'll respond with more information and pricing on our full range of solutions, as well as details on how you can deliver these statements electronically.

SOS Can Also:

  • Generate the IRS E-Filing and 3921 & 3922 participant statements
  • Set up a website for electronic consent, so you can save money and deliver these statements electronically
  • Handle the mailing of these statements to your participants

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

SOS' own Elizabeth Dodge discusses a common issue with disclosures for RSUs on the NASPP Blog.

An issue we know is too often overlooked: "Effective Stock Plan Communication Remains Difficult", from the myStockOptions.com Blog.

Employee Stock Options
7 Common Questions About Startup Employee Stock Options.

Insider Trading Policy
From the NASPP Blog - Why Your Insider Trading Policy is Important.

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 Beginnings...Jim Sullivan is in a new job as Stock Plan Administrator at Apple...Blue Coat has added Kenn Lara to their team as Senior Compensation Manager...Samantha Lagocki began her new role as Sr. Stock Services Specialist at Equinix this week...Jean Wong recently joined Gilead Sciences as Director, Stock Plan Services...Global Shares appointed David Limb as VP Business Development Europe that will be based in London...Congratulations to everyone!

New Arrival...John McCann and his wife Shelley have welcomed a baby boy. John McCann V was born on on October 5th, and weighed in at 10 lbs. Congratulations, John and Shelley!

What Comes in 3's...Robyn Shutak of NASPP just completed her first triathlon in September. Anyone want to arm wrestle?

Baby Bump...Jessica Carbullido of Con-Way is expecting her 3rd child on tax day, 2012. Congrats!

All Unpacked...Barb Baksa of NASPP has moved into a new house over the summer, click here for the picture.

Industry News...NASPP Conference: SOS is presenting four sessions at this year's NASPP Conference! The Conference is in San Francisco from Nov 1-4; we hope you'll come to our sessions and stop by our booth to say hello...We've heard that NASPP Conference hotel is about to run out of rooms--register for the Conference today and book your room today so you don't miss out...8th Annual CEP Symposium - March 27, 2012. Register Now...Help Set NCEO's Equity Compensation Webinar Schedule--NCEO is running an online survey on which equity compensation Webinar topics you'd like to see...Last month, Solium Transcentive released a new version. Learn more here.

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 advisors. The preceding information does not necessarily represent the official views of Stock & Option Solutions, Inc. with respect to any of the issues addressed.
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