December 13, 2011
Volume 4, No. 8

In this Issue:

2011 NASPP Conference Recap

December Market Research Survey

SOS Consultant Corner: Broker Bliss or Baggage?

6039 Update

Outsourcing: Outrageous or Outstanding?

Reminder on 423 ESPP Carryforward

Free SOS Educational Webcast - Hire Education: A Guide to Hiring Stock Plan Professionals

Free SOS Solutions Webcast - Figuring and Fixing Forfeiture Rates

SOS Product Spotlight - Stock Plan Participant Portal

SOS Xposé

Subscribe to Xtra!

Follow us on

Join us on

Watch us on

SOS Xtranormal Participant 6039 Education Videos:

SOS Employment Opportunities
From the SOS Xtra Archive:

Stress Free Proxy Season: An Oxymoron?

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 -

Best in Show: Pedigreed Practices for Section 6039 Compliance

Our Services:


Equity Compensation Projects/Consulting

SOS-TEAM Outsourcing

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: xtra@sos-team.com.

2011 NASPP Conference Recap

The 2011 NASPP Annual Conference in San Francisco ended just over a month ago, so it may seem tardy to attempt to recap some of the highlights here. But WOW! What a conference! So we'd still like to sum up and talk about the conference from our perspective...

The conference was held from November 1st through 4th at the Hilton San Francisco, which has the most escalators anyone is likely to encounter outside a London Tube station. The event boasted nearly 2,000 attendees, which is an impressive feat given the travel cut backs running rampant in corporate America these days. Over 180 speakers dazzled attendees at over 40 unique sessions.

The pre-conference session "Practical Guide to Performance-Based Awards" was jam-packed with over 100 attendees and included sessions on design, taxation, accounting, and administration. The informal reviews I heard were all terrific. Yet another indicator that performance awards are not going away, as much as we'd all like them to...

The exhibit hall was packed with vendors, speakers, and attendees, as usual. Radford brought back their now world-famous pig races, with a highly sought after prize of homemade chocolate chip cookies, made by yours truly. (And the Radford staff were decked out in black soccer jersey from a UK player named Scholes. Get it? black Scholes...) The Certified Equity Professional Institute booth also caught our eye with their latest addition - CEP superheroes.

And of course, the SOS booth (see pics on our Facebook page) was again hoppin' with iPad games, amazing prizes and a cash giveaway of $1,000. Congratulations to our winners:

  • Michelle Entsminger - Ingram Micro
  • Nadine Franczyk - Avago
  • Diane MacIver - BioRad
  • Diane Winey - Medicis
  • Andrea Kagan - Qlik Technologies
  • Sharlene Wakulchuk - Paychex
  • iPad2 - Tammy Grossinger - General Mills
Some of the most popular sessions this year included:
  • Mastering ESPP and RSU Withholding Outside the United States
  • Oh No! Equity-Related Mistakes and How to Prevent and Fix Them
  • It Seemed Like a Good Idea: Inadvertent Consequences of Common Practices
  • Simplify Administration Using New Technology
SOSers spoke at five different sessions on topics ranging from RSUs to ASC 718 Disclosures to Tax Accounting and Diluted EPS. All-in-all we were again impressed by the quantity and quality of the content, not to mention the attendees and speakers. Now who wants to wager a guess as to the location for 2012? (Your guess is as good as ours...we have no idea what the right answer is!)

Elizabeth Dodge, CEP
VP, Product Management
Stock & Option Solutions


December Market Research Survey

Complete the survey and be entered into a drawing for a $100 Visa gift card!

Periodically, SOS will ask for issuing companies' participation in a market research survey to enhance our understanding of current practices and trends in the industry and to provide our clients insight into the practices of other issuing firms. Our surveys are brief, taking no more than 5 to 10 minutes to complete.

Complete the survey today!

Please note that only issuing companies, not vendors or consultants, should complete the survey and are eligible for the drawing. Thank you for your cooperation!

Need an easy way to stay up-to-date on industry news? Follow us on Twitter or become a fan on Facebook.

SOS Consultant Corner: Broker Bliss or Baggage?

I've consulted for a good many companies in my 15 years in equity compensation and I've seen just as many wonderful and not-so-wonderful processes and procedures. And yet, one particular sub-optimal process continues to irk me: the failure to limit the number of brokers.

While I understand the well-intentioned impulse of allowing each participant to decide on his/her own broker, the sheer volume of manual processes (and therefore company risk) that such a policy creates should be a strong enough detriment to deter companies from the practice. I'm not suggesting too draconian a policy. Yes, it's true that my ideal stock plan universe has only one broker, with an online website, through which all participants transact. But while that may be ideal, many companies do want to provide participants with a choice of brokers. And again, I applaud that impulse. But two or three designated brokers instead of any broker can significantly reduce the number of manual processes and effort involved.

SOS did a survey in February of 2009 that showed that the most common practice is to have only a single broker. However a disturbing number of companies (15%!) allowed "unlimited" broker choice.

SOS Survey - How many brokers can your stock plan participants choose from?

Can you imagine the havoc wreaked if each participant could choose their own 401K administrator? If stock plans are a company benefit plan, much like a 401K, shouldn't the company be able to designate the broker?

Not long ago a client company had a significant stock price increase and a flurry of exercises. With all the manual processes necessitated by the multiple brokers, I was completing Monday's exercises on Thursday! Not how I'd choose to spend my stock plan time, given the option (no pun intended).

Another recent client has all their transactions processed through a single broker, even the execs. Processes are automated, data flows seamlessly back and forth from the company to the broker and vice versa. And yes, they don't have enough work to keep me busy full time.

One other argument against designated broker(s), often posed by the General Counsel, is the "appearance of a loan" to insiders because the broker is designated rather than selected. And loans to insiders, as you all know, are prohibited under SOX. However, even in 2003, 62% of the companies that completed the NASPP quick survey on "Cashless Stock Option Exercises" allowed insiders to use broker(s) designated by the company. And I'll bet the pendulum has continued to swing in that direction.

Yes, I am biased, and yes, I prefer to avoid manual processes, not just because I'd rather spend my time where my heart truly lies on strategic matters or education of participants, but because manual processes, by their very nature are risky. And expensive - in time wasted and in error-prone results, no matter how experienced or detail-oriented the stock plan professional. After all is said and done, I still believe a simpler, more automated process will benefit the company overall, not just the stock plan group.

Sarah Roberts, CEP
Stock & Option Solutions


Sarah is a Senior Equity Consultant for Stock & Option Solutions. In 15 years of experience in equity compensation, she has consulted for numerous companies, ranging in size from start-ups to Fortune 100. She has strong experience in ASC 718, accounting, and financial reporting, as the result of her training and background in finance. She has equally extensive experience in stock plan management and administration. Sarah became a CEP in 2007. She earned her BA at Mills College, and holds an MBA (Finance and Accounting) from UCLA.

6039 Update

For anyone who hasn't attended an SOS 6039 webcast or NASPP chapter meeting or webcast on 6039, here are a few "new developments" in 6039 compliance about which everyone should know:

Deadlines and Dates in 2012

Participant Statements: 1/31/12 (no surprises there)
Paper filings with the IRS: 2/28/12 (no extra day for the leap year!?)
Electronic filings with the IRS: 4/2/12 (extra days because 3/31 falls on a weekend)
The FIRE system (for electronic filing with the IRS) will be down from 6 p.m. ET Dec. 16, 2011, through Jan. 03, 2012 for yearly updates.

Sales Price to Calculate Gain

For ISO same-day sale exercise, if your company uses the sales price to calculate gain (and per the most recent NASPP survey, 80% of companies do), what number goes into Box 6 (Fair market value per share on exercise date) on form 3921? Should you use closing price (or whatever your company uses for "market value" when granting) or should you use the sales price?

While we have not received definitive guidance from the IRS on this point, we have receive feedback from several external counsel that the reason that sales price can be used to calculate gain is the fact that your company has deemed sales price to be market value for same-day-sale exercises. Therefore you should, in fact, use sales price in Box 4.

Another perk of using sales price in Box 4 is that your form 3921 will now match the 1099-B that the broker will send reducing participant confusion, and hopefully questions to the IRS.

Discuss this issue with your stock plan provider (broker, software system, etc.) and (if you outsource) your 6039 provider to ensure that they can support this requirement. At least one system does not put "sales price" into the "exercise market value" field in the exercise export even when the company has "flipped the switch" to calculate gain on sales price. The SOS 6039 team has devised an elegant solution for this issue. If you're not using SOS, make sure your provider is aware of this issue.


What do I do with fractional shares? This issue came up last year and when we called the IRS to ask them what the e-files should DO with fractional shares, the IRS rep politely explained to us that there was no such thing as a fractional share. (!) Don't we wish that were true!

Last year it was impossible to get written guidance from the IRS on this issue and some providers chose to round down to avoid over-reporting. Here at SOS we chose to perform a "true round" using standard rounding rules. We got lucky, since this year the IRS did update publication 1220 to provide guidance on this issue: "Report whole numbers only, using standard rounding rules as necessary."

3921: What Goes in Box 6?

The title of Box 6 is: "If other than TRANSFEROR, name, address, and EIN of corporation whose stock is being transferred".

So what goes into this box? If you have no subsidiaries, leave it blank. If you are issuing ISOs to employees of subsidiaries, put the subsidiary information at the top of the form, and put the parent company information in box 6.

What about 3922 and Subsidiaries?

There is no place to put subsidiary information on form 3922, therefore, most counsel we've asked believe that it's appropriate to put the parent company information at the top of the form and leave the subsidiary information off the form all together.

Help! I Need More Time! Reminders on Extensions:

Participant Statements

To receive an extension for participant statements, you must send a letter; there is no electronic or online form. Extensions are not guaranteed. The letter requesting extension should be postmarked by 1/31, and if you receive approval it will generally be for a maximum of 30 extra days. See the general instructions for more information (from the IRS website).

Extensions for IRS Filings

To receive an extension for IRS filings, you complete form 8809. If you complete this form online, via the FIRE website, you receive an automatic 30 day extension. If you complete the PDF form and fax or mail it in, you will receive an approval or denial letter. The PDF form is available here (also from the IRS website).

SOS 6039 Services

Remember that SOS processed 6039 forms for over 130 companies last year and mailed over 200,000 participant statements, and we're on track to beat that number this year. Don't trust your 6039 compliance to just anyone, trust the experts and call (408-979-8700) or email us for more information today!

Outsourcing: Outrageous or Outstanding?

I recently had an old college roommate ping me from out of the blue. After reminiscing about our professors and some of great times at our fraternity (the ones we could remember), he got to the main reason for the call. Turns out, he heads up a growing company and wanted to get my expertise regarding setting up his Stock Plan department and the possibility of outsourcing the function.

I summarized my experience about what we've seen evolve over many years within the industry. The management of stock programs has generally resided in Accounting/Finance, Human Resources, Legal, and occasionally in Treasury or Payroll. Based on this factor, my first bit of advice was to review the current organization structure of the functions listed above. Putting stock plans under Accounting and Finance assigns the focus to financial reporting (Roll-forwards, Valuation assumptions, compensation expense accruals, plan reconciliations, etc.). If stock plans is placed under Human Resources, the focus tends to shift to compensation, peer group analysis and participant communication. Under Legal, stock plans is generally responsible for overall maintenance of capitalization table (private companies), Section 16 filings, and maintenance of all plan documents. Under whichever department stock plans falls, one thing we've noted in common is they are all responsible for the daily transactions, employee inquiries, and coordination between various departments and vendors. As there is no industry standard in how a stock plan group is set-up, companies should look at their internal resources and organizational structure first before making the next decision.

The next step is to decide if you should outsource or which pieces you can outsource. One of the biggest issues we've seen is that some companies decide to outsource and believing that any and all issues are resolved by that decision. In most cases, if you haven't defined responsibilities and process flow internally, outsourcing won't work effectively. A company must get its own records and procedures in order before they consider outsourcing their stock plan management. If you're not there yet, ask your vendor or outsourcer if they can assist you in developing "best practices" or an analysis of your recordkeeping and processes. The process of evaluating your internal environment and concerns will bring to attention what's unique about your plans, culture, and company when discussing outsourcing with a vendor.

My last bit of advice to him was that continuous oversight of the program is required. Who internally is managing the outsourcer? Or is the outsourcer managing your company? In the majority of successful outsourcing relationships we've experienced, a common denominator has been that individual. This individual is the equivalent of a coach or an orchestrator of sorts. They know what needs to happen when special projects and requests materialize. Without someone in that capacity, each department will drift in their own direction in relations to stock plans.

There are many qualified service providers in our industry and just as many variations on setting up your stock plan department. The company should analyze their needs, environment, personnel, and expertise in order to know what works for them and what may not. Outsourcing can be very effective if expectations are set correctly and the required expertise is present. I didn't give my former roommate one solution to his question, but I hope I provided him with some useful information on which he can base his big decision.

Henley Hom, CEP
Stock & Option Solutions


Henley is a Principal at Stock & Option Solutions, and manages the SOS Outsourcing Division. In his 15 years of internal, outsourced, consultative stock administration, Henley has managed many projects such as software development, design and management of interactive websites, stock splits, data conversions, option exchange programs, customized reporting, software implementations, spin-offs, and broker implementations. Henley speaks on a local and national level on a variety of equity compensation topics. Prior to entering the stock administration field, Henley worked as an accountant. He received his B.S. in Accounting and Finance at San Jose State University.

Reminder on 423 ESPP Carryforward

I'm sure you all know this already, but just in case...

We just encountered a client that was running into a share limit on their ESPP purchase for the first time and was contemplating "carrying over" the contributions that were unused because of the share limit from one purchase period to the next.

YOU SHOULD NOT DO THIS. (Unless you let other employees contribute lump sum payments equal to the maximum amount carried forward.) If carryforward contributions to the next purchase or offering you violate the "Equal Terms and Conditions" requirement of Section 423 and you disqualify the plan from preferential tax treatment. This was added as part of the revised regs (released in 2009, I think).


(i) Except as provided in this paragraph and paragraph (f)(5)(ii) of this section, a plan or offering permitting one or more employees to carry forward amounts that were withheld but not applied toward the purchase of stock under an earlier plan or offering and apply the amounts towards the purchase of additional stock under a subsequent plan or offering will be a violation of the equal rights and privileges under paragraph (f)(1)Except as otherwise provided in paragraphs (f)(2) through (f)(6) of this section, an employee stock purchase plan or offering must, by its terms, provide that all employees granted options under the plan or offering shall have the same rights and privileges. § 1.423-2(f)(1) of this section. However, the carry forward of amounts withheld but not applied toward the purchase of stock under an earlier plan or offering will not violate the equal rights and privileges requirement of paragraph (f)(1) of this section, if all other employees participating in the current plan or offering are permitted to make direct payments toward the purchase of shares under a subsequent plan or offering in an amount equal to the excess of the greatest amount which any employee is allowed to carry forward from an earlier plan or offering over the amount, if any, the employee will carry forward from an earlier plan or offering.

p.s. Just found this website and it's a great reference for tax regs, etc.

Elizabeth Dodge, CEP
VP, Product Management
Stock & Option Solutions


Free SOS Educational Webcast

Hire Education: A Guide to Hiring Stock Plan Professionals

January 12th, 2012

Click here to register.

Please join us for our next educational webcast on January 12th at 11am Pacific Time, 2pm Eastern Time.


Identifying and hiring the stock plan professional best suited for your equity compensation department is a lot harder than it should be. Even in a down economy, hiring managers face new challenges. It seems the stock plan profession has quite a high turnover rate, how do you find the right person the first time?

What are the best practices for recruiting the best equity compensation professionals? How do I know if a candidate is the right fit for my company's culture? By what means can I ensure a candidate has the right skills and experience for the job? Once I've selected the right person, how do I support his/her growth? These questions and many others will be addressed by this expert panel.

The session will span the entire recruiting lifecycle from determining company culture and what you are looking for in a candidate to developing a job description, creating a job posting, leveraging your industry network, interviewing, final selection, and developing a growth plan to improve retention. The session will include sample behavioral and situational interview questions and skills quizzes, a look at SOS's candidate skills self-rating survey, and much 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.)

Free SOS Solutions Webcast:

Figuring and Fixing Forfeiture Rates

January 17th, 2012

Click here to register.

As an SOS Solutions webcast, this event will cover SOS products and services. It does not contain solely educational content, and therefore does not offer continuing education credits.

Please join us for our next SOS Solutions webcast on January 17th at 11am Pacific Time, 2pm Eastern Time.

Many of our clients wrestle with forfeiture rates month after month, struggling with manual processes and arguing with auditors over "the right way" to estimate forfeiture rates, apply forfeiture rates, and true up to actual forfeitures.

Join our expert panel for a discussion of all the ways SOS can help you solve your forfeiture rate headaches, including:

  • Training on forfeiture rates under ASC 718, theory and application
  • Software training (not available for all systems), how to audit the application of forfeiture rates, how to calculate and enter forfeiture rates
  • Process review - reviews your forfeiture rates process to look for issues and automation opportunities
  • Custom reports in Crystal or MS Access - helping you automate and streamline your forfeiture rate process
  • Audit support - explaining your estimated forfeiture rate and/or your system's calculations to your audit firm
  • Accounting memos explaining forfeiture rate calculations and application
  • Changing forfeiture rates applications from True Up at Vest to True Up at Forfeiture (or vice versa)
  • Custom accounting applications for forfeiture rate application

SOS Stock Plan Participant Portal

Our customizable portal can be seamlessly integrated with your stock plan database and into your communications structure/intranet to give your participants 24/7 access to all their equity compensation information

Are you still sending out paper communications at year-end to your participants? Do you find that much of your day is spent answering basic inquiries or resending information pertaining to employee taxes, holdings, and confirmations? Have you found that even by using mail merge or other means to email this information to your participants, that they still can't find it when they need it, and end up coming back to you? Are you looking for a way to gather consent from your participants to allow for electronic distribution of Forms 3921/3922?

With the SOS Stock Plan Participant Portal, you can now put vital information at your employees' fingertips. The Portal can be customized to the look and feel of your company, it sits behind your secure firewall, and it can accept multiple forms of source data to easily work with any stock plan platform allowing you to display both historical and current information on:

  • Forms 3921/3922 (plus consent tracking!)
  • Consent to receive Forms 3921/3922
  • Purchase Confirmations
  • RS/RSU Release Confirms
  • Exercise Confirmations
  • Pre-vest Communications
  • Year-end Tax Summaries
  • Option & Award Summaries
  • New Grant Notices
  • Educational Materials, Plan Documents, and FAQs
  • A Message of the Day
By utilizing SOS's state-of-the art technology, your company will save time, money, and provide excellent customer service to your employees worldwide.

SOS Stock Plan Participant Portal Features and Benefits:

  • 24/7 access to a secure, customized website (no more scrambling to answer participant tax questions on April 15th!)
  • Posting information about your stock plans is easy; if the data exists, we can display it
  • The website is customizable to your specifications; match or enhance existing paper or electronic communications and reduce the time and cost associated with printing and mailing this information
  • Load required data from your existing stock plan administration platform
  • You can view /review stock plan data retrieved before posting to website
  • Consent (or decline) to receive Forms 3921/3922 electronically
    • Easy, electronic distribution of required legal language and receipt of consent, reducing the time and cost of creating, printing and mailing these required IRS statements
    • Effortless reminder emails to employees who have yet to logon or indicate their consent
  • Easy-to-understand interface lets your participants find what they are looking for quickly, including historical records
  • Installs at your site behind your firewall and can be integrated with single sign on
  • Automatic or manual e-mail notifications are sent to the participant letting them know when new data has been posted
  • Portal can be built with links to educational materials (FAQs, Webinar Recordings) and plan documents, making the website the first stop for any participant with questions
  • Get real-time reports on all employee activity, non-activity, etc.
  • Saves Time: countless hours printing, stuffing, and mailing confirmations & statements
  • Saves Money: on printing, paper, envelopes and postage
  • Reduces Risk: Eliminate the danger of manual processes like the risk of a statement being mailed to the wrong participant

Take a look:

To learn more, or schedule an individual demo, please contact us at 408-979-8700 or email us.

SOS Xposé

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

New at NASPP...Brian Stovall from Fidelity Investments has taken a new volunteer position for the NASPP as a Regional Representative for the South region. In his new role, Brian will support the Florida, Atlanta, Austin, Dallas, and Houston chapters.

Faster than a speeding bullet...Maria Robins of Morgan Stanley Smith Barney just completed the NYC Marathon in 5 hours 34 minutes and helped raise money for the American Cancer Society, fantastic job!

Welcome Home...Carol Rutlen of Rutlen & Associates is back from an extended leave in the UK for 6 months.

Baby Bump...Sheila Frierson of BNY Mellon is expecting her first baby, a girl, on March 2nd and she will deliver in Santa Monica.

Celebrating an anniversary...Solium Transcentive just celebrated its one year anniversary as a member of the Solium Capital family. Solium says about the changes "The combination of these two powerhouses has resulted in many positive changes in the first year including new office space, two successful releases of Express Options, the cornerstone application for Solium Transcentive, as well as the integration of the Shareworks Direct product offering."

Industry News...GEO San Francisco is holding a post holiday meeting and happy hour hosted by KPMG on 1/12/12 from 4-7pm! Register through the GEO website.

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.
Stock & Option Solutions | (888)SOS-0199