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Having the Right Ingredients for a Successful Data Conversion
- Converting equity compensation data from one platform to another can be a challenging and, often, an overwhelming process to work through. Having the right ingredients and a comprehensive project plan in place can minimize risks and delays. The tasks below provide a high-level overview of the steps.
- Find a platform that is right for your company's equity compensation needs; reporting, taxation, employees, legal, and accounting:
- Research and demo multiple systems.
- Interview perspective provider reps.
- Identify current data needs and anticipate future growth to determine system requirements. Saving money by selecting a less expensive option may cost more in the long run if you have to replace a system that doesn't meet your equity needs long-term.
- Evaluate current as well as future equity types your company may be using. If you are planning to use performance based awards, does the platform support that?
- Ask for referrals from each vendor and also recommendations from local or national stock plan groups.
- Evaluate potential internal and/or external resources to facilitate the data conversion:
- Are there sufficient and proficient internal resources that can take on a fulltime equity compensation data conversion?
- Are there people still at the company that can provide the "un-written" history of why things may have been done a certain way? If so, talk with them and document findings.
- Confidentiality concerns if multiple departments are involved.
- Current and new system expertise and/or knowledge of data conversion applications, i.e. Excel, Access, proprietary/ad hoc, etc.
- Evaluate impact to all departments affected.
- External (outsourcing):
- Backlog or availability to perform a data conversion based on your schedule and timeline.
- Expertise and utilization of conversion tools and processes.
- Knowledge of complex datasets and data mapping familiarity.
- Other comprehensive services offerings such as data audit, data reconciliation and process documentation, etc. that can accurately analyze or document the data conversion or ongoing processes.
Be prepared for expense discrepancies. No two systems calculate or amortize expense identically. Ultimately you will use the To Date comparison to book either a credit or a debit in the current period and "catch you up" to allow you to switch to the new expense methodology.
- Pre-data conversion tasks:
- Schedule your conversion during a "slow" stock plan period for your company. Try to avoid periods during which large transactions (such as RSU releases and ESPP purchases) will be processed.
- Plan ahead - conversion schedules sometimes slip, allow extra time before a period close.
- AVOID conversion work over year-end period. You have enough to do at that time already.
- Ensure all data is input in current system based on the data cutoff date to be used.
- Perform a data reconciliation based on the cutoff date; if applicable, reconciliation should also balance to broker, payroll, accounting, etc. systems.
- If necessary, engage an independent consultant or agency to perform a data audit to ensure data is as clean as possible prior to converting to new system. Additionally, there are firms (including SOS) that specialize in performing end-to-end data conversions and offer a wide range of implementation choices.
- Make sure there is an implementation project manager in place and verify a comprehensive data conversion timeline has been developed and distributed to the conversion team so that all moving tasks stay on track and are completed on time during the conversion process.
- Include a contact list and plan for holidays and vacations
- Gather plan or other equity documents that will help establish the new system setup. Include any memos or documentation on grant modifications or changes to accounting policy, forfeiture rates, etc.
- Identify data limitations or requirements in the target system that require data changes. Examples include grant ID formats (source system has dashes, target system doesn't allow), participant IDs (source system does not require, target system does require), etc.
- Identify new or different features in the target system and decide how you want to utilize that information. Most systems have areas to store generic information that your company would deem useful / necessary, but not all systems to it the same way. So identify those critical data items and make sure there is a place to store them. Thinking about how you want to "slice and dice" the target system's reports helps identify what these data needs may be.
- Make data changes necessitated by data limitations or requirements in the source system if/when possible, especially for key identifiers. Changing data or "cleaning up" as you convert is possible, but generally slows the entire process down.
- Determine at what level you will reconcile expense data. Some common recons include:
- Fair Value per Share
- Total Fair Value per Grant
- To Date Expense (from the inception of FAS 123(R) to the end of the cut off date)
- Year by Year comparison for prior years
- Quarter by quarter comparison for current year
- If the target system offers a choice in methods for forfeiture rate application, determine which method you will use (generally this will be the method that most closely matches your current system's method, however, you may also consider switching to a "better" method as part of the conversion). This determination may also be made during the expense reconciliation.
- Determine the change in experience that your employees will have. If your employee base is used to an existing process/flow, will there be changes in the target system that should be communicated to the employee base?
- Draft employee communications and FAQs. You will finalize these generally once you can include screenshots, but getting drafts to your legal group for early review can streamline the process.
Click here to request more information on how SOS can help with conversions.
- Data conversion tasks:
- Check with the target vendor's implementation plan to determine what they will and will not do for you.
- Set up new system plans, vesting schedules, tax, and general system parameters.
- Extract or collect all historical data from current system(s) which is to be converted into the new system. This typically includes participants, prices, stock options, awards, vesting details, exercises, award releases, terminations, and fair values/expense data.
- Check with your current system's vendor to verify if there are other ways to pull data from their system through special requests. Sometimes vendors can provide data exports that are not in the standard software package and that will make a conversion easier.
- Don't forget data areas that often involve manual data conversion processes: rehires, repurchases, repricings, grant cancellations (non-termination forfeitures), accelerations, vest schedule changes, retirement eligibility, grant modifications, LOAs, custom terminations, "zero vest periods" and ISO/NQ splits.
- Incorporate any new Employee ID, grant/award, or user-defined field mappings.
- Format data into new system data templates based on vendor's specific template field requirements/conditional requirements, field widths, and field types, while checking for format differences, like date formats.
- Import each data template and correct rejected data, repeating the formatting and importing processes until all records have been successfully imported into new system. Some systems require chronological data entry, so you may have to stage this process (for example importing terminations in quarterly batches rather than all at once).
- Manually convert any data that does not fit within the new system's data templates as noted above, i.e. rehires, repurchases, grant modifications, etc. This also may include manual rounding adjustments to grant/award vesting schedules if the data is converted using standard vest schedules instead of actual shares/vest dates per grant/award since many systems apply vest templates slightly differently.
- Reconcile each dataset in the new system as the process progresses. SOS recommends reconciling vesting details at the tranche level, when possible. Since vesting details are so critical to many different equity functions, make sure you verify the vesting of shares into the future at different points. The data may look good on the specific conversion date, but there may be issues in future periods.
- Identify and document system data differences, rounding issues, or any other data discrepancies within tolerance throughout the conversion process.
- Once all data has been converted to the new system, perform a final plan summary reconciliation. Make sure to be thorough in the reconciliation process since you will be responsible for final data review and approval sign-offs.
- Once the "core data" has been converted and reconciled, import fair values and begin your expense reconciliation. See pre-conversion bullets, above, for some recommended reconciliations.
- Compare expense BEFORE the forfeiture rate is applied to find "real" discrepancies.
- Compare expense AFTER the forfeiture rate is applied to quantify the differences in forfeiture rate application. No two systems apply or true up forfeiture rates exactly the same way. Be prepared for differences.
- Don't forget tax accounting, disclosures and basic and diluted EPS.
- Create a memo that documents and quantifies the expense differences.
- Post-data conversion tasks:
- Convert all incremental data (transaction data between the cutoff date and the go live date). This includes grants, exercises, modifications, terminations, ESPP purchases and sales, etc.
- Reconcile incremental data in the new system.
- If required, attend new system training classes.
- Employee communications and FAQs dissemination.
Steve Gaylord, Chief Technology Officer
Stock & Option Solutions
Steve is currently responsible for SOS's project solutions offerings to help clients leverage technology to streamline the stock plan management and administration process. He has more than 16 years experience in the software and services industry, with responsibilities ranging from support, development, maintenance, and training of multiple software packages including financial services, accounting, and customer relationship management. Steve has a B.S. in Computer Science and a Masters in Business Administration from Santa Clara University.
Special thanks to Sherry Tells who helped develop the content of this article.
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Free SOS Educational Webcast:
Don't Be Caught Wearing Last Year's Communications! Communications That Work for a Multigenerational Workforce
With the breakneck pace of technology evolution and the demands of Generation Y in the workforce, effective communication has also changed dramatically. From smartphones to ipads to texting, generation Y wants their information when they need it in many different flavors, but they also want quick and concise communications. With ever-changing technology and the need to accommodate three generations of employees in your workforce, it is important to take the time to ask the critical questions around using these new forms of communication. This webinar will educate you on Generation Y and how their needs differ from your other employees and how our communication methods need to be trend-setting.
Please join us for our next educational webcast on July 31st at 11am Pacific Time, 2pm Eastern Time.
(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.)
Product Spotlight: ESPP Services and Solutions from SOS
This month's Product Spotlight will focus on the myriad ways we have assisted our clients who offer an Employee Stock Purchase Plan as part of their equity compensation program.
ESPP Plan Rollout
Is 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.
Outsource your ESPP management to SOS. SOS can provide a spectrum of services in this area that can be tailored to your company's unique plan. We can manage your Open Enrollment, process your purchase, coordinate with payroll, respond to employee inquires and provide financial reporting and reconciliation. You decide what level of expertise and involvement you want and let SOS take care of the rest. The SOS outsourcing solution is unique, let us show you how.
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.
Stock Plan Personnel Training
- Participant Communication Campaign
SOS 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.
- Participant Education
Customized to the features of your plan, our ESPP Participant Education Program helps domestic and non-US participants understand plan basics, the finer points of taxation, and builds an understanding and appreciation of the value and benefits of your ESPP. May also be combined with similar SOS programs for options, restricted stock, or performance shares, as needed.
- ESPP Basics
What is an ESPP? What are the features of my company's plan? Why does it matter to me? What are the benefits? When can I enroll? What are the rules around withdrawals, increases and decreases? Why is it important to activate my brokerage account before purchase? How do I activate my brokerage account? What is a 3922 and what do I do with it?
- Advanced ESPP Issues
What are the tax implications in my country? How does the $25K limit work? Are there times when disqualifying dispositions give me better tax treatment than qualifying?
- FAQs - Word, PDF or PowerPoint, HTML for web pages
- Live webcasts
- Recorded webcasts
Note: for recorded and webcast-based sessions, we recommend several shorter sessions instead of long sessions.
- SOS Email Xpress
An MS Access-based application, installed at your site, 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.
Communications may include:
- Confirmations of Purchase
- Year-end Tax Summaries
- Form 39221
- ESPP Online Enrollment
We can tailor an ESPP enrollment website, hosted inside your firewall, to your plan and specific requirements to allow your participants to enroll, withdraw, and change their enrollment online.
- Online Disposition Surveys
Tired of paper surveys? Put your disposition surveys online! Streamline 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 ESPP share sales.
- Participant Response Center
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 you manage your workload. We can establish a dedicated call center or email response team staffed by equity compensation experts trained in the specifics of your plan to provide your participants with the answers they need. The centers can be scaled up or down based on the needs of your company, increasing hours at peak times and decreasing as inquiry volume drops.
- SOS Participant Portal
A secure website allows you to provide secure ESPP (and other) communications to your participants, saving hours of tedious and risky manual labor and significant costs associated with hardcopy mailing. This portal allows your employees to obtain the information they need when they need it, reducing calls and emails to you or your group. ESPP-related communications may include:
- Confirmations of Purchase
- ESPP Online Enrollment
- Year-end Tax Summaries
- Form 3922 2
- 6039 Consent Collection Module
Allows you to collect participant consents for electronic delivery of forms 3922
Our training is customized to the features of your plan to help your staff understand ESPP basic and advanced topics. May also be combined with option, restricted stock/unit, or performance share trainings.
IRS 6039 Compliance - Form 3922
- 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
Process Improvement / Automation
- Participant Statements
For some in-house software, SOS can install a custom report, allowing you to print these forms just as easily as you print a Confirmation of Purchase.
- IRS Filing
You are required to report ESPP transfers3 to the IRS for transactions that occurred during the prior calendar year. If you have over 250 transactions to report, you will also be required to report electronically. SOS can help.
- SOS 6039 Xpress
Our MS Access-based application can be deployed at your company site, allowing you to keep your sensitive participant data inside your firewall. Stock plan data is downloaded from your stock plan database to a pre-specified location. The SOS 6039 Xpress application retrieves the data, formats it per the detailed IRS file specification, and then creates substitute statements for mailing or emailing to your participants. Substitute statements are formatted to fit in a standard two-window envelope to avoid the need for mailing labels and to assure the right statement goes to the right person. Our application also creates the IRS e-file in the proper format for you to drop off at the IRS FIRE website.
- 3922 Outsourcing
Let our expert team take the burden of 6039 compliance off your shoulders. Transmit your sensitive data to SOS securely and let SOS produce the participant statements for you. We do not outsource the fulfillment process, but keep your sensitive data secure while the SOS team prints and mails your forms. We can even add these forms to standard year-end mailing packages and mail the entire package for you. In addition, we complete your IRS filing.
- $25K Limit Review
SOS can work with your stock plans group and other departments to refine or develop documented processes and procedures. Can include development of customized reports.
- Disposition Survey/Reporting Process Review
Are you capturing as much of the valuable tax deduction as you can from disqualifying dispositions? Let SOS review your current process and suggest improvements - from finding ways to streamline the process to identifying issues that will get you in hot water with the IRS.
- SOX Review
Assist in identifying key controls that may be needed for and/or impact SOX 404 documentation and processes.
- 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 to handle the necessary calculations 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. Excel models are also available and in some cases software workarounds may be implemented.
Are you planning to change ESPP systems or providers? Struggling with complicated data formats and logistical hurdles during the conversion process? SOS can help! We've converted clients to and from many different systems and providers over the years and have already faced the challenges you are encountering (or will encounter). Our ESPP conversion process leverages both subject matter expertise and technology tools to make the process consistent and repeatable and speed you on your way.
To learn more about the SOS suite of ESPP solutions, please contact us at (888) SOS-0199 or email us.
1To distribute forms only electronically, participant consent must be obtained.
2To distribute forms only electronically, participant consent must be obtained.
3For most companies the transfer can/should be reported as of the date of purchase. Please contact SOS for more information.
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Bows and bonnets...Dan Schwab of Charles Schwab, and his wife, Jen, welcomed a baby girl on May 1st weighing 7.8 lb and coming in at 20 inches. See Colette's picture! Jonathan Brooks, Director, Strategic Accounts at UBS, and his wife, Jen, welcomed their first child, Julia Ruby Brooks, on May 16, 2014 at 3:51pm.
Feeling kicks...Jocelyn Finn of Progress Software is expecting her 3rd (and last) child this October and it's finally a GIRL! She will be welcomed into the family by big brothers, Brayden and Luke, and her name will be decided once they meet her!
SOS is hiring and here is our recent addition:
Kelly Vetter (Outsourcing)
Did you know SOS is celebrating its 15 year anniversary? See here for what makes us stand apart.
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