May 20, 2015
In this issue:
Product Spotlight: ESPP and SOS Outsourcing
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ESPP: Tired or Trendy?
Here at SOS we are big fans of ESPPs - because we really do believe in the ideas behind equity compensation (big surprise): attracting, retaining, and motivating employees. We do think that equity comp, when properly designed and communicated, can really help with all three. And ESPPs can be a big part of that. Whether you are a brand new public company or you've been public for years, these plans can be a great way to engage your employees and get them to start thinking like owners.
Elizabeth Dodge, CEP, Vice President
Stock & Option Solutions
Elizabeth is the Vice President of Product Management for Stock & Option Solutions, Inc. (SOS). She also runs the Strategic Solutions and Accounting Solutions groups. Her responsibilities include monitoring new developments in the equity compensation arena, performing market research, speaking at industry events and helping SOS clients with all kinds of equity compensation challenges.
Product Spotlight: ESPP and SOS Outsourcing
Does managing your ESPP feel like a second job for you? Then let SOS Outsourcing take over, and allow you to get back to your first one. Whether you are looking to selectively outsource certain stock plan-related functions (like ESPP administration), or want SOS to take more off your plate, with SOS you will work with an expert who sits on your side of the table; a completely accountable part of your team focused on providing the high level of service to your participants and your collegues you demand, while giving you the ultimate in resource flexibility and cost efficiency. A win-win for your business. Become a fan of SOS
Whether you are looking to selectively outsource certain stock plan-related functions (like ESPP administration), or want SOS to take more off your plate, with SOS you will work with an expert who sits on your side of the table; a completely accountable part of your team focused on providing the high level of service to your participants and your collegues you demand, while giving you the ultimate in resource flexibility and cost efficiency. A win-win for your business.
Become a fan of SOS
Accounting for ESPP - Not as Easy as it Should Be
Accounting for stock options and restricted stock is now fairly straight-forward, right? So, why does it seem that we're all still struggling with accounting for Employee Stock Purchase plans - especially those fabulous Section-423 qualified plans that are all the rage? It's probably because there are a few different pieces with which we need to contend, all of which we've seen trip some companies up.
$25K Limit Impact on Estimated Shares
ESPP expense is based on estimated contributions because how much will be contributed equates to how many shares can purchased. The estimated number of shares the participant can purchase multiplied by the fair value gives you their estimated expense. This seems like easy math at the outset: If a participant is contributing $100 and the purchase price is $8.50, then they can purchase 11 shares (rounded down).
However, because the $25K limit is complicated, estimating the number of shares that can be purchased when/if contributions might exceed that limit is also complicated. This is generally only a concern for more highly compensated employees, since both the limit and the estimated shares are based on the enrollment date market value. Although in some locations and if you allow higher contribution percentages, many of your employees might come close to or exceed the limit - especially on the purchases that occur later in the year. Consider an employee making $125,000 annual salary and contributing 20% of her salary. If our enrollment-date market value is $10, and you have two purchases a year, she will exceed the $25K limit with her second purchase.
Further, if your offering period is outstanding in more than one calendar year, any unused limit from the prior year can and should be carried forward to the follow year.
In addition, any shares that are estimated to be purchased in the year should be subtracted from the $25K limit when calculating the limit for subsequent purchases. For example, in the scenario above, the first purchase of the year used 1,470 shares of the 2,500 shares available in the limit, so when calculating expense for the second purchase of the year, only 1,030 should be estimated for expense purposes.
Modification accounting is required for purchase plans that allow a participant to elect to increase their contributions during the offering period and for plans that contain a reset or rollover feature. A reset or rollover feature is triggered when the stock price drops during the purchase period, either resetting the offering to use the new lower price as the enrollment date market value or rolling all participants into a new offering, again with the new lower enrollment date market value. However, the accounting treatments for the two types of modifications are different.
An increase in contributions is treated as a new grant, with a new fair value calculated just for the additional shares that the participant can purchase with the new contribution amount.
A reset or rollover modification requires that you continue to recognize the original grant date fair value, but then add the incremental value for the modification. Determining any incremental fair value is performed by calculating the fair values immediately before and immediately after the modification. The difference in the fair value before and after will be due to the change in the purchase price.
Very few equity compensation recordkeeping systems can perform modification accounting for ESPPs. As a result, companies are often forced to use complicated spreadsheets to calculate this impact on their expense.
After the purchase has occurred, clients often wonder whether or not expense should be trued up to the actual number of shares purchased. The answer is Yes and No. There are only two cases in which expense should be trued up: 1) for terminations and 2) for salary changes (this includes bonuses if they are an included wage type). There are many scenarios in which the actual number of shares purchased will vary from the estimate. Here is a chart of some of the reasons, whether or not to true up and an explanation for why a true up should occur.
Elizabeth Dodge, CEP, Vice President
SOS Excel Demo - Goal Seek
Elizabeth Dodge delves into Goal Seek in Excel. This is one function you will want to have in your back pocket.
May 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.
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!
Free SOS Educational Webcast:
Adding Access to your Stock Plan Professional Quiver
Most Stock Plan Professionals are forced to utilize different tools to accomplish our goals, no matter how great a stock plan system we have. Many Stock Plan Professionals already have MS Excel in their bag of tricks, but what other tools should they add? MS Access should be on the top of your list. Adding a basic database application, MS Access, to your tool belt may seem daunting, but there are some basic things that you can do without significant effort.
Speakers:CEPI website for more information on CEP continuing education requirements.)?
Sharing is caring. Check out our library of Excel videos. Knowledge IS power, afterall.
We've Got an App for That!
Work smarter, not harder with our new SOS DTA Balance Proof Application. Saving time has never been easier.
Heaven's got a new angel. Our hearts go out to the friends and family of a young Solium employee, Jillian Lavalle, who was killed by a drunk driver this month. Jillian took a cab one evening and it was tragically hit by a drunk driver that killed both Jillian and the cab driver, Amritpal Singh Kharbanda. A legacy fund in memory of Jillian has been created and all funds raised will go the cab driver's family and MADD Canada.
...tender tidbits about people and players in our industry...
A new face around the office...Matt Abram is the new Vice President at Fidelity Investments and is now working from the Phoenix, Arizona office.
SOS Xtra needs your news!
Know anyone in our equity comp industry who's taken a new job? Anyone expecting an addition to the family? Anyone moving, getting married, releasing a new product, rolling out a new program, etc.?
Please send over any ideas/thoughts you have to firstname.lastname@example.org, we're happy to track down the person/company to confirm the news and get their acceptance to include it in Xtra. (All news is reviewed and approved by the person and/or company involved.)
|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
SOS Xtra Editor: Shawna Casey