Forecasting 2009
If you cannot see this e-mail, please open the following link: SOS Xtra: Volume 2 No. 2

With the second month of 2009 upon us, year-end (mostly) over and proxy season in full swing, we thought we’d share with you a few of our predictions for stock plans for the rest of 2009. Some of these concepts come directly from recent discussions with our clients and partners while others are conjecture based on our experiences during the market downturn of 2001.

• The Year of the Exchange
If you thought 2008 was the year of the exchange (59 exchanges per Schedule TO filings with the SEC), our guess is that it isn’t over yet. We still have quite a few clients approaching us every day about exchanges and all the different ways we can help. And, just anecdotally, option-for-option, value-neutral exchanges seem to be what many companies are contemplating.

• Regrettable Reductions
It doesn’t take a crystal ball to see that reductions in force (RIFs – AKA layoffs) are here and are probably going to continue for a while, requiring a lot of close monitoring of the termination treatment of your grants. Many of our clients have dozens (and a few have hundreds) of different termination reasons and related treatments of equity. Not every system can automatically import and handle every code correctly. To prevent costly errors, beefing up your processes around terminations might be in order. Also, don’t forget to factor in your company’s predictions about RIFs (before and after they happen) in your estimated forfeiture rate for the accrual of expense under FAS 123(R).
In addition, now is the time to demonstrate your own worth: your skills, versatility and adaptability to survive in today’s world. The more you can contribute, learn new things, volunteer for new responsibilities, and take ownership, the more opportunities you will have in the short (and long) term. Continue to educate yourself (even when you don’t think you have the time), network with others, and be as visible as possible within your organization. During the 2001 downturn, companies began to recognize the value of strong skill sets in stock plan professionals and began to demand more than just “administration”.

• Equity Instead of Bonuses?
Times are tight and the last thing many companies need is a significant cash outlay, and yet, you still want to reward your top performers for doing their jobs well and continue to motivate and retain them. So, some companies are considering paying equity in lieu of cash bonuses. Now, this approach certainly isn’t for every company, depending on your stock plan reserves and your tolerance for non-cash expenses, but it is something we’ve heard companies contemplating.

• Streamlining & Simplifying
Companies are cutting costs across the board, and in some cases that will, unfortunately, mean personnel, but there may be a silver lining to this cloud. Companies that “would never consider” a given practice or procedure, perhaps due to management biases or outdated concerns, are taking a hard second look at ways to make processes better and easier. (Some of you may be shocked at some of these examples, but we can assure you that some companies are still using “the old way” to do things…)
An example? Electronic distribution of grant agreements, with large plans and employee populations around the world, the cost of printing and mailing and tracking and signing might finally convince those companies still using paper that the time has come. Another example: allowing employees to choose issuance in certificate form! Think of the time and energy that could be saved by simply depositing those shares electronically instead. And our last example (for this article) is the use of a captive broker, or at least somewhat limiting broker choice. We heard an advising attorney say, just at the very last NASPP conference, that “my clients would never consider that”. Considering the money that can be saved via automation, the risks that can be avoided, and the disposition surveys that are (in some cases) no longer needed when using a captive broker, perhaps we should never say never.

There’s never a dull day in equity compensation and this year will be no exception. We’ll all have to learn new tricks of the trade and perhaps expand our horizons outside our comfort zones. However, the reports of our untimely demise have been greatly exaggerated (do you remember how the advent of 123(R) was predicted to mean an end to options?). We predict that our industry and our country will emerge from these challenging times stronger and wiser than ever before.

Pam Van Gordon-Ellis, COO, Stock & Option Solutions


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Webinar on IFRS 2 – Beyond Theory: Practical Tips for Your Real-life Challenges – February 25th

Follow this link to register for our next webinar: https://www1.gotomeeting.com/register/314553742

Please join us for our next free webinar on Wednesday, February 25th at 11am Pacific Time.

Description
You’ve heard the rumors! The reality is that International Financial Reporting Standards (IFRS) may soon be thrust upon all U.S. Issuers. Experts say it will take years to prepare for adoption… Are you ready? Do you know what steps to take?

Whether or not you’re dealing with the standard now for some of your non-US subsidiaries or just dreading adoption in the future, this webinar will provide a practical understanding of some of the differences between the IASB standard and FAS 123(R) and simple things you can do today to prepare and ease your compliance. Our speakers have grappled with the standard themselves, assisted clients in managing compliance, and compiled input from a number of companies already reporting under IFRS 2.

Speakers:
• Jennifer Namazi, CEP, Director Strategic Solutions, Stock & Option Solutions, Inc.
• Adam Cahn, CEP, Product Manager, FAS 123(R) Services, Global Stock Plan Services, Smith Barney
• Carrie Kovac, CEP, CPA, Senior Manager, Finance, Symantec Corporation

(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.)

Market Research Survey

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 and everyone who completes the survey will receive a copy of the results. Complete the survey today!

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

SOS Webinar Summary: Proxy Pitfalls

For those of you who missed our latest timely and informative webcast, here is a selection of helpful tips, reminders, and gotchas discussed by our expert panelists, Mark Borges of Compensia and Jennifer Namazi, of SOS.

A recording of the webinar is available at the following site:
https://www1.gotomeeting.com/register/466734581

A PDF copy of the presentation is available here:
http://www.sos-team.com/PDFS/ProxyPitfalls.pdf

Reg S-K, Item 201: Equity Compensation Plan Information
This table is a summary of shares in outstanding grants and shares remaining within your plans available for grant, segregating shareholder-approved from non-shareholder-approved plans. Beginning in 2002, this table must be included in annual reports on Form 10-K, as well as in your proxy statements in years when you are submitting a compensation plan for security holder action.

1. Remember that RSUs should be included in the “shares outstanding” column (a) but their prices should not be weighted in to the “exercise price” (column (b)) since that would skew the results. Instead footnote them, discussing the RSUs that have been excluded.
2. RSAs should not be included in “to be issued” since they have already been issued (at the time of grant).
3. For acquired plans, remember that if they were approved by the acquired company shareholders, but not by your shareholders and you will grant future awards from the plans, they should be included in the “not approved” row of the table. If you will not issue future grants from the plan, however, you can include them in the “approved” row.

Reg S-K, Item 402(a)(3): Whom To Include
1. All Principal Executive Officers (PEOs) and Principal Financial Officers (PFOs) that served during the year.
Note: Some have asked why the SEC didn’t use the much more common “CEO” and “CFO” terms. Well, probably because they didn’t want companies to exclude someone who was acting in the capacity of a CEO or CFO because they didn’t necessarily have that title. Using a less common term makes it clear that it’s about the role the executive plays, not the specific title they have.
2. The three most highly-compensated executive officers other than the PEO and PFO.
Tip: Make sure to add up all sources of earning except Change in Pension Value and Nonqualified Deferred Compensation before you choose the “three top” for your NEOs. Some practitioners have reported forgetting to include expense accrued for grants of options or restricted stock and thereby nearly reporting on the wrong people.
3. Up to two more former officers, who would have been included, but were not serving in that role at the end of the fiscal year.
Tip: Be sure to include any severance pay when computing “three top” for your former NEOs.

Reg S-K, Item 402 (c) : Summary Compensation Table
This table lists the last three years of data for each of the Named Executive Officers (NEOs). For stock options and stock awards, the value shown is the amount of expense accrued for grants during the fiscal year. Some pointers when it comes to this amount:
1. Do not reduce the amount by the estimated forfeiture rate.
2. However, if an actual forfeiture (cancellation prior to vesting) occurred during the fiscal year, it should be included in this amount (as a negative number).
3. All other rules of accrual under FAS 123(R) apply here, for example:
a. Acceleration of accrual for retirement eligible participants (if the participant will keep the shares after retirement).
Note that this will make it more likely that retirement eligible executives will qualify as NEOs, since any grant they receive would be recognized in-full in the year of grant.
b. Liability awards (generally cash-settled grants) require mark-to-market accruals
c. Performance awards, only include accruals if achievement of target is probable

Reg S-K, Item 402 (d): Grants of Plan-based Awards Table
This table shows one row for each grant to each NEO during the year, including the grant-date fair value of the award in the final column. A few tips include:
1. If your company does not use closing market value to set exercise price for options, and your option prices are less than the closing value, be sure to add an additional column noting the closing price for the grant date.
2. If your company performed a repricing or option exchange during the last fiscal year, don’t forget to include any incremental expense for the new grant in the grant-date fair value column.
3. If your performance awards have a target and a maximum award amount, many practitioners assert it should reflect the target grant-date fair value in column (l), rather than the maximum grant-date fair value.

Reg S-K, Item 402 (e): Outstanding Equity Awards at Fiscal Year-end Table
This table summarizes all the outstanding awards, but segregates them into Exercisable, Unexercisable, Not Vested, and Unearned (performance grants with criteria not yet achieved). The first three terms pertain to time/service-based grants, while “unearned” is reserved for performance grants. And the added wrinkle for restricted stock (and units) is that you also compute and report their market value as of the end of the fiscal year (not the grant-date fair value, but the market value as of the end of the year).

Reg S-K, Item 402 (g): Director Compensation Table
Generally, all the same rules apply to the Director table that apply to the Summary Comp Table in terms of equity compensation: you include the expense accrued without reducing it for estimated forfeitures. However, in addition, since there are no “grants” or “exercise/vest” tables for directors, you will also footnote the grant-date fair value for any new grants, assumptions used for the fair value calculations, and any incremental expense for modifications.

General Pointers for a Perfected Proxy:
Get Smart(er)
Don’t just hand over numbers, as requested by your legal or SEC reporting group. Ask for the context in which the numbers will appear and become familiar with the regulations that require the disclosures. Miscommunication due to differences in terminology are a lot more common than you might think, so understanding the context (and the regulations) is key to your success.

Talk to Your Vendor
Most stock plan systems/softwares have specific reports that are designed to help you complete your proxy tables, so if you’re unaware of these reports, ask your vendor about them. A little time of time spent gaining this knowledge is likely to save you hours of compiling data from various sources and lots and lots of frustration.

Plain English
You shouldn’t need a law degree (or need to be a CPA or a CFP) to understand the proxy statements. The SEC encourages readability and “plain English” in your disclosures. Ask a third party, who wasn’t involved in compiling the proxy statement, to review it to help ensure its understandability.

Questions on Proxy Reporting for Stock Plans? E-mail us! We love to hear your questions and get your input!

SOS Xposé
…tender tidbits about people and players in our industry…

Congrats!...
Miranda Garcia, of AMB Properties, gave birth to Tyler Penn Williams on January 14th. Rachel Murillo, of The NASPP, gave birth to a boy, Dylan Matazas Murillo, on January 21st.
E*TRADE Corporate Services congratulates the 24 associates who earned their CEP designation in 2008.
BNY Mellon Shareowner Services congratulates Stacy Ramos and Adam Schweitzer on their CEPI Volunteer Excellence Awards for 2008 and Greg Snyder for earning his CEP designation.

On the Move!...
Stacy Fox has taken a new role as Senior Finance Manager (within Stock Plans) at Yahoo!, Inc.… Kevin Osterman has joined Edwards Lifesciences in Irvine, CA, as Manager of Global Equity... Michael Barry has been appointed Executive Director, Head of Corporate Sales and Service, at UBS Corporate Employee Financial Services.

Events!…
February 4th & 5th: Equity Methods, Cooley Godward Kronish, and Remedy Compensation Consulting: Underwater Option Exchanges: Evaluation, Accounting & Execution in San Diego and Palo Alto, respectively.
February 11th: Phoenix NASPP: Rescuing Equity Compensation From Volatile Markets; SF NASPP: Everything You Want to Know But Are Afraid to Ask (about accounting for equity compensation)
February 12th: Chicago NASPP: Bankruptcy 101 for Compensation Professionals
February 18th: Silicon Valley Compensation Association: Compensation Surveys – Your FAQ’s Answered
February 19th: San Diego NASPP: Nothin’ But Net… Exercises; Orange County NASPP: IFRS and its impact on Comp Design and Operation
February 24th: Baker McKenzie Webcast: Obtaining SAFE Approval for Offering Employee Equity Programs to Employees in China

Players!...
Ed Burmeister, of Baker & McKenzie testified at the IRS hearing on the proposed regulations under Section 423 of the Code in Washington D.C. on January 15th…
Net Worth Strategies has released a new Stock Plan Participant Communication and Decision Support platform designed to address participant concerns regarding underwater options. They are currently seeking companies to participate in a free trial. Please contact Bill Dillhoefer for more information.
According to KRDO TV, per the Governor of Colorado, Charles Schwab is hiring 500 people in the state.
Transcentive has announced the release of version 10.0 of the Express Equity suite of products, features include enhanced restricted stock unit functionality, expanded filtering capabilities, and upgraded financial reporting.


Have something to Xpose? Email me! (But keep it clean, people!)
(All of the content included in SOS Xposé has been approved by the firms/people discussed.)