Keeping Up-to-Date!
If you cannot see this e-mail, please open the following link: SOS Xtra: Volume 2 No. 3

Many people have asked me, over the years, how I manage to keep up with all the changes in the ever-evolving world of equity compensation. The real answer is "I don't - there's too much for any one person to keep up with everything." But I do my best to learn as much as I can on a daily basis by reading newsletters and blogs, attending webcasts, and volunteering for industry organizations. How do I find the time? I make the time. 10 or 15 minutes a day, scheduled on my calendar, really helps. Below is a list of some of the sources (to which you can subscribe) that I use to keep up with the constantly changing field we call home.

No Charge Sources:
The NASPP Blog: Published twice a week (!) this blog is free to all and has great, current topics as well as refreshers on long-standing issues in equity comp.
GEO: Membership is free to all issuing firms!
Computershare FreeSMARTS Webinars
Various alerts (that you can subscribe to):
Baker & McKenzie, Cooley Godward Kronish, Watson Wyatt, Compensia, CFODirect (from PwC), the NCEO E-mail Bulletin, the IRS Newswire and the FASB Action Alert (but be warned there is a good deal of content in the last two not related to stock plans!).

Volunteering:
The CEPI is always recruiting volunteers that already have their CEP designation. Volunteering for the CEPI is a great way to hone your skills and expand your all-important industry network. Why does Barbara Baksa, Executive Director of the NASPP volunteer? "To be honest, I've learned far more about stock compensation while volunteering for the CEPI than I ever learned taking the exams." Download a volunteer packet today!

Local NASPP or GEO Chapters
Local chapters are almost always looking for volunteers to help run the chapters. And volunteering is a great way to build strong relationships with your peers nearby, even more important in our current environment.
For more information about volunteering for your local NASPP chapter, see your chapter's page here.
For GEO chapters, click here.

Other Great Sources:
The NASPP: The website alone is an amazing resource with incredible content updated nearly every day. The NASPP also has online courses on a regular basis to build your skills. The newest course is on Mergers & Acquisitions and starts on March 24th. And the annual conference is also a must-attend. We're all waiting with bated breath for the announcement of the 2009 location!

Please feel free to e-mail me with any questions or suggestions!

Elizabeth Dodge, VP, Product Management
Stock & Option Solutions


*Please feel free to forward this newsletter on to others who might be interested in the content. You can join the SOS Xtra mailing list by clicking here.

Webinar: Show Me the Money: Ways to Save in Equity Comp! - March 25th

Follow this link to register for our next webinar: https://sosevents.webex.com/mw0305l/mywebex/default.do?siteurl=sosevents

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

Description
In this economy, every company is trying to find ways to do more with less. And some common cost- and time-saving practices that companies have rejected in the past are suddenly getting a hard second look. This session will uncover some of the simplest and most commonly overlooked ways to save money in your stock plan practices without sacrificing participant service, compliance, or risk. From ways to automate, reduce risk, and save hours during reconciliation, quarter-close, or grant distribution processes, to accounting missteps that cost some companies critical pennies in basic EPS calculations under FAS 128.

Speakers:
 - Colleen Ledesma, CEP, Senior Equity Consultant, Stock & Option Solutions
 - Jessica Morris, CEP, Senior Stock Plan Consultant, E*TRADE Corporate Services

(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.)

IFRS is Coming! IFRS is Coming! (Part I)

For those of you who missed our latest timely and informative webcast, here is the first installment of a brief, written summary of some of the differences between GAAP and IFRS for stock plans, and some practical suggestions for dealing with, or observations about each.

Recording of the webinar
Presentation Materials

Why Now?
Why should you care about IFRS 2 now, when US adoption may be years away? First, for many companies with foreign subsidiaries, those subsidiaries may be required to report under IFRS 2 sooner rather than later. Many countries are already reporting under IFRS and more are adopting every year. The EU, Australia, and New Zealand have already adopted (though slightly modified or equivalent versions of the standards). Chile is adopting this year, Brazil in 2010 and Canada in 2011. The Deloitte IAS Plus website has a Use of IFRS by Jurisdiction page listing details on each jurisdiction and the status of adoption. Educating yourself about the standard now will not only ease your transition when the US does adopt, but can enable you to better assist your subsidiaries with their IFRS reporting challenges today.

Difference Summary
Some of the key differences between IFRS rules and GAAP rules that currently mandate our accounting are:
- Tranche-by-tranche valuation
- Tranche-by-tranche accrual (also known as the FIN 28 or multiple approach)
- Tax accounting based on mark-to-market intrinsic values instead of grant-date fair value
- Liability treatment of net-settled awards (including RSUs that allow share withholding as a method to pay taxes)
- Accrual for anticipated employer taxes based on intrinsic value
- Non-employee grants receive the same accounting treatment as employee grants
- No safe-harbor ESPP

Tranche-by-Tranche Valuation
Under IFRS 2, each tranche or vesting increment in your grant must be valued separately; use of a weighted-average expected life (and therefore a single fair value for the entire grant) is not permissible. Since each tranche has a different vest date, it can be anticipated that each tranche therefore has a different expected term, and the length of expected term also drives the input assumptions for volatility and interest rate.

Tip: If your grants currently use monthly vesting, consider switching to vesting schedules with fewer vest dates. Even quarterly vesting will greatly simplify the valuation process, as dealing with 12 to 16 tranches is much more manageable than dealing with the 36 to 48 tranches common with monthly vesting.

Tranche-by-Tranche Accrual
Each tranche is valued separately and also accrued for separately, generally beginning on grant date and ending on the vest date. Straight-line accrual for the entire grant, one of the allowable accrual methods under FAS 123(R), is not acceptable under IFRS 2. This will generally result in "front-loaded" accrual, meaning that more of the expense for the award will be recognized early in the life of the grant, since all the tranches generally begin accruing simultaneously.

Tips: Again, considering vesting schedules with fewer vest dates will lessen the amount of "front-loading" of your accruals. However, we also point out that since the accrual begins with a larger amount, but tapers off dramatically over the service period of the grant, if your grant patterns are similar each year, the expense patterns will even out over the first few years of adoption, leaving you with even accrual over time, very similar to straight-line accrual. Another silver lining to this particular issue is that since this was a permissible accrual method under FAS 123(R), many softwares and systems can already support tranche-by-tranche valuation and accrual.

Tax Accounting
Ellie Kehmeier, of Deloitte Tax LLP, says, "Just when we thought we had the tax accounting finally figured out under FAS 123(R), IFRS2 will introduce many new complexities and challenges for stock administrators, software vendors, and tax departments." Her point is that the tax accounting under IFRS 12 is very different than what we've become accustomed to under GAAP, and is likely to cause much more volatility in our income statements, since it is really "mark-to-market" or variable accounting based on the intrinsic value of the awards each quarter.< BR>
Instead of accruing a deferred tax asset (DTA) based on the grant-date fair value of the grant, you accrue based on the intrinsic value of the grant at the end of the reporting period. However, the Deferred Tax Benefit (DTB) is limited to the cumulative tax benefit recognized to date. Let's consider an option for 1,000 shares with an $8 price, $5 grant-date fair value and a current market value of $9 and 25% of the vesting period completed. For this option, you'd compare the intrinsic value ($1,000) multiplied by your corporate tax rate (40%) by the percentage of the service period completed (25%) to compute the DTA to book ($100). If in the next quarter the option dropped underwater, you'd reverse the DTA you booked, since the new intrinsic value is $0. Later, when the grant is 100% vested, the market value is $14. The intrinsic value is $6,000. When multiplied by the tax rate (40%) and service period (100%) this would be a $2,400 entry to DTB. But since the DTB is capped by the Cumulative Tax Benefit (expense accrued * tax rate * service period) of $2,000, the DTB would be booked up to $2,000 and the excess of $400 would be posted to Additional Paid-in Capital (APIC).

The other big difference under IFRS is that there is no APIC pool available to offset deficiencies, so any deficiencies will go straight to tax expense, impacting your P&L directly, regardless of past excess transactions. The good news is that since the DTA is trued up each quarter to the current market value, the deficiencies are likely to be significantly smaller.

Observations: Under FAS 123(R), the booking of DTA was completed once the vesting was complete. Under IFRS, the DTA and DTB true ups will continue until the award is settled. This will likely mean a great deal of manual effort until the stock plan softwares and systems have been updated to handle these true ups.

To be continued... Part II will continue our IFRS summary next month! Stay tuned!

Corporate Actions & Equity Plans:
Things to consider when your company is involved

By Mary Kelly, Computershare

A corporate action, or reorganization, is any event that results in a significant change in the equity base or the corporate ownership of a company.

Corporate actions happen every day in virtually every market around the world. Companies are being acquired, spinning off entities, buying back shares through oddlot programs and Dutch auctions, commencing tenders for another company and issuing new shares via stock splits.

While a company's investor relations team is actively determining how to communicate these changes to shareholders and how the company will look after the reorganization, human resources managers are busy managing not only employee-related issues, but also their equity compensation plans.

Asking the right questions
This is no small task, considering the global reach of these plans today, and the numerous and vague international laws governing these plans. Knowing what questions to ask can often be the best guide to resolving the issues created by the corporate action. However, even the questions are not as clear today as they were 10 - or even five - years ago, for that matter. The following are some things to consider when your company is involved in a corporate action.

Types of corporate actions
The first thing to identify is the type of corporate action. Corporate actions can include:

- Acquisitions for cash or stock
- Tender offers and Dutch auctions
- Distributions of stock dividends, stock splits
- Changes in capitalization, including spin-offs, divestitures, reverse stock splits, conversions or redemptions
- Small shareholder oddlot buyback programs

Plans affected
All equity based plans can be affected, including:
- Stock options
- Restricted stock
- Restricted stock units
- Stock appreciation rights settled in cash or shares
- Employee stock purchase plans
- Performance shares
- 401k plan shares

Issues to consider
What compliance issues do you need to consider?
1. Tax issues
o Will the corporate action create a taxable event for employees?
o Will the exchange result in loss of a tax-qualified status or exemption for employees around the world for example, Canada, France, India, Italy and the UK?
o Will the new offering require approval? (This can be a long process in some countries.)
o Do you need to need to consider tax credit situations that require you to track shares in order to receive the credit? Will you have the information to perform this tracking?
2. Securities law - Will the corporate action affect the terms of the plan? And will the transaction be treated as a cancellation and reissuance, and thus considered an offering in some countries?
3. Labor law - Are there any labor laws that need to be considered? Some plans are considered compensation, a basic entitlement, in some countries. The corporate action may affect this "compensation."
4. Data privacy - As records to facilitate the corporate action are gathered and sent to appropriate parties for processing, are there any data privacy issues that need to be considered? How is the data being provided?
5. Exchange control - Do the currency conversion issues of international employees need to be considered if stock is to be exchanged?

Other things to factor:
1. Country-specific issues, including plan offering, any prior filings for specific countries and the size of the employee base (as this changes, some of the country requirements may change as well).
2. Corporate-specific issues, including what is considered corporate tax versus employee tax for each transaction, globally mobile employees (how the event affects their tax status based on where they are when the event occurs), and expensing to specific divisions within the company.
3. Status of employee stock purchase plan shares held by employees from the merged company, if you are required to continue tracking the shares for disqualifying disposition purposes, or to force all of your employees into a disqualifying disposition tax situation.
4. Permission to employee stock purchase plan participants to participate in a friendly tender offer, or a Dutch auction. If so, who will facilitate the tender offer? This needs to be considered early in the process, as the shares held in the employee plan by employees can represent a significant number of the outstanding shares.

Key steps
What do you do first?
1. Read all of the plan documents. Even if you were involved in the development of the plan, as soon as corporate action discussions start, read all of the plan documents again. Very often, the documents will outline what will happen to the shares in the plan in the event of a corporate action.
2. Plan for early notification. Approach tax and securities authorities BEFORE the corporate action has been completed. While the rulings may not always be what you expect to hear, it is better to address them in advance, as opposed to addressing them afterward along with penalties that can be imposed.
3. Do not assume anything. Ask questions and seek appropriate legal, tax and securities law guidance.
4. Be consistent in your approach. While rules and laws are unique to different countries, try to be as consistent in your approach as possible, so that the end result for your employees is the same.

Engage legal counsel
Finally, we recommend that you engage legal counsel, with experience in each of the countries in which you operate and is also familiar with the types of equity compensation plans that you offer your employees, to assist you. This will help ensure that plan documentation addresses all types of corporate actions.

Mary Kelly is the director of business development in the Computershare Plan Managers group.

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

Congrats!...
Lori Serrano (formerly Rognstad) of Accuray, is celebrating her first wedding anniversary in Vegas this month. Lori tied the knot last April after only 22 years of courtship!
Mark Shimomura, of SOS, welcomed Ryan J. Shimomura to the family on Thursday, February 18th.
Adam Colon and Barb Richley, both of E*TRADE Corporate Services, have new industry leadership roles: Adam on the Leadership Committee of the Boston chapter of GEO, and Barb as Treasurer of the Silicon Valley Chapter of the NASPP.
On the Move!...
Jon Burg has taken the position of West Coast Practice Leader at Radford Valuation Services, and continues to be based in San Francisco... Gilead's Stock Administration is expanding with the addition of Elizabeth Moore as the Senior Stock Administrator...

Events!...
March 6th: Atlanta NASPP: Equity Compensation Strategies for 2009
March 10th: Transcentive FreeSMARTS Webcast: Helping Your Stock Plan Participants During Tax Season
March 11th: SF NASPP: Latest Developments & Trends: Global Equity Plans
March 12th: Florida NASPP: NASPP Meet & Greet
March 13th: Seattle NASPP: Global Equity Training Series by Baker & McKenzie.
March 17th: Denver NASPP: Stop Before You Swap
April 9th: Radford Consulting's National Conference: The Future of Compensation: Strategies for the Evolving Global Economy in San Jose.
June 18th: Mark your calendar for the NASPP Silicon Valley Chapter All-day Conference in Santa Clara. The chapter is currently accepting applications for sponsorship and speaking proposals (the latter are due by March 6th).

Players!...
CEPI study materials for 2009 are ready and registration is open! The curriculum has been updated to expand coverage of repricing and option exchanges. It's never been more important to get the right credentials - getting your CEP can actually save out-of-pocket expense - building expertise can reduce reliance on costly outside advice. SOS clients registering for a new CEP exam may be eligible for a discount - contact SOS for details.

John Hammond of Transcentive is excited that most of the prep work for this year's The Source conference is completed. The Source is Transcentive's client conference, but quite a few non-clients are also attending this year due to an industry-focused agenda and great early-bird rate.


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.)