The NASPP Blog

February 24, 2017

Validation of Web Based Grant Acceptance

In the NASPP’s 2014 Domestic Stock Plan Administration Survey (co-sponsored by Deloitte), 92% of respondents said they use at least one electronic form to distribute individual grant notices and/or agreements to US employees. In the same survey, 76% of respondents said that a separate form of acceptance of a grant is required. That translates into a majority of responding companies using electronic delivery methods for at least some of their US grant material, with a majority also requiring proactive acceptance of the terms. This combination of practices was recently tested in litigation. Keep reading to find out the outcome.

If you’re a company that distributes grant documents and requires acceptance of award terms electronically, a recent court case may help validate the processes you have in place for those practices. In a recent blog titled “Stock Award Web Process Works: Non-compete Enforced” (February 7, 2017), author Mike Poerio describes a recent court case (ADP, LLC v. Lynch & Halpin – New Jersey) that “upheld the granting of a preliminary injunction against two former employees who had joined a competitor in violation of restrictive covenants set forth in their stock awards.”

At the core of the former employees’ argument was that the web-based acceptance system for their stock grants did not adequately inform them of the full consequences for accepting the terms of their awards (which included references to a non-compete agreement). As Poerio describes, “the former employee lost their case because because ADP’s check-the-box award system involved the following key steps that led the court to bind them to the stock award agreements and the associated non-competes.”

Poerio analyzes ADP’s step-by-step award acceptance process and provides his commentary on how each step played into the outcome of the award case. Here’s a great chance to compare your own electronic grant acceptance steps to the process that ultimately helped ADP prevail. Perhaps there are areas where covenants can be strengthened or the acceptance process improved.

According to the same 2014 NASPP/Deloitte survey mentioned at the beginning of this blog, 12% of respondents do not require acceptance of grant terms, and another 10% (combined) presume acceptance if no reply is received, or, upon vesting/exercise of the award. It may be worth reviewing these practices, as the outcome of the ADP case suggests that putting time and attention into ensuring that employees do have access to and proactively accept the terms of their grants can make all the difference. Of equal importance is establishing web based processes that are clear and can provide evidence of the acceptance and associated process steps.  The bottom line is that web based grant acceptance can and does hold up in litigation when the right practices and documents are in place to evidence the steps the employee took to accept their award.


February 22, 2017

Stock Plan Administration Rated One of Top Jobs for Business Majors

It’s not often that the job of stock plan administrator shows up in a list of top jobs; this is no reflection of the quality of the job but more because few people outside of the stock plan community know this job exists. I have commiserated with many stock plan administrators about the difficulties of trying to communicate what they do to the uninitiated. It is not dissimilar to trying to explain my own job (sometimes it feels like no one has ever heard of the concept of a membership association).

So imagine my surprise when Andrew Schwartz of Computershare forwarded me an article from ThinkAdvisor that ranks stock plan administrator as #6 on a list of best paying jobs for business majors (“15 Best Paying Jobs for College Business Majors: 2016.”

The list was compiled using data from, including their list of most popular jobs for business graduates and their College Salary Report (which considers a sample of 1.4 million college graduates). According to the article, the salary listed is comprised of base annual salary or hourly wage, bonuses, profit sharing, commissions, and other forms of cash earnings (ironically, equity compensation isn’t included). It’s also not a starting salary; it’s for someone who is mid-career (about 44 years old with 15 years of experience).

The article reports that the median mid-career pay for business administration majors working as stock plan administrators is $120,000. Some of the jobs that stock plan administrator came in ahead of include tax compliance manager; treasurer; and payroll, accounting, finance, and budget directors.

As an English Lit major, however, I take issue with the article’s suggestion that humanities majors need to change majors. I know plenty of liberal arts majors who have ended up in stock plan administration.  So if you know any soon-to-be college graduates (business or humanities majors), you might want to suggest they follow in your footsteps.

– Barbara

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February 16, 2017

Happy Stock Plan Participants

Am I the only one out there that can use a break from the news? I’m generally not averse to change, but with much uncertainty looming in so many areas (think the proposed repeal of Dodd-Frank provisions, tax reform, and other changes) sometimes the doldrums can set in. With that frame of mind, it was a nice breath of fresh air to read a recent article by Bruce Brumberg of titled “10 Ways Stock Compensation Can Make You Happier.

If your participants are feeling similar news blues and looking for a pick-me-up, this is the article for them. Or, if you are simply looking for a way to articulate the more intangible benefits of stock compensation, this will be a great resource. Brumberg steps beyond the mechanics of stock compensation to explore the thrill and peace of mind one can get from learning about stock compensation, monitoring and tracking awards, and realizing the true benefits of wealth creation. Among my favorites is the concept of linking mindfulness and meaningfulness to one’s workplace effort and intentions, which thereby can affect the company’s stock price and, in a full circle moment, incite feelings of optimism and happiness. “When your honest hard work elevates your company’s stock price, equity compensation rewards you. That can heighten your feelings of engagement, optimism, and happiness.


February 14, 2017

More on Updating EDGAR Passwords

During the Section 16 Q&A webcast in January, Alan Dye discussed the new procedures for resetting an EDGAR passphrase. The passphrase is used if you need to generate new EDGAR codes (CCC, password, and PMAC) for you or your insiders in the event that you’ve forgotten the password or it has expired.

Linda Epstein from Hewlett Packard Enterprise emailed to tell us that there is an easier way to update an insider’s expired password, assuming the following:

  • You know the insider’s EDGAR codes (CIK, CCC, expired password, and PMAC—you don’t need the passphrase for this), and
  • Have your own access to EDGAR.

The Easier Way

Rather than logging into the insider’s account, you can simply log into the main EDGAR website (or the EDGAR Online Forms Management website) under your account and select the Retrieve/Edit Data function. EDGAR will ask you to enter the CIK and CCC for the account you want to edit. Turns out, you can enter any account here (so long as you have the access codes for that account)—it doesn’t have to be your own account.

Once you enter the CIK and CCC code, you then have the ability to change the password for the account, provided you know the old password and the Password Modification Authorization Code (PMAC). This is easier than generating all new EDGAR codes, especially if the individual is an insider at more than one company (which would require you to notify all the other companies of his/her new CCC).

Update Contact Info Too

You can also use the Retrieve/Edit Data function to update an insider’s contact info, including email address, and you don’t need the insider’s password or PMAC to do this.

Given the ability to do this, I’m not sure you’d even need to update the insider’s password (you can still submit filings for an insider whose password has expired). But if you did need to do so, without the insider’s password or PMAC, you’d be stuck generating new EDGAR codes. Here again, this feature could be handy. Because, let’s face it, if you don’t know those two things, you also probably don’t know the insider’s passphrase and you’re going to have to generate a new passphrase. This feature would at least allow you to ensure that the insider’s email is correct (or change it to an email address that you can access), since, under the new passphrase procedures, you have to provide the “electronic security token” that is emailed to the insider when the new passphrase is requested.

It also means that instead of the nightmare I went through to update my passphrase, I could have had one of my friends who does Section 16 filings update my expired password for me (ironically, I knew my old password and PMAC, I just didn’t know my passphrase). I’m sure one of you would have come through for me. Good to know for the future (not that I am ever going to forget my passphrase or let my password expire again).

This Explains a Lot

Well, maybe not a lot, but it does at least explain why you have to enter your CIK and CCC to change your password after logging into EDGAR, something that, until now, seemed like a useless extra step to me.  I’m not sure it explains the need for the PMAC, however (if you already know the insider’s old password, how much more authorization do you need).

If anyone else has any handy EDGAR tips, I’m all ears.

– Barbara

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February 9, 2017

More Challenges to Dodd-Frank

As I mentioned in my blog on Tuesday, we are starting to see some movement towards repeal or revision of at least parts of the Dodd-Frank Act.  The Administration’s executive order isn’t the only action that has been taken; here are a couple of other developments:

CEO Pay Ratio—The SEC Weighs In

On Monday, February 6, Acting SEC Chair Michael Piwowar issued a statement on the CEO pay ratio disclosure. Piwowar requests comments on “unexpected challenges that issuers have experienced as they prepare for compliance with the rule and whether relief is needed,” and encourages detailed comments to be submitted within 45 days. Piwowar also notes that he has directed the SEC staff to “reconsider the implementation of the rule based on any comments submitted and to determine as promptly as possible whether additional guidance or relief may be appropriate.”

While that’s pretty vague, is does indicate that, in addition to the Secretary of the Treasury and the Financial Stability Oversight Council, the SEC is also looking at the CEO pay ratio rule. Even so, it’s hard to say what this means. As we all know, and as an article in the Wall Street Journal notes (“GOP-Led SEC Considers Easing Pay-Gap Disclosure Rule of Dodd-Frank“), it is difficult for the SEC to move quickly on matters like this:

Republicans on the SEC could be stymied by the commission’s own procedures on the pay-ratio rule because undoing a regulation is handled by an often lengthy process that is similar to creating one. It also is difficult for the SEC to delay it outright, because of the commission’s depleted ranks. There are just two sitting commissioners—Mr. Piwowar and Kara Stein, a Democrat—meaning the SEC is politically deadlocked on most matters. Ms. Stein on Monday signaled opposition to efforts to ease the pay rule. “It’s problematic for a chair to create uncertainty about which laws will be enforced,” she said.

And Then There’s Congress

An article in Bloomberg/BNA reports that the Financial Choice Act is likely to be reintroduced into Congress this year (“Dodd-Frank Rollback Bill Expected in February, Duffy Says“). Originally introduced last year, this bill would repeal or restrict major parts of the Dodd-Frank Act, including reducing the frequency of Say-on-Pay votes, limiting application of the clawback provisions, and repealing the CEO pay ratio and hedging disclosures. Jenn Namazi blogged on the Act last year (see “Post Election: Things to Watch – Part I” and “Part 2“).

The Financial Choice Act is bigger than Dodd-Frank. The bill would also require a joint resolution of Congress before any “major” rulemaking by the SEC and a number of other agencies could go into effect. Mark Borges notes in his blog on (“Acting SEC Chair Weighs in on CEO Pay Ratio Rule“) that the bill is expected to require the major proxy advisory firms to register with the SEC and, among other things, disclose potential conflicts of interest.

Poll: What Are You Doing?

It’s hard to know what to do in response to all this. Preparing for the CEO pay ratio disclosure requires a lot of time and resources, which most on the corporate side would view as wasted if the disclosure is eliminated. But if the disclosure isn’t eliminated, stalling preparations now could result in an implementation time crunch.

In his blog on (“As Predicted—Hitting the Pause Button on the CEO Pay Ratio Rule“), Mike Melbinger says: “Postponement and revision of the rule seems likely. Now might be a good time to stop spending time and money on this calculation.” Take our poll to tell us what your company is doing (click here if the poll doesn’t display below).

– Barbara

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February 7, 2017

Dodd-Frank Under Scrutiny

Since last Friday, there’s been a lot of talk from regulators relating to Dodd-Frank. There’s been no definitive action yet on the law, but we’re officially on notice that things are likely to change in the future. Here’s a quick run-down of what happened.

Review of Dodd-Frank

Last Friday, February 3, the Administration issued an executive order that purportedly calls for a review of the Dodd-Frank Act, albeit without mentioning Dodd-Frank by name. The order establishes the following “Core Principles”:

(a) empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;

(b) prevent taxpayer-funded bailouts;

(c) foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;

(d) enable American companies to be competitive with foreign firms in domestic and foreign markets;

(e) advance American interests in international financial regulatory negotiations and meetings;

(g) restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.

The order then gives the Secretary of the Treasury and the Financial Stability Oversight Council 120 days to report on the extent to which “existing laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies” adhere to these principles and to identify any of said laws, treaties, et. al., that inhibit regulation in a manner consistent with the Core Principles.

That sounds bigger than Dodd-Frank and perhaps it is. According to an article by Bloomberg (“Trump to Order Dodd-Frank Review, Halt Obama Fiduciary Rule,” the order is intended to target the Fiduciary Rule (which requires advisors on retirement accounts to act in the best interest of the clients), as well as Dodd-Frank.

Here are Mark Borges’ comments on the order, from his blog (“Rethinking Dodd-Frank—Is the Process About to Begin?“) on

It’s all very general in nature, but within the next four months (presumably sometime around the end of May) the Treasury Department will be delivering its report and (again presumably) it will address whether (and to what extent) the Dodd-Frank Act promotes or does not promote the Core Principles. I expect that this report will cover the various executive compensation-related provisions of the Act, including the CEO pay ratio disclosure requirement. While it’s still too early to know what this all means – or how it will play out, the Order clearly signals the start of the long-promised re-working of the law. This will likely include the repeal of some provisions, the modification and amendment of others, and, possibly, the survival of some provisions intact.

Stay tuned—more to come on Thursday.

– Barbara

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February 3, 2017

Trends in 10b5-1 Plans

Last week I blogged about yet another SEC enforcement action in the area of insider trading. For those looking for ways to further prevent insider trading by company employees, Rule 10b5-1 trading plans continue to be an attractive avenue toward this ambition.

A few months ago, in the November 11, 2016 edition of its newsletter Compensation & Benefits Digest, the Ayco Company examined and reported on Rule 10b5-1 best practices (“Update on Insider Trading and the Use of 10b5-1 Plans”). The firm is “seeing more companies tighten corporate compliance programs” in response to the SEC’s “significantly greater interest” in insider-trading enforcement (In my blog “White Collar (Stock) Crimes” of January 26, 2017, I suggested that insider trading is a low hanging enforcement fruit for the SEC, with advances in technology making it easier than ever before to identify suspect insider trades.) As part of this, Ayco has seen more companies develop policies on the use and design of 10b5-1 plans. Ayco also reported that of the 2,000 Section 16 insiders, including nearly 350 CEOs, for whom it provides financial-planning services, about 24% of the CEOs and 21% of other insiders (including directors) have had 10b5-1 plans in the past two years. The article also explains common and best practices for these plans in areas where there are no formal SEC rules, including:

  • Waiting period before first trade: Most model plans suggest a 60-90 period.
  • Time limits: Plans typically cover a period of three to six months and rarely longer than a year.
  • Number of plans: Companies often require or request that executives have only one plan at a time.
  • Transactions in and outside window period: Most companies permit trades under a plan even outside of a window period, although some companies may request the plans only be adopted during an open window.
  • Trades outside of plan: During the plan term, other company stock transactions are restricted.
  • Modification, termination, or suspension of plan: most companies take no position on whether a plan can be modified or cancelled, although some companies only allow this when the individual does not know material nonpublic information.

If your company policies and insiders haven’t fully embraced the concept of implementing Rule 10b5-1 plans, now may be a good time to reconsider.


February 1, 2017

Clawbacks, Discretion, and Grant Dates

It is common for boards and compensation committees to have discretion over clawback provisions, either over determining whether the clawback provision has been triggered or, once triggered, whether it should be enforced.  While this discretionary authority is useful from a design and implementation standpoint, it can sometimes be problematic from an accounting perspective.


Under ASC 718, expense associated with an equity award is determined on the grant date, which cannot occur before an employee and employer reach a mutual understanding of the key terms and conditions of the award. Where a key term is subject to discretion, a mutual understanding of the key terms and conditions of the award may not exist until the point at which this discretion can no longer be exercised.

In the case of clawback provisions, if the circumstances under which the board/compensation committee might exercise their discretion are not clear, this could lead to the conclusion that the service or performance necessary to earn the award is not fully defined.  This, in turn, prohibits a mutual understanding of the terms and conditions of the award and delays the grant date. This delay would most likely result in liability treatment of the award.

Recent Comments from SEC Accounting Fellow

Sean May, a professional accounting fellow in the SEC’s Office of the Chief Accountant, discussed this concern in a speech at the 2016 AICPA Conference on Current SEC and PCAOB Developments, held in Washington, DC. May distinguished objectively applied clawback policies from policies that “may allow those with the authority over compensation arrangements to apply discretion.” In addition, he made the following comments:

If an award includes a key term or condition that is subject to discretion, which may include some types of clawback provisions, then a registrant should carefully consider whether a mutual understanding has been reached and a grant date has been established. When making that determination, a registrant should also assess the past practices exercised by those with authority over compensation arrangements and how those practices may have evolved over time. To that end, registrants should consider whether they have the appropriate internal control over financial reporting to monitor those practices in order to support the judgment needed to determine whether a grant date has been established.

Clawbacks and Discretion are Common

68% of respondents to the NASPP’s 2016 Domestic Stock Plan Design Survey (co-sponsored by Deloitte Consulting) indicate that their equity awards are subject to clawback provisions.  83% of those respondents, indicate that the board or compensation committee has some level of discretion over enforcement of the provisions.

If you are among those 83%, it might be a good idea to review the comments May made at the AICPA conference with your accounting advisers to make sure your equity awards receive the accounting treatment you expect.

– Barbara


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January 26, 2017

White Collar (Stock) Crimes

Over the years I’ve covered many forms of insider trading scenarios and associated consequences. Of particular fascination to me have been cases involving employees trading in their own company’s stock. Maybe it’s because there are obvious policies in place to prevent this that it seems more egregious, or maybe it’s the level of betrayal (an inside job). I often think I’ve seen it all, and then some new twist surfaces. In today’s blog I’ll cover a recent SEC enforcement action against a former Expedia employee.

You Will Get Caught

In the Expedia case, a former computer support technician secretly accessed senior executives’ emails for confidential information. Reuters reports that he pleaded guilty to one criminal count of securities fraud, agreed to pay back his former company the nearly $82,000 that it spent to investigate the computer intrusions, and settled with the SEC for close to $376,000 (“Ex-Expedia IT Employee Pleads Guilty to Insider Trading,” Nate Raymond, Dec. 5). According to the complaint filed by the SEC, the technician used the stolen information to trade Expedia securities in advance of seven Expedia earnings announcements and two Expedia agreement-related announcements, resulting in unlawful profits of nearly $350,000.

Insider trading enforcement actions provide important learning opportunities for companies who are engaged in an ongoing quest to educate employees and prevent these types of crimes. It seems to me that many of these acts of insider trading are ones born of circumstance opportunity (overhearing a conversation involving material, non-public information, for example, or, having access to certain information or functions through the nature of one’s job). It’s impossible to eliminate every single potential opportunity to cross paths with inside information – and many companies work to educate employees about not giving in to the temptation to share the information or use it for financial gain. I know I’ve touted the message “Don’t try it. You will get caught.”  Yet, some employees still try it, and they do get caught.

The former Expedia employee’s case raises the question – what can companies learn about further protecting access to vulnerable information from all angles? Or, is it not about better protecting the information, but further educating the employees about the realities of the consequences for insider trading? In recent years I’ve been impressed with the SEC’s advancements in technology, particularly in identifying trades that warrant further investigation. With all the progress in technology, insider trading is a low hanging fruit for the SEC. If you’re not talking to employees about some of the recent enforcement actions for insider trading and the mechanisms the SEC is using to track down these trades, now’s a good time to start. Case studies can be excellent teaching tools.

Why Do People Commit White Collar Crimes?

In the latest edition of The NASPP Advisor (“Insider Trading and Rule 10b5-1 Plans,” January/February 2017), we suggest that companies who are looking to refresh or redesign their programs for preventing insider trading read an interview of Harvard Business School professor Eugene Soltes in the December issue of Human Resource Executive (“Good Intentions, Bad Decisions,” pages 18–19). The professor recently wrote a book entitled Why They Do It—Inside the Mind of the White-Collar Criminal. In the interview, he shares some of his insights into how intelligent and ambitious executives can sometimes fall into traps that lead to criminal acts with “terrible consequences for their company, those around them, and themselves.” For example, executives are used to decisions and activities in business that can be gray or murky, so they need to know when their actions cross lines that lead to “serious consequences.” These insights may be useful for HR professionals who are working to discourage such mistakes among employees and executives.


January 24, 2017

ISS, Burn Rates, and Performance Awards

ISS 2017 Equity Compensation Plan FAQ notes that where companies want ISS to include performance awards in their burn rate when the awards are earned, ISS now requires specific disclosures with respect to the performance awards.

A Quick Primer on ISS, Burn Rates, and Performance Awards

ISS includes performance awards in a company’s burn rate when the awards are earned, if the company includes this information in the disclosures related to its stock plan. If this information isn’t disclosed, ISS includes the performance awards in the burn rate calculation when they are granted.

The problem with including the performance awards when they are granted is that ISS doesn’t reduce the burn rate for subsequent forfeitures (due to either termination of employment or failure to meet the performance goals). Consequently, it is generally preferable to have performance awards included in the burn rate when they are earned.  This will result in a more accurate (and possibly lower) burn rate, because only the shares that are actually earned and paid out will be included in the calculation.

What’s Changed?

In the past, ISS simply required companies to clearly and consistently disclose how many shares were granted and earned under performance awards, without defining what the disclosure should have looked like. In its 2017 Equity Compensation Plans FAQ, however, ISS has stipulated the following requirements for the disclosure:

  • Table format
  • Separate from the disclosure for time-based awards
  • Aggregate of all performance awards granted to all employees (providing the disclosure only for awards held by NEOs is insufficient)
  • Covering three years
  • Included every year going forward, even if the plan will not be acted on in a particular year
  • Included even if no performance awards were granted or earned in a particular year

ISS has also said that they generally won’t calculate the number of shares earned under performance awards, even if it would be possible for them to do this from information presented in narrative format.

The FAQs include a sample disclosure that looks remarkably like the old roll-forward tables companies used to include for all of their stock compensation under the original FAS 123.

Is This Legally Required?

The disclosure isn’t legally required or required under ASC 718. But if you want ISS to include your performance awards in your burn rate when they are earned, rather than when they are granted, the disclosure is necessary.

– Barbara

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