The NASPP Blog

September 1, 2015

Random Answers

Here are the results to my random questions in last week’s blog entry.

Terminated Employees & Black-out Periods

Two-thirds of respondents (37 out of 54) do not subject terminated employees to black-out periods.

For those respondents that do subject employees to black-out periods, the majority (11 out 16 respondents), don’t make any accommodation for them.  The terminated employees are simply expected to finance their exercises in a way that doesn’t involve an open market sale.

Two respondents noted in the comments that they would automatically exercise the options if they aren’t exercised by the end of the exercise period.  One person noted that their black-out period is shorter than their post-termination exercise period, so this hasn’t been a concern for them.

Evaluating Stock Plan Administration

The majority of respondents don’t have any specific metrics that they use to evaluate the performance of the stock plan administration team (which probably explains why no one has responded to this question in the NASPP Discussion Forum).

Of the metrics suggested in the question, the most popular choices were:

  • Accuracy of reports produced for tax/financial purposes (7 respondents)
  • Total time spend on various tasks (e.g., employee inquiries, processing transactions, reporting) (4 respondents)

One respondent indicated that they are evaluated on their average time to resolve employee inquires/escalations and one respondent indicated that they are evaluated on the processing and direct costs per participant.

Some of the metrics suggested in the other comments were:

  • Timeliness and accuracy of all transactions, participant communications, and tax/financial reporting
  • Demonstration of increasing knowledge and ability to take on more complex tasks
  • Quality of response to employee inquiries/escalations
  • ESPP participation
  • Responsiveness to plan managers and various company contacts in addition to participants

Personally, I think that having at least a rough idea of how much time you spend on various tasks is an important and valuable metric to be aware of.  It can be very helpful when trying to prioritize various initiatives and projects.  For example, if tax reporting takes a huge amount of time compared to everything else you are doing at year-end, that might be an indication that you need to invest in improving your tax reporting processes.

I’m also a big fan of the ESPP participation metric, but only if you have the proper tools and resources to impact this (e.g., education budget, attractive plan, etc.)

Grant Conversion

Close to 90% (38 out of 43 respondents) don’t convert grant values into foreign currency before determining grant sizes for non-US participants.

What About the Family Feud Contest?

I will announce those results in tomorrow’s blog.

– Barbara

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August 27, 2015

Random Questions

I needed a quick blog entry for today (Jenn is on vacation), so I decided to do another poll with questions that have been posted recently to the NASPP’s discussion forum.  If they apply to you, please take a moment to indicate your answers so we can help these folks out. As always, if you are a contractor that works with multiple clients, please answer for just one of your clients (preferably one that won’t otherwise complete this poll). Thanks for indulging me!

Create your own user feedback survey

– Barbara

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August 26, 2015

NASPP To Do List

Who Gets Your Vote?
Vote for who you’d like to see on the keynote panel for “Family Feud: NASPP Style” at the 23rd Annual NASPP Conference. And don’t forget to register for the Conference!

Meeting Magic: 3 Tips for More Meaningful Meetings
Check out Andrea Best’s most recent blog in the NASPP Career Center on how to make your meetings more effective.

Read All About It: Global Equity Incentives Survey
The NASPP and PwC have just published the executive summary for our 2015 Global Equity Incentives Survey.  Check it out today and don’t miss our webcast highlighting the results on September 22.

NASPP To Do List
Here’s your NASPP To Do List for the week:


August 25, 2015

It’s Time for Family Feud: NASPP Style

The “Top Compensation Consultants: Survivor Edition” keynote at last year’s NASPP Conference was so successful that we have decided to continue to infotainment theme for this year’s keynote with “Family Feud: NASPP Style.”

Just like the real Family Feud, we’ll be conducting polls in advance (but on hot issues in stock and executive compensation, not on what you have in your refrigerator). Our “families” will consist of industry luminaries who will try to guess the poll results and will offer their commentary on the topics du jour. I think it will be a lot of fun, but will also be an interesting juxtaposition of popular vs. expert opinions on some of today’s most controversial topics.

Vote for the Speakers!
We have identified most of our family members, but we still have two open slots. For those slots, we have decided to give our community a chance to participate. Back in July, we collected nominations for “family members.” Eight industry luminaries were nominated—vote for your favorite today.

Here are the rules:

  1. You can only vote for one candidate and you can only vote once.
  2. You can campaign on behalf of your favorite candidate (or yourself, if you are a candidate).
  3. No write-ins.
  4. The poll is open until 5:00 PM Pacific on Monday, August 31.
  5. The two candidates that receive the most votes will be included in the families.

Create your own user feedback survey

Let’s play the Feud!

– Barbara


August 24, 2015

NASPP Chapter Meetings

Two NASPP chapters have meetings this week:

Chicago: Bill Gerek and Kevin McLaren of Hay Group present “Hay Group & The Wall Street Journal’s 2014 CEO Compensation Study.” (Tuesday, August 25, 7:30 AM)

Seattle: Barbara Klementz of Baker & McKenzie presents “Global Updates — Catching Up and Keeping Up with the Latest Global Equity News.” (Tuesday, August 25, 11:30 AM


August 20, 2015

ASC 718 Hot Spots

We thought summer was going to be quiet, but it doesn’t ever really happen that way, does it? One of the main buzz points of summer 2015 has been the FASB’s proposed amendments to ASC 718, which has been heavily covered in prior NASPP blog entries (“The NASPP’s Comment Letter” (8/18/2015) and “It’s Here! The FASB’s Amendments to ASC 718” (6/9/2015) as well as the NASPP Alert: “FASB Issues Exposure Draft of ASC 718 Amendments.” There’s a lot of information out there about the proposed amendments to ASC 718, and we recently asked some industry experts to weigh in on which amendments are the most significant, along with things to consider in preparation for the eventual implementation of final changes.

First, a Shameless Plug for Podcasting

We tackled the topic of the proposed amendments to ASC 718 in a recent podcast interview with Takis Makridis of Equity Methods and AmyLynn Flood of PwC. Before I tell you what they said, I need to make my occasional plug for podcasting. If you’re not listening to the NASPP Equity Expert Podcast, start now! A podcast is like a mini webcast, minus the slides. Most of the episodes are short – in the 20 minute range – perfect listening in the car on the train or during transition points of your day. It’s portable, people. All you need is your phone, a podcast app, and headphones. The NASPP Equity Expert podcast is free – to everyone – members and non members. So if you want to stay on top of the hottest topics in the world of stock plans, subscribe to our podcast today.

Key Areas to Watch

Now we can return to the topic at hand. In speaking with Takis and AmyLynn, I asked them which amendments proposed by the FASB are the most significant to our stock plans. They suggested that share withholding for tax payments, tax accounting, and forfeiture rate changes are some of the most substantial areas to monitor.

Additionally, the podcast covered some interesting insights into some of the public sentiment reflected in comment letters submitted to the FASB (the deadline for comment submissions was 8/14/2015 – click here to read the NASPP’s comment letter). Not all of the proposed changes are seeming to be welcome changes.

What’s Next?

While no specific timeline has emerged from the FASB, and nobody has a reliable crystal ball, both Takis and AmyLynn agreed that it was conceivable to have a final draft of the amendments by sometime during the fourth quarter of 2015. In the meantime, companies should engage in internal discussions about how the proposed changes would impact current practices and procedures.

Listen to the full 18 minute podcast here.








August 19, 2015

NASPP To Do List

Extended! Last Chance to Save on the NASPP Conference
In response to overwhelming demand resulting from the SEC’s announcement of the final CEO pay ratio disclosure rules last week, we have extended the deadline to take advantage of the discounted rate for the 23rd Annual NASPP Conference through this Friday, August 21. Don’t miss out—register today!

Just Added: Pay Ratio Workshop
To help attendees prepare for CEO pay ratio disclosure, the Proxy Disclosure Preconference on October 27 now includes a special Pay Ratio Workshop that will be held online via audio webcast on Tuesday, August 25. Only attendees of the Proxy Disclosure Preconference are eligible to attend the Pay Ratio Workshop. Register for this preconference program by Friday, August 21 to take advantage of the discounted price and gain access to the Aug 25 Pay Ratio Workshop. The Proxy Disclosure Preconference will be held on October 27 in San Diego, in advance of the 23rd Annual NASPP Conference.

NASPP To Do List
Here’s your NASPP To Do List for the week:


August 18, 2015

The NASPP’s Comment Letter

In today’s blog entry, I provide a summary of the NASPP’s comment letter on the FASB’s proposed accounting standards update (ASU) on ASC 718.

[This blog entry won’t make any sense if you aren’t at least minimally familiar with the proposed ASU.  For a summary of the proposal, see the NASPP Alert “FASB Issues Exposure Draft of ASC 718 Amendments” and my June 9 blog entry “It’s Here! The FASB’s Amendments to ASC 718.”]

Tax Accounting

This is the most controversial aspect of the exposure draft.  The volatility that this change introduces to the P&L is likely to be significant for companies that rely heavily on stock compensation.  We performed a very quick analysis of a handful of companies and found that, for several of them, recognizing excess tax benefits in their P&L would have increased EPS by 10%. In one case, EPS increased by 60%. Ultimately, we think this will be incredibly confusing to investors and other financial statement users.  We also feel that it is highly unintuitive for changes in a company’s stock price to generate significant profits and losses for the company.  While eliminating the ASC 718 APIC pool is very attractive, ultimately, we felt that the impact on earnings and effective tax rates would offset the benefits of simplifying this area of the standard. Because of this, we recommended against this amendment.

We suggested that companies record all excess tax benefits and shortfalls to paid-in capital, rather than tax expense. This would eliminate the need to track the APIC pool without impacting the P&L.


We supported the proposal to allow companies to make a policy election to account for forfeitures as they occur. Our only comment on this topic was to suggest that the FASB provide a mechanism for companies to change their election without treating it as a change in accounting principle (which requires a preferability assessment and retrospective restatement).

Share Withholding

We supported the proposal to amend the standard to provide that shares can be withheld to cover taxes up to the maximum individual tax rate without triggering liability treatment.

We asked the FASB to provide additional guidance on how this requirement applies to mobile employees and suggested that share withholding be allowed up to the combined maximum tax rate in all jurisdictions that the transaction is subject to.

We also asked the FASB to remove the requirement that the tax withholding be mandated by law.

Practical Expedient to Expected Term

We supported allowing private companies to treat the midpoint of the vesting period and contractual term of an option as the option’s expected term for valuation purposes.  We asked the FASB to remove the condition that the option be exercisable for only a short period of time after termination of employment and also requested removal of the conditions applicable to performance-based options.

The Rest of It and Thanks

We supported the remaining proposals in the exposure draft without comment.

Thanks to everyone that completed the NASPP’s quick survey on the exposure draft—I hope to have the results posted by the end of this week.

Thanks also to individuals who agreed to serve on our task force for this project:  Terry Adamson of Aon Hewitt, Dee Crosby of the CEP Institute, Elizabeth Dodge of SOS, Sean Kelly of Morgan Stanley, Ken Stoler of PwC, Sean Waters of Fidelity, Thomas Welk of Cooley, and Jason Zellmer of Bank of America Merrill Lynch. Their help was invaluable.

Read the NASPP’s comment letter.

– Barbara

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August 17, 2015

NASPP Chapter Meetings

Here’s what’s happening at your local NASPP chapter this week:

Denver: Denise Glagau of Baker & McKenzie presents a round-up of global developments. (Tuesday, August 18, 12:00 noon)

Los Angeles: Dan Wetzel and Marizu Madu of Pearl Meyer & Partners present on the SEC’s proposed rules on pay-for-performance disclosures and clawback policies. (Tuesday, August 18, 11:30 AM)

Phoenix:  Bucky Swift from Snell & Wilmer and Rick Smith from ExeComp present “Executive Compensation During Mergers and Acquisitions.” (Wednesday, August 19, 11:30 AM)

Atlanta: Robert Purser of E*TRADE presents “Forfeiture Rates, Plain and Simple.” (Thursday, August 20, 2:00 PM)

San Francisco: The chapter hosts another meeting in its innovative “two presentations and a lunch” format.  The presentations are David Thomas and Brandon Gantus from Wilson Sonsini on “How Public and Private Companies Should Prepare for the Requirements of the SEC’s Clawback Rules” and Sorrell Johnson and Steve Gaylord from Stock & Option Solutions on “Payroll & Equity—There is no “I” in TEAM.” (Thursday, August 20, 11:30 AM)

Ohio: Edward Hauder of Exequity presents “2015 Proxy Season Wrap-Up (and Look Ahead).” (Friday, August 21, 12:00 noon)

I’ll be at the San Francisco meeting; I hope to see you there!

– Barbara


August 13, 2015

More on the CEO Pay Ratio Disclosure Rules

There’s a lot being said about the new CEO pay ratio disclosure rules, most of it far better than anything I could write myself, so today, as a fill in for Jenn Namazi who is on vacation, I continue my new tradition of “borrowing” other blog entries on this topic.

Today’s entry is a nifty “to do” list for preparing for the CEO pay ratio disclosure that Mike Melbinger of Winston & Strawn posted in his August 6 blog on  Given that the disclosure isn’t required until 2018 proxy statements, you might have been lulled into thinking that this isn’t something you have to worry about yet. While it’s true that there’s no need to panic, there is a lot to do between now and 2018 and it is a good idea to start putting together a project plan now to get it all done.  Don’t let this turn into another fire that you to put out.  Here are Mike’s thoughts on how to get started:

1.  Brief the Board and/or the Compensation Committee as to the final rules and the action steps.  Press coverage of the rules has been extensive.  They are likely to ask.

2.  Each company may select a methodology to identify its median employee based on the company’s facts and circumstances, including total employee population, a statistical sampling of that population, or other reasonable methods.  We expect that the executive compensation professionals in the accounting and consulting firms very soon will be rolling out available methodologies (they began this process when the rules were proposed, two years ago).  The company will be required to describe the methodology it used to identify the median employee, and any material assumptions, adjustments (including cost-of-living adjustments), or estimates used to identify the median employee or to determine annual total compensation.

3.  As I noted yesterday, the rules confirm that companies may use reasonable estimates when calculating any elements of the annual total compensation for employees other than the CEO (with disclosure).  Assess your ability to calculate precisely all items of compensation or whether reasonable estimates may be appropriate for some elements.  The company will be required to identify clearly any estimates it uses.

4.  Begin to evaluate possible testing dates.  The final rules allow a company to select a date within the last three months of its last completed fiscal year on which to determine the employee population for purposes of identifying the median employee.  The company would not need to count individuals not employed on that date.

5.  Consider tweaking the structure of your work-force (in connection with the selection of a testing date).  The rules allow a company to omit from its calculation any employees (i) individuals employed by unaffiliated third parties, (ii) independent contractors, (iii) employees obtained in a business combination or acquisition for the fiscal year in which the transaction becomes effective.  Finally, the rule allows companies to annualize the total compensation for a permanent employee who did not work for the entire year, such as a new hire.  The rules prohibit companies from full-time equivalent adjustments for part-time workers or annualizing adjustments for temporary and seasonal workers when calculating the required pay ratio.

As I noted yesterday, the rules permit the company to identify its median employee once every three years, unless there has been a change in its employee population or employee compensation arrangements that would result in a significant change in the pay ratio disclosure.

6.  Determine whether any of your non-U.S. employees are employed in a jurisdiction with data privacy laws that make the company unable to comply with the rule without violating those laws.  The rules only allow a company to exclude employees in these countries.  (The rules require a company to obtain a legal opinion on this issue.)

7.  The rules only allow a company to exclude up to 5% of the company’s non-U.S. employees (including any non-U.S. employees excluded using the data privacy exemption).  Consider which non-U.S. employees to exclude.

8.  The rules allow companies to supplement the required disclosure with a narrative discussion or additional ratios.  Any additional discussion and/or ratios would need to be clearly identified, not misleading, and not presented with greater prominence than the required pay ratio.

Mike noted one additional action item in his blog on August 7:

The rules explicitly allow companies to apply a cost-of-living adjustment to the compensation measure used to identify the median employee.  The SEC acknowledged that differences in the underlying economic conditions of the countries in which companies operate will have an effect on the compensation paid to employees in those jurisdictions, and requiring companies to determine their median employee and calculate the pay ratio without permitting them to adjust for these different underlying economic conditions could result in a statistic that does not appropriately reflect the value of the compensation paid to individuals in those countries.  The rules, therefore, allow companies the option to make cost-of-living adjustments to the compensation of their employees in jurisdictions other than the jurisdiction in which the CEO resides when identifying the median employee (whether using annual total compensation or any other consistently applied compensation measure), provided that the adjustment is applied to all such employees included in the calculation.

If the company chooses this option, it must describe the cost-of-living adjustments as part of its description of the methodology the company used to identify the median employee, and any material assumptions, adjustments, or estimates used to identify the median employee or to determine annual total compensation.

Companies with a substantial number of non-US employees should seriously consider the ability of apply a cost-of-living adjustment to the compensation measure used to identify the median employee.

Finally, don’t forget that registering for the Proxy Disclosure Preconference at this year’s NASPP Conference also entitles you to attend the online Pay Ratio Workshop on August 25.  Don’t wait–discounted pricing is only available until next Friday, August 21.

The Proxy Disclosure Preconference will be held on October 27, in advance of the NASPP Conference in San Diego.

– Barbara

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