The NASPP Blog

October 8, 2015

“Marketing” Your Stock Plan

Towers Watson recently highlighted an observed correlation between communication efforts and both employee engagement and financial performance that outperforms peers in their Executive Pay newsletter (“Communicating Incentive Plans Better” – August 14, 2015). That motivated me to jump on my once-in-a-while bandwagon about effective employee communications. In today’s blog, I’ll explore some tips to think about, as well as highlight more opportunities for you to advance your education in this area.

5 Ways to Communicate Better

Towers Watson shared 5 tips to better communications. I am going to borrow those “tips” and expand on them with my own thoughts. Before I do, I want to throw out a couple of things. First, I think stock plan administrators are not often marketing people by training or trade. Some of us become effective communicators, but it’s important to remember that communicating about stock plans to employees is very much about marketing. Yes, we need to communicate the specifics, but we also need to deliver the intended incentive or value proposition to the participant, and that’s the marketing piece. Second, stock plan administrators should not necessarily need to wear the communication hat alone. I often hear administrators say that they feel responsible for driving plan communications. That may be true, but there can be tremendous value in engaging marketing expertise – not only as a fresh set of eyes on the communication strategy, but also because that marketing resource could bring a whole new set of tools to your employee education.

1. Treat employees like consumers.  Companies spend thousands, even millions of dollars trying to figure out how to resonate with their consumers in the shortest amount of time. Capturing attention is valuable, and attracting the attention of your employee is not different than what is wanted from the consumer. Messages should be quick and designed to draw in their attention.

2. Ensure communications highlight the key messages and behaviours the plan is trying to drive. In summarizing this point, Towers raises a critical piece – it’s not enough to just communicate about things like performance metrics. Yes, employees need to know what the measurements will be, but just as importantly, they have to know what it takes to achieve them. In crafting communications about performance metrics (or even simple time based vesting), make sure the content includes not just the end goal, but identifies the path necessary to get there!

3. Show “what’s in it for me?” I’ve been guilty myself of not doing this part. Sometimes we focus on getting factual information out, and overlook or omit the value proposition to the participant. The ESPP has a 15% discount – so what? A great communication takes the “fact” that there is a 15% discount in the ESPP and expands the communication to explain why the participant should care about that (without crossing some of the fine lines I identify in the last paragraph of this section). Remember, your stock plan is only as valuable as your participant thinks it is.

4. Keep it simple. It’s easy to mistake a more advanced audience (like executives) as good targets for an overload of information. Towers Watson shared that discussions with top executives revealed, in some cases, little understanding about how the plans actually work. The reality is that matter who the audience is, keep the communications simple. The communications should not get more complex just because the audience is deemed to be more intellectual or higher ranking in an organization. Be sure to add in graphics, charts, or other visual information that reduces texts and illustrates a concept.

5. Segment. Not everyone learns the same way – some people need to see an example on paper, others can just read about it and understand. It’s imperative that any communication takes into account the recipient demographics. Once you know who is going to be on the receiving end, you can use different modes of communications – and even wording within a communication – to best connect with your audience. With so many tools available (videos, in person meetings, email, text, and more), you should have several choices in delivering your message.

Although I have introduced the word “marketing” to the communication mix, I also want to reiterate that there are some fine lines that need to be considered. It’s important that any marketing (or communication) message be reviewed by counsel to ensure there are no financial or luring promises, over education, or tricky guidance (for example, a marketing message of “The ESPP Can Save You Money on Taxes” is likely not going to fly. Although there could be tax advantages to participating in a qualified ESPP, the company cannot guarantee or represent specific tax savings and it could be risky to suggest such.) It’s time to take communications beyond simple facts and create an overall “marketing” campaign that captures participant attention and delivers on highlighting the value or incentive the stock plan was designed to achieve.

Exciting Education Opportunities

The NASPP’s 23rd Annual NASPP Conference kicks off in less than 3 weeks! We have an entire track at the Conference dedicated to “Administration and Communication,” so check out the list of those sessions to identify your must-attend panels.



Tags: , , , , ,

October 7, 2015

NASPP To Do List

The NASPP Needs Your Help
The NASPP is looking for a few people to help with our social media strategy at the Conference. It’s easy! You just do the stuff you normally do at the Conference (go to sessions, network with people, etc.) and post about it on your social medium of choice (LinkedIn, Facebook, or Twitter) with the Conference hashtag #NASPP23.  If you are interested, email me.

San Diego Preview
Here’s a pic from the balcony off the show floor for this year’s NASPP Conference.


NASPP To Do List
I just have one thing for you to do this week:

– Barbara


October 6, 2015

5 Sessions I’m Looking Forward To

The 23rd Annual NASPP Conference is just 21 days away and, as is the case every year, I am so excited about it I can hardly contain myself!  It’s always energizing to reconnect with colleagues and catch up on industry developments. And this year, we have a lot of new and innovative programs planned, as noted in my column in the most recent issue of the NASPP Advisor. It’s going to be a whole new experience!

I have a long list of sessions I hope to get to at the Conference (or to listen to audio recordings of afterwards); for today’s entry I highlight just five of them.

Family Feud–NASPP Style: This keynote, in which our contestants will try to guess the results of our poll on hot topics in executive and equity compensation (a la Family Feud), promises to be fascinating.  We’ve put together a great panel of experts, but will their answers align with the popular vote? It’s going to be a lively, fun, and interesting session.

Decisions, Decisions: Offering Employee Choice Plans: I am asked about programs in which employees are allowed to choose their own equity awards with some frequency, but I rarely encounter companies that do this. I’m excited to hear how two companies (3M and Coach) use employee choice programs.

FTCs, TEQs, IAPs, Oh My! Learn to Speak Mobility: Finally, a session that will explain all the mobility terminology that I find so confusing! I expect to leave with a much better understanding of all the issues involved in mobile employees.

The IRS and Treasury Speak:  This might seem like an odd choice what with ASC 718 and Dodd-Frank rulemaking overshadowing tax rulemaking in the past year, but we’ve asked the panel to cover some nagging unanswered questions on stock compensation and I’m excited (and maybe a little nervous) to hear what the panel has to say about them.

Choose Your Own Adventure: Audience-Driven Hot Topics: And, of course, I’m looking forward to my own session.  This will be a great run-down of today’s hottest topics in a very innovative an interactive format.  We are doing the session twice and each iteration could be completely different.  My only regret is that I wasn’t able to sneak a video of my cat into the slide deck (but if anyone wants to see it, I’ll be happy to show it to you).

The 23rd Annual NASPP Conference will be held from October 27-30 in San Diego.  I’m looking forward to seeing all of you there!  If you haven’t registered yet, don’t wait any longer.

– Barbara


October 5, 2015

NASPP Chapter Meetings

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

Chicago: David Yang and Michael Kenney of Frederic W. Cook & Co. present “CEO Pay Ratio: Now What?” (Thursday, October 8, 7:30 AM)

NY/NJ: Kelly Malafis and Melissa Burek of Compensation Advisory Partners present “Long-Term Incentive Plans and Current Issues Impacting Design Considerations.” (Friday, October 9, 8:30 AM)


October 1, 2015

Charitable Donations of Stock

We’re into fall already, and before we know it the end of the year will be upon us. This upcoming period of time is a busy one for stock administration professionals. In the mix of activity that tends to spike in the month of December is that of charitable giving and gifts. In today’s blog I’ll cover some reminders about ensuring proper tax reporting and securities law compliance for stock related donations.

My inspiration for this blog actually came from a Fortune magazine article about John Mackey, co-CEO and co-founder of Whole Foods. Only a single sentence in the entire article mentioned stock options. In talking about Mackey’s $1 per year salary, the article also mentioned that “The company donates stock options Mackey would have received to one of its foundations.” As I started thinking about how that transaction would be handled on the company side, I realized that it’s been a while since we talked about gifts and donations.

This is honestly a topic that could command a lot of written coverage. The intricacies of gifting stock can be complex from several angles. In the interest of space, I’ll focus on a few areas that touch stock administration.

Timing of Donation to Charity: For tax purposes, the IRS considers the charitable donation to be complete on the date it is received by the charity – not the date it was requested, not the date the company approved the transfer. This is something to be mindful of the closer the request is made to December 31st. If the donor personally delivers a stock certificate with all necessary endorsements to the charitable recipient, the gift is complete for federal income tax purposes on the day of delivery. If the shares are being transferred electronically to the charity, then the transfer is complete when the shares are received into the charity’s account. It’s not enough to have made a transfer request to a broker. This timing can be important to companies who are tracking dispositions of ESPP shares and ISOs. For dispositions due to charitable donations occurring near December 31st, it’s best to verify the date the shares were actually received by the charity in order to apply the disposition to the proper tax year.

Donations of shares acquired through an ESPP or Incentive Stock Option (ISO) exercise: There are some tricky nuances around taxation on the participant side that hopefully will have been discussed with their tax advisor. What stock administrators need to know is that in tracking dispositions of ESPP and ISO shares, a disposition is a disposition – even a charitable one. That means for purposes of tracking qualified vs. disqualified dispositions, the same rules apply to charitable donations of the shares. See the above section on “Timing of Donation to Charity” to ensure tax reporting in the proper year.

Rule 144 Considerations: Rule 144 is concerned with the sale of control securities, not their gratuitous transfer, so the subsequent sale of the stock by a charity, not the actual gift of the shares to the charity, would be subject to the restrictions of Rule 144, if it is applicable. The charity must follow Rule 144 if it has a control relationship with the issuing company. Those wanting more detail on Rule 144 and gift requirements can read the March-April 2013 issue of The Corporate Counsel.

In summary, if an affiliate gifts stock to a non-affiliate that was originally acquired by the affiliate in the open market (i.e., not restricted in the affiliate’s hands), since the securities were not subject to a holding period requirement in the affiliate donor’s hand, SEC staff has stated that the donee need not comply with the Rule 144(d) holding period requirement for its sales of the securities. Moreover, the Staff notes that if the donee is not an affiliate and has not been an affiliate during the preceding three months, then the donee is free to resell the securities under Rule 144(b)(1) “subject only to the current public information requirement in Rule 144(c)(1), as applicable.”

“The one-year cut off for the application of the current public information requirement to donees does run from the donor’s original acquisition. Good news—but don’t forget that the six-month “tail,” adopted in 2007 (which requires donors to aggregate with their donees’ sales) runs from the date of the gift.” The “tail” mentioned in the article applies to the donor, who must aggregate his/her sales of stock with those of the donee for purposes of complying with the Rule 144 volume limitation. This requirement applies for six months after the gift (12 months where the issuer is not a reporting company or is not current in its Exchange Act reporting).

If you are not a subscriber to The Corporate Counsel (or have not yet renewed) you can gain immediate access online to sample gift compliance letters by taking advantage of the no-risk trial. (Almost all of our member companies and law firms are long-term subscribers to The Corporate Counsel.)


Tags: , , , , , , , ,

September 30, 2015

NASPP To Do List

Pinball and ASC 718
I recently had an opportunity to visit the Pacific Pinball Museum in Alameda, CA. (BTW, way fun, if you ever happen to be in Alameda with some kids you need to amuse.)  And what should I be surprised to discover there? That’s right, a Monte Carlo simulation in action (video below)!  Just add some stock prices to those bumpers, pull the ball pin a couple of hundred thousand times (as many plays as you can manage for just $15 a day, $7.50 if you make your kid do it), and you’ve got yourself a Monte Carlo simulation on the cheap.

Want to know more about how the Monte Carlo simulation works?  Don’t miss the session “Tour de Monte Carlo: Bringing Clarity to the ‘Black Box’” at the 23rd Annual NASPP Conference.

Check out my video:

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

– Barbara

Tags: ,

September 29, 2015

ESPPs and 401(k) Plans

I often encounter confusion over the difference between 401(k) plans and ESPPs, as well as the misperception that these two plans don’t mix: employees should participate in one but not both. The truth is that participating in both plans can be great for employees. Moreover, recent research from Fidelity shows that offering an ESPP can enhance your 401(k)

Two Great Plans that Go Great Together

A 401(k) is a great tool to save for retirement: employees invest their own money on a tax-exempt basis (except for FICA), the company may offer a match as an incentive to participate, and, in many cases, employees are able to hold their plan assets in a variety of diversified investments.

With an ESPP, employees also invest their own money in the plan, but on a post-tax basis.  Instead of a match, most plans offer a discount. The ESPP is not a diversified investment (employees must sell their stock and pay tax on it to diversify) and, although employees can certainly hold their stock as along as they want, they are not incented to hold until they retire, as is the case with a 401(k).

Another difference between these two plans: the maximum contribution to a 401(k) is increased periodically for inflation, whereas, as far as I can tell, the $25,000 limit under Section 423 has not been increased since the section of the tax code was enacted.

A 401(k) is a great tool to save for retirement; an ESPP is a great way to provide employees with additional earnings that are more liquid than their 401(k) holdings and can be used for to meet employees’ other financial needs. In addition, an ESPP allows employees to participate in the company’s success; in a 401(k), employees’ assets are often invested in mutual funds or other alternatives that aren’t related to the company.

ESPPs and 401(k) Loans

Recently, Fidelity compared loan rates against 401(k) plans for companies that offer an ESPP and those that don’t.  As highlighted in a recent article in Plansponsor (“ESPPs Can Help Insulate Retirement Savings,” June 12, 2015) and Fidelity’s own announcement (“How Can Companies Help Employees Avoid 401(K) Loans? Offer an Employee Stock Plan, According to Fidelity Survey“), the results were enlightening:

  • 401(k) loan rates were lower across the board when companies offer an ESPP, regardless of company size.
  • Employees with access to both an ESPP and a 401(k) tend to borrow a smaller amount from their 401(k), and had a lower outstanding loan amount.
  • Employees at large companies (more than 10,000 employees) with both an ESPP and 401(k) borrowed an average of $2,000 less than employees with only a 401(k), and had an average outstanding loan balance of $3,000 less than employees without access to an ESPP.
  • The difference was especially notable among small companies (fewer than 500 employees), where 9% of workers took out new 401(k) loans when an ESPP was also available, versus 14% at companies that don’t offer an ESPP.
  • The outstanding loan rate at small companies was also significantly lower, with only 14% of ESPP/401(k) workers having an outstanding 401(k) loan balance, compared with 23% of employees at 401(k)-only companies.

Want to hear more about how great ESPPs are? Attend the session “The New Role of Employee Stock Purchase Plans” at the 23rd Annual NASPP Conference.

– Barbara


Tags: , ,

September 24, 2015

IRS Equity Compensation Audit Techniques

In case you were wondering (in your spare time), the IRS now has a techniques guide for auditing equity compensation. The “guide” is actually an instruction to internal IRS auditors on how to evaluate equity compensation during an “examination” (fancy word for “audit”). The guide, published in August 2015, is available on the IRS web site. I’ll try to summarize some of the more interesting points in today’s blog.

The Angles of Audit

Before I dive into what the guide says, I want to cover a thought that came to me as I was reading the guide. Stock Plan Administrators and their vendors are focused on tax compliance relative to the company’s corporate tax obligations (reporting, withholding, etc.). However, it’s important to remember that as compliant as we may be from a issuer standpoint, there is still audit exposure potential from the individual angle of tax compliance. An employee may get audited, even if the company is not being audited. The company’s documentation may be requested from the IRS as part of that audit. It’s important that issuers are aware that there are a variety of audit angles that could attract attention to their equity compensation record-keeping and disclosures at any given time, and the IRS guide seems to support that thought – providing detailed information on the types of transactions and potential tax issues that could arise. With that detail comes guidance on how to source documents attached to equity compensation. According to a blog dedicated to explaining the guide by Porter Wright Morris & Arthur LLP,

“Interestingly, the Guide devotes a fair amount of detail to explaining where auditors may find these documents, encouraging them to review Securities and Exchange Commission (“SEC”) filings as well as internal documents. As such, the Guide serves as an important reminder to employers to be mindful that the IRS (or other third parties) someday could seek to review their corporate documents. ”

Documents Galore

Let’s cut to the chase. Where are auditors instructed to look?

  • SEC documents – This is an obvious one, but it’s where the IRS recommends their auditors start. Disclosures such as the 10K (Form 10-K), proxy statement (DEF 14A) and Section 16 reports of changes in beneficial ownership (Form 4) are places to identify types of plans and awards, as well as detailed compensation data for named executive officers and directors. The IRS recommends comparing data from these disclosures to individual Form W-2s and 1099-MISCs to verify proper tax withholding and reporting. If discrepancies surface, the IRS recommends expanding the audit (yikes).
  • Internal Documents – Types of internal documents subject to scrutiny include employment contracts, and meeting minutes from Board of Director and Compensation Committee meetings.


The Porter et al blog summarized this into some key awareness factors for employers:

“Employers should be aware of these instructions. Often times, it is easy for someone to prepare internal documents using jargon or short-hand that is familiar among people at the company but that may be difficult to explain to a third party or worse could be misleading. The Guide demonstrates that internal documents may not be restricted to internal personnel. Instead, the IRS very well could review these internal documents. As such, employees and advisers who prepare these documents should be mindful of both the information contained in the documents and how they present that information.”


When preparing documentation or disclosures (including supporting documents for those disclosures), it’s good to look at the process as if a third party will eventually come in and evaluate the information. The Porter blog made a great point – often times records are maintained in manner that internal parties may easily understand, or there’s someone on hand who can “interpret” that scrawl made by a board member. However, once that information is subject to review by an auditor, questions can arise. Companies should be aware of the IRS audit instructions relatives to equity compensation and maintain their records in a way that will make it easy to explain if audited.



Tags: , , , ,

September 23, 2015

NASPP To Do List

New Survey Data
We’ve posted three new surveys from Ayco:

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