The NASPP Blog

July 21, 2016

IASB Amends IFRS 2

The IASB recently finalized amendments to IFRS 2 relating to the accounting treatment of share withholding and cash-settled awards.

FASB in the Lead

The IASB issued the exposure draft of the amendments in November 2014—so long ago that I was beginning to think that maybe they had forgotten about the project and would never get around to it. By way of reference, the FASB issued the exposure draft of their amendments to ASC 718 seven months later and still managed to issue their final amendments three months ahead of the IASB.

Share Withholding

The most exciting amendment permits shares to be used to cover tax withholding without triggering liability treatment. Under the original IFRS 2, share withholding triggered liability treatment for the shares that were applied to the tax payment—no exceptions. This resulted in a bifurcated accounting treatment for the award: the portion that would be settled in cash to cover the tax payment was subject to liability treatment while the rest of the award was subject to equity treatment. It was also an area where IFRS 2 diverged from ASC 718, which has always included an exception to liability treatment for share withholding.

Unfortunately, the two standards still don’t converge.  The IASB’s amendment only permits share withholding up to the statutorily required payment, and, as my readers know, the FASB recently expanded the exception in ASC 718 to apply to share withholding up to the maximum individual tax rate in the applicable jurisdiction. It’s ironic: the primary reason the FASB expanded the exception in ASC 718 was to facilitate share withholding for non-US employees but, unfortunately, for companies that have to report under IFRS, the international standard will still pose an obstacle to doing this.

Cash-Settled Awards

The IASB also amended IFRS 2 to clarify the vesting conditions that apply to cash-settled awards should be accounted for in the same manner as for stock-settled awards.  The upshot is that for non-market conditions, the company records expense based on an estimated forfeiture rate and trues up to outcome. Market conditions (and non-vesting conditions) are incorporated into the fair value of the award.  I’m surprised that anyone thought anything different. I guess that’s the problem with a “principles-based standard.” If you don’t spell everything out with a nice clear set of rules, someone is bound to interpret the principle in a way you don’t want them to.

The amendments also clarify how to account for modifications that change the classification of awards from cash-settled to stock-settled.  I’m not going to bother to explain this because 1) it’s a total snore (as compared to the rest of the action-packed amendments) and 2) it happens so rarely that hardly anyone cares about it. And, as with any modification of stock awards, it’s crazy complicated—if this is something your company is doing, you should really be talking to your accounting advisors and not relying on an English major to tell you how to account for the modification.

Thanks to Ken Stoler of PwC for bringing the amendments to my attention and for providing a handy summary of them.

– Barbara

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July 20, 2016

NASPP To Do List

Quick Survey on Global ESPPs
Take our quick survey on global ESPPs, co-sponsored by Solium.  The survey is less than 25 questions; you can complete it in under 15 minutes! Do it today before you forget!

Don’t Miss the Restricted Stock Essentials!
This course covers the core knowledge necessary for successful management of restricted stock plans, including key design, regulatory and administrative considerations. Get the nuts-and-bolts guidance you need in just two webcasts. The course began yesterday but it’s not too late—yesterday’s webcast has been recorded for you to listen to at your convenience.  Register today.

Recent Accounting and Regulatory Changes
The FASB, IASB, IRS, and Treasury were busy in June. Check out our most recent alerts:

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


July 19, 2016

The IRS and Treasury Speak

We are pleased to bring back our popular “Meet the Speaker” series, featuring interviews with speakers at the 24th Annual NASPP Conference.  These interviews are a great way to get to know our many distinguished speakers and find out a little more about their sessions in advance of the Conference.

For our first “Meet the Speaker” interview, we feature Deborah Walker of Cherry Bekaert, who will lead the session “The IRS and Treasury Speak.” Here is what Deborah had to say:

NASPP: Why is your topic particularly timely right now?

Deborah: Our presentation features IRS and Treasury speakers involved in regulatory and legislative initiatives involving equity compensation. This is a chance to hear the government’s enforcement focus and new guidance that could affect your equity plans and programs. In prior years, the session has been interactive, giving you a chance to question the government officials about an issue that concerns you and discuss their response, often giving the government ideas for ways to approach various issues that are less obtrusive than what the government may think about. We look forward to another interactive session this year in Houston.

NASPP: What is one best practice companies should implement?

Deborah: The IRS is implementing new computer audit procedures, enabling them to determine that withholding taxes are unpaid in a matter of days rather than in a matter of months. To avoid unnecessary intrusions in the form of “soft letters” from the IRS, you should review your payroll tax withholding and deposits for equity compensation, focusing particularly on the timeliness of deposits for the vesting of restricted stock and the exercise of non-qualified stock options. This should be done on a regular basis. Correction of failure to deposit amounts should be done as soon as possible.

NASPP: What is something companies should know about penalty assessments from the IRS?

Deborah:  As the IRS computer systems are becoming more modern, there is an increase in penalty assessments. If you are assessed an IRS penalty, the IRS has a program allowing for the waiver of penalties when a penalty notice is a first time assessment. The program is only available to those who have had no penalties in the prior three years.  There is no limit on the amount that can be waived. If this program is not available to someone when a penalty has been assessed, the taxpayer or their representative should always ask for waiver of the penalty for reasonable cause.

NASPP: What is something people don’t know about you?

Deborah: I had a speaking part as a terrified nun in the Three Stooges movie produced in 2012 by 20th Century Fox and directed by the Farrelly brothers.

Don’t miss Deborah’s session “The IRS and Treasury Speak” session at the NASPP Conference!

About the NASPP Conference

The 24th Annual NASPP Conference will be held from October 24-27 in Houston. This year’s program features close to 100 sessions on today’s most timely topics in stock and executive compensation; check out the full agenda and register today!

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July 18, 2016

NASPP Chapter Meetings

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

Michigan: Best practices and beer at the Latitude 42 Brewing Company! UBS will facilitate a discussion of mobility, stock ownership guidelines and more.  The discussion will be followed by a beer tasting, appetizers, and a fun trivia game—there will be a prize! (Tuesday, July 19, 2:00 PM)

Austin: Kelly Geerts of E*TRADE presents “Equity Administration Benchmarking: Taking a Deep Dive into ESPP Trends.” (Thursday, July 21, 11:30 AM)

Sacramento: Chapter members can participate in the Austin meeting by webcast.

Wisconsin: Bryan Ortwein and Brian Myers of Willis Towers Watson present “Executive Pay: Navigating the Impact of Proxy Advisors and Long-Term Incentive Plan Current Trends.”


July 14, 2016

ESPPs Through the Ages

I’m fascinated by how the field of stock compensation has changed over the years, so I love that the NASPP has been conducting surveys on stock compensation since 1996. For today’s blog entry, I have created an infographic comparing the data in our most recent survey on ESPPs to surveys the NASPP has conducted since before FAS 123(R) was adopted.

The 2016 ESPP survey is a joint project of the NASPP, the NCEO, and the CEP Institute.  It was conducted in January and received over 200 responses.  I compare the results to editions of the Domestic Stock Plan Administration Survey that were conducted in 2014, 2011, 2007, and 2004.  All editions of this survey were co-sponsored by the NASPP and Deloitte Consulting, except the 2004 edition, which was co-sponsored by KPMG.

My infographic is interactive!  Select a year to see how the data changes from one survey to another. Hover over the charts with your mouse to view the data points. (If you have trouble seeing the infographic, click here to view it on a separate page.)

– Barbara

ESPP Survey
Create your own infographics
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July 13, 2016

NASPP To Do List

Restricted Stock Essentials Starts Next Week!
This course covers the core knowledge necessary for successful management of restricted stock plans, including key design, regulatory and administrative considerations. Get the nuts-and-bolts guidance you need in just two webcasts. The course begins on July 19—register today.

Check Out the Latest Equity Expert Podcasts
We’ve recently posted to new podcasts in our Equity Expert series:

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


July 12, 2016

Avoiding ISS Hot Button Practices

Today’s blog points readers to a handy chart of “Problematic Pay Practices – as Identified by ISS” published by  Since there are several that stem from equity compensation practices, I’ll recap some of them.

Avoid These Practices or Risk a Negative ISS Vote

While there were several compensation practices identified, only some of them apply to equity compensation. They include:

  • Repricing or replacing of underwater stock options/stock appreciation rights without prior shareholder approval (including cash buyouts, option exchanges, and certain voluntary surrender of underwater options where shares surrendered may subsequently be re-granted).
  • Stock plans with a liberal CIC definition (e.g. low % or occurrence before CIC closing) coupled with single trigger vesting upon the CIC “are likely to receive a negative recommendation” (FAQ #63).
  • Equity plans or arrangements that include a liberal CIC definition (such as a very low buyout threshold or a CIC occurring upon shareholder approval of a transaction, rather than its consummation), coupled with a provision for automatic full vesting upon a CIC, are likely to receive a negative recommendation. [FAQ 59]
  • Excessive reimbursement of income taxes on executive perquisites or other payments (e.g., related to personal use of corporate aircraft, executive life insurance, bonus, restricted stock vesting, secular trusts, etc; see also excise tax gross-ups above.


I don’t think any of these come as a particularly big surprise – but it’s helpful to see the most likely hot button practices wrapped up into a handy chart for reference. As points out, “on at least an annual basis, those who make executive compensation decisions for public companies should “score” their practices against ISS and other policy guidelines.”



July 11, 2016

NASPP Chapter Meetings

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

San Francisco: The chapter hosts Aspirations Fling with Stock & Option Solutions.  Kathryn Randall and Carol Rose-Guerin of Stock & Option Solutions, along with Wendy Jennings of AppDynamics present “Private Company vs. Public Company- What Changes are Coming?” (Tuesday, July 12, 11:30 a.m.)

Boston and Connecticut: The chapters host the 8th Annual New England NASPP Regional Conference, featuring presentations on leadership skills, tax myths and facts, ESPPs, payroll, and TSR award valuation. (Wednesday, July 13, 8:00 a.m.)

New York/New Jersey: Andrew Schwartz of Computershare present “Taxation of Equity Awards: Myths and Facts.” (Thursday, July 14, 8:30 a.m.)

Twin Cities: Rive Rutke and Mary Rathert of Deloitte Tax present “Employment Tax and Equity: U.S. and international employer tax obligations for various types of equity compensation.” (Thursday, July 14, 8:00 a.m.)


July 7, 2016

My EDGAR Nightmare

I recently had to update my EDGAR passphrase.  I thought this would be a relatively simple process. I’m a smart person and I have a proven success rate in navigating government websites—I know how to use the DMV website to make an appointment, I’ve requested a certified copy of my birth certificate online, I can find a public company’s stock plan on EDGAR—how hard could it be to update my EDGAR password?  Turns out, way harder than I expected.

This is a long blog entry, but it’s not my fault. I blame the SEC (and maybe Microsoft).

How I Got Into this Mess

I got my EDGAR access codes over a decade ago, back when the SEC first rolled out the system for filing Section 16 forms online. It was so long ago, it was before the SEC required a notarized Form ID or a passphrase. I did not want to go through the hassle of submitting a notarized form to the SEC, so I had a system in place to make sure I didn’t forget to update my EDGAR password, which consisted of a reminder in my Outlook calendar set for about a month before my EDGAR password expired.  Once a year, the reminder would pop up and—unlike how I respond to my alarm clock—I would not ignore it or hit snooze. I would immediately update my EDGAR password and set the reminder for the next year.

This system worked fantastically for over a decade, including through a change in employers. And then I got a new laptop with Outlook 13 on it. Outlook 13 had some sort of “known issue” that caused emails to disappear from my inbox. The only way to fix it was to remove Outlook 13 and go back to Outlook 10. In the process, my entire calendar was lost. Completely gone.

After massive hyperventilating and gnashing of the teeth, I was able to recreate most of it, but there were some appointments I forgot—including the reminder about my EDGAR password.

Fixing an Expired EDGAR Password

To update an expired EDGAR password, you have to generate a new set of EDGAR codes. This requires a passphrase.  I had no idea what my passphrase was because the passphrase system wasn’t in place when I originally got my EDGAR codes, hence I didn’t have it noted in any of the various places where I have made note of my EDGAR codes (this was regrettable on my part).  Here’s what I needed to do:

1. Generate a new passphrase. This required me to submit an Update Passphrase Confirmation form, which has to be notarized. I thought getting the notarization would be hard, and it was, mainly because I kept forgetting to bring the form with me when I met with my notary friend who would notarize the form for free.

This part was also very confusing because the only way to get the Update Passphrase Confirmation form is to fill out an online request for a new passphrase.  But the SEC won’t issue a new passphrase until the notarized form is submitted, so I would have to come back and complete this very same online form again once I had my notarization. Essentially, you complete one new passphrase request that the SEC completely ignores. Then, once you have your notarized form, you complete a second request that the SEC will act on if you can manage to submit your notarized form properly (see steps 2 to 5).

Finally, to add to my frustration, it took several tries to come up with a passphrase that would meet the SEC’s crazy specifications so that I could print the form that I had to have notarized.  (Note to the SEC: a password that is so complicated to remember and so hard to update that you write it down in multiple places it is a total security fail.)

2. Months later, after I finally got the form notarized (access to EDGAR isn’t really a pressing concern for me on a day-to-day basis), I had to go back to EDGAR to submit the form.

3. Of course I first tried this after 7:00 PM Pacific (I am in California) and EDGAR is shut down for the night at that time. Despite how ridiculous this is for an online system, it shouldn’t have been a surprise; as soon as I got the error message, I remembered that EDGAR shuts down for the night.

4. The next day I thought I was all set.  I had my form and it was between 3:00 AM and 7:00 PM Pacific.  Thankfully, the EDGAR system let me use the same passphrase I had come up with after several tries in step 1, so I didn’t have think of another one.  But I still made every error in the book before I could submit the form—my file name was too long, then it had spaces, then it had capital letters, then my reason for needing to update my passphrase was too long, then it included profanity (just kidding, I did not swear at the SEC, at least not in writing).

5. After several tries, I finally managed to submit my update passphrase request form without getting an immediate error. I took this to be a good sign, even though there was no way I could tell that the submission had succeeded, since I got the same “submission completed” screen that I got when the submission failed.

6. Then I waited.  After two business days, I received an email that my request to change my passphrase had been accepted. This was a major hurdle overcome, but I still had to go in and generate my new EDGAR codes.

7. Guess what time it was when I tried generate my new EDGAR codes:  yep, after 7:00 PM Pacific (this is one of my most productive time periods).  So I set an appointment in my calendar to remind me to generate my codes before 7:00 PM the next day (no worries about me trying to generate them before 3:00 AM).

8. The next day, my reminder pops up and I go to generate my new EDGAR codes. After all this, I am positively holding my breath that I wrote down my passphrase correctly because I sure as heck didn’t want to have to start this whole process again. Luckily, I am at least competent in this one thing, because the passphrase worked and I finally have my new EDGAR codes.  Phew!

Lesson Learned

You might think the lesson I learned is to not let my EDGAR password expire, but that isn’t it all. The lesson I learned is …

Don’t forget your EDGAR passphrase!

If I had just remembered my passphrase, this whole blog entry could have been avoided. Maybe I should rent a safe deposit box or get one of those fireproof safes just to store my EDGAR passphrase.

Wondering why EDGAR is such a hot mess? Check out this nifty podcast that explains the problem with government websites: “DMV Nation.”

– Barbara

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July 5, 2016

The Purpose of Your Stock Plan

You may know that one of the (many) mantras of the stock plan administrator is something like “know the terms of your stock plan.” If there was a list of top 10 phrases of advice for a stock plan administrator, I’m pretty sure that understanding all of the various nuances of your company’s stock plan(s) would be there. Interestingly, when many of us think of plan terms, we’re thinking of the really important details, like the number of shares, limits on shares, handling of terminations, death and disability. You get the picture. I’m betting that I’m in the majority (not the minority) in having read a stock plan or two and skimmed over the language that seems fairly standard. Especially the wording that seems to be pretty similar in every stock plan, or, what I call “legal stuff” that doesn’t translate to outright administration responsibilities. Language that is just there. Well, as it turns out, that language is there for a reason and the phrasing of some of those terms could be way more important than one might think.

Waxing Philosophical?

I’m going to start using the word “purpose” now, as in understanding the purpose of your stock plans. I’m not really waxing philosophical, though. If you look at your stock plan, chances are the very first thing you see is a section on the “purpose” of the plan. And it usually goes something like:

The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, and any Parents and Subsidiaries that exist now or in the future, by offering them an opportunity to participate in the Company’s future performance through the grant of Awards.

The above is a copy and paste from a real stock plan, available publicly online, that will remain nameless. I think you get the picture, and I’m betting if you look at your own plan’s “purpose,” it will read fairly similar.

So why all this chatter about the purpose of a stock plan?

Intent Does Matter

A recent blog by California attorney Keith Bishop recounts a recent 9th Circuit Court of Appeals ruling involving – you guessed it – the purpose of a stock plan. The plan involved in the case was a stock rights plan, but in terms of plan terms the one in question for this matter is similar to what you’d find in an equity incentive plan. The specifics of the appeals case are described by Attorney Bishop as follows:

Most equity award plans that I come across include a statement of the plan’s purposes.  I haven’t tended to give these provisions a whole lot of thought, but an opinion issued yesterday by the Ninth Circuit Court of Appeal makes it clear that a plan’s purpose clause can be very important indeed.  The case arose from the retirement of the plaintiff, a Mr. Foster Rich, from Booz Allen Hamilton, Inc. (BAH).  While working at BAH, Mr. Rich participated in the company’s stock rights plan (SRP) pursuant to which he was granted the right to purchase BAH shares.  When Mr. Rich retired from BAH, he had accumulated 30,500 shares.  BAH then exercised its right to repurchase those shares and paid Mr. Rich $4,507,900, or $147.80 per share.  That is a lot of money, but a little over a year later BAH sold a portion of its business to The Carlyle Group and holders of BAH stock received $763 per share. Because Mr. Rich was no longer a BAH shareholder, he did not receive any compensation from that transaction.  Presumably, Mr. Rich would have received $23,271,500 had his shares not been repurchased.  It seems that while Mr. Rich became wealthy under the SRP, he didn’t become nearly as wealthy as others.

Mr. Rich sued alleging breach of contract and Employee Retirement Income Security Act (“ERISA”) claims.

The 9th Circuit did not agree with Mr. Rich and upheld that the plan was not subject to ERISA (more details can be read in that blog). In arriving at their conclusion, they turned to the “purpose” of the plan as defined by the plan, and corroborating actions and communications within the company that further supported the stated purpose. That plan’s purpose was defined as “to provide incentives for [BAH] Officers to continue to serve as employees of the Company and its subsidiaries.”  Sound familiar? That’s not too far off from the Equity Incentive Plan purpose language above, right? It appears that, in this case, it was the plan’s own language that played a significant role in helping the 9th Circuit decide to uphold that the plan was not subject to ERISA (and therefore the former employee was not entitled to further gain from the shares post repurchase).

Bishop suggests that this case may be something for companies to consider when responding to item 1(a) on the Form S-8. The choice of words there could be an important factor in helping to clearly define the true intended purpose of a stock plan (“Briefly state the general nature and purpose of the plan, its duration, and any provisions for its modification, earlier termination or extension to the extent that they affect the participants.”) and their corresponding entitlements. This is something for all stock plan drafters to consider. Certainly for those involved in drafting new plans or the S-8 process – even if it’s just reviewing the documents, it’s something to raise as a point of discussion. While your stock plan may not be subject to an ERISA-based challenge, there could certainly be other challenges that arise. That’s why having a clear and solid intention behind all that plan language, supported by administration practices that reiterate and corroborate those intentions, really does matter. It turns out that those many pages of plan terms are important after all.