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Monthly Archives: December 2008

December 31, 2008

First on Your 2009 “To Do” List

When you come back to work, it will be a new year! Now that Robyn has given you the top 10 New Year’s Resolutions, you should be ready to tackle this upcoming year. There are just a few administrative tasks that you’ll want to make sure and complete right away.

The most urgent is: Don’t forget to reset all year-to-date tax amounts that are kept in your stock plan administration system for all countries with a tax year ending on December 31st. It is especially important to reset the Social Security paid year-to-date for your U.S. employees. Most, if not all, stock plan administration databases will use this amount to determine if Social Security tax should be withheld on a transaction. If your system also tracks the year-to-date supplemental income amount, this should also be reset to zero. This amount is used to determine if the U.S. minimum statutory federal income tax withholding rate is 25% or 35%. For more information on tax withholding on stock plan transactions, you may want to review our Tax Withholding and Reporting portal.

You will also want to coordinate with your payroll and HR departments to confirm that these year-to-date amounts are being reset; especially if you are getting any automated feeds from either system that will impact your tax withholding rates. Confirm with your payroll department if there have been any changes to local income tax withholding rates both in the U.S. and internationally. Check in with your HR group to see if any changes are being made to subsidiary or location codes, or any other identifier that you are pulling from your HR database to segment your employee population.

Your final payroll run for the U.S. and other countries with tax years ending on December 31 will be coming up soon, as well. For a review of what that should entail, check out my blog entry on year-end employee tax withholding reconciliation.

NASPP “To Do” List

Just to make sure that you keep Barbara’s NASPP “To Do” list in mind as we head into the new year, let me include mine this week:

  • Renew your NASPP membership for 2009!


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December 30, 2008

More New Year’s Resolutions

Last week I blogged about five possible New Year’s Resolutions for stock plan professionals.  Those resolutions focused primarily on professional development – “investing in you.”  The next set of resolutions I have provided here are more technical.  These are included below, and are in just the nick of time to add to your list before the New Year rolls in tomorrow night.


Resolution six on my list is to focus on providing superior customer service to your employee stock plan participants.  It’s easy to become absorbed in having to meet tight deadlines or juggling 100 projects on a daily basis to forget one of the fundamental reasons you have this job, which is to provide customer service to your employee stock plan participants.  Think about the best service you’ve ever received and work to outdo that service experience time and time again. In addition, take a look at what you can do to strengthen your relationships with your employee stock plan participants – put together an area on your corporate intranet with helpful stock plan content or host monthly or quarterly meetings on various stock related topics.  The NASPP document library has a number of equity compensation related articles you might consider sharing with your employees to further illustrate your commitment to their education and enrich their experience with your department.


An effective way to find out how you might enhance your employee stock plan participants overall experience with your department is to survey your employees.  This is my resolution seven.  Sometimes the biggest dissatisfactions are the easiest things to fix, but you won’t know what these are if you don’t ask.  By surveying your employee stock plan participants, you can better know the changes they would like to see from your department and work to get these implemented.


The New Year is always a good time to review existing service provider relationships, which is why this topic appears as resolution eight on my list.  Are your existing service providers not only meeting, but exceeding your expectations?  Are they providing you and your employee stock plan participants with quality service at competitive price points?  If not, it might be the time to consider an alternative service provider.  Tune in to the NASPP’s webcast on April 30th covering “Best Practices – Changing Service Providers Like a Pro” to learn how to flawlessly plan for a service provider change.  


Resolution nine – develop rock-solid job-related procedures.  I think just about everyone knows that having well-documented procedures can reduce the chance of errors in your job and guarantee your job function runs smoothly when you aren’t available due to planned or unplanned events, but have you actually taken the time to document procedures for every aspect of your job?  If not, now is the time to do so.  If you do have existing documented procedures, you should take this opportunity to review those procedures to be sure they are current and still meaningful.  Unforseen events happen all of the time; being unprepared is not a respectable place to be.


And, finally, it’s time to get away from the belief of “if it isn’t broke, don’t fix it.”  What I mean is, if your company is still issuing stock grants, notice of exercises, confirmation of restricted stock releases, ESPP enrolment forms (you get the idea) in paper form, then resolution ten on your list should be to start thinking about automating these processes.  Leverage your service providers or IT department to find ways to implement this vision.  Automating procedures will offer you new ways of doing old things and will likely free up time for you to devote to more strategic matters facing your department or organization.


Now, don’t start making excuses about why you don’t have the time or inclination to make good on these resolutions.  Get your lists finalized!  One of the best parts of making New Year’s Resolutions is (not breaking them!) knowing when you’ve reached your accomplishments and allowing time to pause and celebrate your milestones.


A happy, healthy and outstanding New Year to you all as you take on these New Year’s Resolutions and more of your own.


December 24, 2008

Helping Employees Understand Taxes on Equity Compensation

Tax season in the U.S. is fast approaching, and now is the time to consider how you are helping your employees understand the tax implications of their equity compensation. Like most stock plan administration processes, educating and communicating with your employees about stock plan participation and taxes should be an ongoing, year-round process and should be customized for different employee populations.

The impact of equity compensation can be confusing and intimidating for employees, but it doesn’t need to be. I’m sure that many of you have experienced the frantic barrage of calls that come in as the individual tax filing deadline approaches. If you reach out to your international HR folks, you will find that they experience a similar frenzy as they attempt to help employees who are trying to file their tax returns. Even though I can certainly sympathize with employees, this can be a burden on the time resource for not only stock plan services, but also the HR and payroll departments. Once you have the employee (or their tax preparer!) on the phone, it is difficult to offer information without stepping over the line and offering actual advice. It’s much easier to tackle this problem in advance, on paper, and with the blessing of your legal department!

If you find that you are getting a large number of employees asking the same question, this is an indication that you are missing some opportunity to educate your employees. There will always be those who do not read their notices, listen to your explanations, or take advantage of any education you make available. There will also always be some employees who have done their part, but still are not able to understand or have a complicated situation that does not appear to be covered in any of your examples. However, a large percentage of the questions that stock plan administrators and HR receive at tax time can be reduced by better employee education. You should be collecting and sharing questions and “standard” answers in preparation for tax season. If at all possible, it is very helpful to have a database of sorts that is accessible to those at your company who will be answering questions with example questions and answers so that there is consistency in the information employees are receiving. Even if the best answer is “I’m sorry, this really is something you will need to ask your tax preparer”, everyone who answers that question should know to respond in this way.

The first step in creating a solid employee education program for tax implications is to identify your different employee populations both in the U.S. and internationally. Then, you will want to identify what information you can provide to these employees that will help them file their individual tax returns. You should employ advice and help from tax advisors with local expertise, and coordinate with your local HR and payroll resources. Once you feel comfortable that you know what information each employee population may need, you will want to determine the best strategy for getting the information to them. Some populations will be comfortable with obtaining information online (and have access), others may need hard-copy handouts and face-to-face interactions. There may be situations where translation is needed.

Don’t be shy about taking every opportunity to remind employees about basic tax information. The first opportunity that you have to communicate the income and tax impact for you stock plans is during the on-boarding process. As part of the hiring or on-boarding process, employees who are eligible for equity compensation should receive or have access to information on income and tax withholding along with any other information you distribute about your stock plans. The company intranet is a great place to keep information posted as well, especially if you have a way to distinguish between participants employed in different countries. As part of the new hire process, make sure that employees know what resources are available.

Seminars or smaller meetings throughout the year–especially if you can make them mandatory–are a great way to increase visibility for your stock plans, solicit feedback from your employees, and provide information about tax time. It is especially helpful if you can make arrangements to have 3rd party financial advisors available to take questions or meet with employees individually. Examples can be very helpful for employees. If you have a few examples for situations, then employees can determine which one (if any) they fall under. For instance, if you have a 423 qualified ESPP program in the U.S., then an example of the purchase and then both a qualified and disqualified sale of shares will help employees understand the implications of either choice.

Finally, there is tax time. When you send out W-2s (or the equivalent in other countries) to employees, you have either their full attention, or their tax preparer’s. If possible, a short FAQ on income and tax withholding enclosed with the W-2 can be a great way to provide some information to employees. At the very least, you will be able to alert the employee to the fact that their taxes may be impacted by their equity compensation.

So – take a moment to review your employee education program and see if you are taking advantage of these opportunities to get employees comfortable with the basic impact of their equity compensation on their personal income taxes.


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December 23, 2008

New Year’s Resolutions

It’s that time of year again when thousands will gather to watch the New Year ball in Times Square, New York City, at 11:59 P.M. make its one-minute descent, arriving exactly at the stroke of midnight on New Year’s Day.  This famous tradition marks the beginning of a New Year, which brings with it the belief that the first day of the New Year is supposed to be spent reflecting on past mistakes and resolving to make a fresh start in one’s personal life or career. Are you starting to think about your New Year’s resolutions? I know I am!  Below I’ve included five recommendations for New Year’s resolutions for stock plan professionals.  I will reveal an additional five recommendations in my follow up blog next week.


First, thoroughly evaluate your career and job role. Are you where you want to be? If not, what needs to be changed?  For example, if your goal is to be a manager of your job function, begin by finding out what certifications you would need to fulfill that job role. The Certified Equity Professional Institute of Santa Clara University (CEPI) has an excellent certification program for equity compensation professionals that might provide you with the credential you are looking for to bring you to the next level in your career.  Visit the CEPI for more information about this program.  From there, develop a plan of action to get to your goal.  You might also look at the NASPP’s job board located here. Browsing the job board can help you better understand what companies are expecting from their stock plan professionals in the role you desire.  And, finally, be sure to get your copy of the NASPP’s Stock Plan Administrator’s Compensation Survey Report to help you assess your earning potential at each phase of your career as a stock plan professional.  Renewing your NASPP membership or joining the NASPP now will get you access to this information today.  Renew your membership at membership renewal or join the NASPP today at join today.


Second, be more organized. It sounds so simple – but it can really help increase your productivity at work. Keep track of what you do each day, and write to do lists for the following day. Even if your manager does not require it, write weekly status reports. This way, when it comes to review time, you can easily reference the work you have done throughout the year.


Third (my favorite!), make professional contacts and network.  Make sure you attend, and actively participate in, at least one professional event each month. It is not enough to just attend an event.  You need to actively participate in these events to reap the rewards from your professional relationships.  There are NASPP local chapters throughout the country.  If you aren’t already actively participating in your regions local chapter events, find out where these events are being held at NASPP local chapters and mark your calendars to be there as an active participant.


Fourth, strive to learn something new every single day. It is easy to get bogged down in the same old, same old.  Listen to the NASPP’s complimentary webcasts, which are free of charge to NASPP members, to learn about some of the very hot topics impacting those of us in the industry, such as IFRS 2 and option exchanges.  Continue subscribing to this blog.  It’s free of charge and I can assure you these blogs will always provide you with the latest news and developments in the stock plan profession.


And, finally – fifth on my list – try new things! If there are tasks at work you are interested in learning more about, don’t hesitate to show initiative and ask to be involved. Take advantage of the opportunity to learn.  The NASPP has a number of online education programs that might just cover a topic you are interested in learning more about.  Take a look at our outline of educational offerings located at NASPP educational offerings.  And, be sure to watch out for announcements about new educational offerings to our curriculum in 2009!


Will this be the year you make good on your New Year’s resolutions?

December 18, 2008

Beneficial Ownership

When an individual becomes a Section 16 insider, she or he must report all beneficially owned company stock. For reporting purposes (as opposed to those used in the calculation of 10% ownership) securities beneficially owned by the insider are those which she or he has the opportunity, directly or indirectly, to profit from a transaction in the shares (a “pecuniary interest”). Because part of your year-end process should be to confirm the current beneficial ownership for each of your Section 16 insiders, I wanted to do a brief review of beneficial ownership.

There is, of course, direct beneficial ownership. This includes all shares or derivative securities that are held in the insider’s name. There are cases where direct beneficial ownership could be a little less straight-forward. These holdings may include shares that are held in a joint account (or held as community property). Shares held in the individual’s 401(k) or other retirement account are also considered directly owned. When filing the Form 3, all shares directly owned by the insider should be aggregated onto one line.

Indirect beneficial ownership is a bit more complex to determine. These are shares or derivative securities in which the insider has a pecuniary interest, but are not held in the insider’s name. The most common indirect beneficial ownership comes through securities held by family members. Securities that are held by immediate family members who share the insider’s household are included in indirect beneficial ownership. Insiders must be careful with this definition because it is an inclusive rather than an exclusive definition. In other words, if the person in question is either an immediate family member or shares the household (but not both), the securities owned by that person can’t be categorically discounted. Family trusts are another common source of securities indirectly owned by your insiders.

Your company should not only have a questionnaire for your insiders to complete, but should also take time to sit down with each insider to review any potential beneficial ownership securities. This should be done at the initial Form 3 filing as well as annually to confirm that any changes in beneficial ownership are correctly reported. You can find an example questionnaire in our NASPP Document library, or on the Section site here.

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December 17, 2008

More on Code Y

Just a quick update on Code Y.   Although I said in my blog earlier today, that Code Y reporting is now required for income subject to a valid deferral, a reader pointed out to me that just last week, the IRS issued Notice 2008-115 suspending the use of Code Y until further guidance is issued.  So it turns out that, despite the instructions to Form W-2, Code Y reporting is not required for 2008.

– Barbara

December 17, 2008

Tax Reporting Follow-Up Items

This week I have a few follow-up tax items from the NASPP’s 2nd Annual Webcast on Tax Reporting.

Overpayment of Social Security Tax

During the webcast, I explained that when a company overwithholds on Social Security tax for an employee, it is the company’s responsibility to refund the overpayment to the employee through payroll. This is different than income tax, where, if the company overwithholds, the employee receives a refund when she files her tax return at year-end. 

One listener asked about a situation where an individual works for multiple companies during the year and, as a result, ends up paying too much Social Security tax. For example, let’s say an employee pays the maximum amount of Social Security while working for Company A  and then goes to work for Company B.  There’s no way for Company B to know that the employee has already paid the maximum required Social Security for the year and, thus, Company B will begin withholding this tax from the employee.  But, the fact the employee is now working for a new company doesn’t increase the amount of Social Security tax she has to pay.  In this situation, there is a special form the employee can file with her tax return to receive a refund of the Social Security tax withheld by Company B.  Note, however, that there’s no way for Company B to recoup the matching amounts it paid on the Social Security tax collected from the employee.

Code Y

It’s come to my attention that Code Y is now in effect for Form W-2 reporting for 2008. This code is used in Box 12 to report income that is subject to a valid deferral election under Section 409A (e.g., income on RSUs subject to deferred payout). Use of the code was suspended last year, but it is now in effect and the Instructions to Form W-2 for 2008 have been updated to include an explanation of how to use it.

See More on Code Y for an update to this item.

FICA Taxes and Short-Term Deferrals for RSUs

Another topic I discussed during the webcast was the tax treatment of RSUs in which payout is deferred beyond the vest date.  This situation bifurcates the tax withholding: FICA taxes must be withheld at vest but income taxes are not withheld until the underlying shares are paid out.  One of our listeners pointed out, however, that deferrals that fall under the “short-term deferral” rule are an exception to this treatment. Generally, to comply with Section 409A, payout of RSUs must be via a formal deferral election that is subject to numerous restrictions or must be mandated under the terms of the arrangement (also subject to numerous restrictions).  But, under the short-term deferral rule, payout can be deferred until two and a half months after the end of the calendar year in which the RSU vested without any formal election or mandate under the terms of the arrangement.  Where payout is deferred under this rule, not only is income tax withholding deferred, but the company can also choose to defer collection of FICA withholding to the payout date as well.  If the company is going to defer collection of FICA withholding, it should apply this policy to all employees participating in the plan and to all similar plans that it offers.

If you missed the webcast (or had to leave early, since it went a bit longer than anticipated) you can listen to the full audio archive (or just the parts that you missed) at  Robyn and I are hard at work on the transcript and hope to have it posted in the next week or so. 

Guest Author Next Week

I’m going to be out on vacation for the next two weeks, so Robyn Shutak, NASPP Education Director, will be blogging in my place.  I hear she has some pretty interesting ideas for her entries, so make sure to tune in for them.

Last Chance to Participate in the International Stock Plan Design and Administration Survey

This week is your last chance to participate in our International Stock Plan Design and Administration Survey.  Don’t put it off any longer–you must start the survey by this Friday, December 19, if you want to participate.  So long as you start the survey by December 19, we can give you to January 2 to finish it up, but we need you to have at least started it by Friday.  I strongly urge anyone with non-US stock plan participants to complete the survey; this is a very valuable resource, easily worth the cost of NASPP membership, but only a high rate of participation by our members will make the results useful.  If we don’t get sufficient participation, we may be forced to release the results to only those companies that participated in the survey.   

Reason #6 to Renew Your NASPP Membership:  The NASPP Q&A Discussion Forum

The NASPP Q&A Discussion Forum is one of the most active and informative discussion forums I’ve ever seen.  Almost every question is answered and many have two or three responses (and some have quite lengthy exchanges between members).  Check it out today and, while you’re there, post your own question and respond to someone else’s question. 

NASPP “To Do” List

We have so much going on here at the NASPP, it can be hard to keep track of it all, so I’m going to keep an ongoing “to do” list for you here in my blogs. 

– Barbara    


December 11, 2008

Year-End Employee Tax Withholding Reconciliation

All this talk of tax withholding got me thinking about the reconciliation challenges that surround your employee tax withholding on equity compensation. As your Payroll team prepares to send out Form W-2s or 1099s, and their equivalents internationally, the stock plan management team should be involved in efforts to confirm the income and withholding amounts for stock plan transactions. This can be a pretty daunting task if you’ve saved it all up for the end of the year, so hopefully you have been reconciling periodically throughout the year. You may be able to find some relief with employees in countries where the tax year does not end in December (such as the UK); these employees may be set aside until after you have reconciled for the deadlines coming up immediately in the new year. Here are some areas that you should focus on:

Income Reported

You will want to make sure that the income amounts reported in each payroll system match the income amounts reflected in your stock plan administration database. If your company is tracking different sources of income separately (restricted stock vs. options or ESPP), then the separate sources will need to be balanced separately. However, the total income amounts should also be reconciled as a confirmation. Pay special attention to employees who may have transferred between payroll groups during the year. This would include not only your globally mobile employees, but also local transfers or administrative transfers (for example, if you have a subsidiary locally or if employees from an acquisition stayed under their own payroll for a period of time). You will want to confirm that no employee income has fallen through the cracks or been double-reported. However, in the case of income from globally mobile employees, you may have situations in which the double-reporting of income is correct and intended, which you will need to also track and confirm.

Tax Withholding

Reconciling the tax withholding amounts can be trickier than reconciling income. This is because there are more situations in which the amount of withholding reported should not equal the amount actually withheld at the transaction because of an administrative policy. For example, there are U.S. states where withholding amounts are difficult to determine in advance (like Kentucky) where your company has chosen to true-up through payroll. This is also true internationally; your company may be withholding at a higher rate on the transaction and then refunding excess through the local payroll either because you have implemented a foreign disbursement process that requires a 100% sell or because you have difficulty obtaining individual tax rates. Hopefully, your company has thoroughly researched these decisions and is not creating unnecessary exposure by withholding shares in excess of statutory minimums or other issues on excess withholding (see Barbara’s past two blog posts here and here). You should know in advance what these standard exceptions are and account for them in the reconciliation process.

There are also the unusual exceptions (typically, these are mistakes that have been made). These may include over or under withholding from timing issues on communicating capped social taxes between payroll and stock plan services or situations where an incorrect tax withholding was made and later corrected through either payroll or stock plan services, but not both. You should be identifying and resolving these throughout the year, but also keeping a list for your reconciliation. Sometimes, the reconciliation itself brings these issues to light!

Special Circumstances

There are circumstances like death, divorce, change in status between employee and non-employee participant, and cross-border income and taxation that may require special attention during your reconciliation. In the case of the death of a U.S. employee, you should not be withholding federal income tax on any transactions executed by the estate or beneficiary. You should only be withholding FICA on transactions that take place in the same tax year as the death, and the FICA amount should be reported on the employee’s final Form W-2. Divorce is a little more complicated depending on the divorce settlement arrangements. Be sure that you are carefully tracking any options in which the company’s withholding obligations have been impacted from the divorce–have them flagged in some way and have a notification policy in place for both parties should they transact on those grants. When an employee becomes a contractor or non-employee director (or vice versa), you will need to pay close attention to how the income and tax withholding is handled. This reconciliation process is a good time for you to confirm that you have not withheld on non-employee income for these individuals. You will also need to divide the W-2 income from the 1099 income when reconciling. Cross-border income reporting and tax withholding can be complex. Whatever your policy has been on reporting and withholding for cross-border situations, you will need to set these aside and reconcile them separately at year-end.

Whatever your process is, start early and engage your payroll team(s) as early in the year as you can. For more information on tax withholding, check out our Tax Withholding and Reporting portal. Also, if you missed Barbara Baksa and Robyn Shutak’s 2nd Annual Webcast on Tax Reporting this week, keep an eye out for the transcript and materials to be posted on our Audio/Video Webcasts Archive. All NASPP members should be taking advantage of these free webinars–it’s a fantastic perk to your membership! Our next webinar is on December 18th and will be presented by Frederic W. Cook: Moral Hazard and Executive Compensation – Balancing Risk and Reward.

You can find more information about good practices for year-end in the NASPP’s Year-End Procedures portal. Also, Robyn Shutak and I will be presenting a FreeSMARTs webcast on year-end reporting next Wednesday, December 17th at 1:30 pm EST. Register with Computershare here.

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December 9, 2008

Excess Tax Withholding – Part 2

Last week, I discussed the reasons companies might want to withhold federal income tax at a rate higher than 25% on stock plan transactions and the accounting consequences of doing so.  This week I take a look at whether or not a higher withholding rate is permitted under U.S. federal income tax regulations.

Having discussed this issue with a number of tax practitioners and with staff at the IRS and Treasury, I don’t believe that, where an employee has received less than $1 million in supplemental payments, it is permissible to withhold at any rate other than the employee’s W-4 rate or the flat rate applicable to supplemental payments (currently 25%).

The final regulations for withholding on supplemental payments (which include payments pursuant to stock compensation arrangements) allow only two withholding methods:  1) the W-4 rate or 2) the flat rate applicable to supplemental payments.  The regulations make no provisions for withholding at any other rate.  IRS Publication 15 (Circular E) Employer’s Tax Guide takes this one step further, expressly stating, on page 14, that no other rate is permitted.

But, you ask, why wouldn’t the IRS want to receive extra withholding? The answer is that the IRS doesn’t want employees to use the supplement tax withholding procedures as a way of avoiding having the proper amount of withholding deducted from their regular pay or of avoiding the estimated tax payment system.  For example, a situation that I’ve encountered is an executive that purposely set his W-4 withholding rate too low, with the knowledge that if he didn’t somehow make up the shortfall in his tax withholding by the end of the year, he would owe underpayment penalties to the IRS.  Then, at the end of the year, the executive exercises his stock option and has the company collect federal income tax on the exercise at a rate much higher than 25%–sometimes even as high as 100% of the option proceeds.  Even better if the exercise is a same-day sale, so that the executive isn’t out-of-pocket for all of this tax withholding.  This is exactly the situation the IRS wants to prohibit. In the U.S., employees are supposed to pay an estimate of their taxes as they are compensated; they aren’t supposed to save up all their tax payments until the end of the year and then make a big payment all at once (allowing them, rather than the IRS, to earn interest on the funds until then).

Employees that are concerned that the withholding on their stock plan transactions will be too low have two alternatives to remedy this:

  1. Increase their W-4 withholding rate. This will increase the withholding on their salary and other compensation that isn’t subject to the flat rate. If they increase their W-4 withholding rate by the right amount, they should be able to make up for the shortfall in withholding on their stock plan transaction.
  2. Make estimated tax payments to the IRS. 

Another important thing to remember is that not everyone is subject to the underpayment penalties. As I mentioned last week, those employees whose withholding for the current year is at least equal to their tax liability for the prior year will not be subject to the underpayment penalties, regardless of how much additional tax they owe when they file their tax return.  

Now, I know what you’re thinking: you’re wondering what the penalties are for withholding at a rate greater than 25%.  Here’s where things get a little fuzzy.  None of the tax practitioners I’ve spoken with have been able to give me a clear sense of the penalties that would apply.  It’s going to come down to the facts and circumstances involved. In the example I gave above, the executive is clearly trying to manipulate the tax withholding system and may even be committing outright fraud.  But I can think of other examples where everyone involved has only the purest of intentions.  For example, let’s say that an executive does have an appropriate rate selected on her Form W-4, engages in a stock plan transaction early in the year–maybe even in January, and requests that only a minimal amount of excess withholding be collected (say, 35%, rather than 100% of the gain on exercise).  This situation seems a lot less likely to involve manipulation; with an appropriate W-4 rate, the transaction occurring early in the year, and the executive limiting the excess tax withholding to a reasonable rate, the executive appears to be legitimately attempting to cover only the tax liability generated by her stock plan transaction, rather than trying to make up for shortfalls in withholding on her other compensation. I would expect that the penalties would be comensurate with the facts involved, so I would expect there to be greater penalties for my first example than the second scenario.  Moreover, in either scenario, it isn’t clear to me that the penalties, if any, would apply to the company. It’s possible that only the employee would be penalized. 

As a general rule, I don’t like to see companies offer excess withholding in any sort of broad, systematic manner.  But if you have a one-off transaction where you withhold a little extra federal income tax, well, I can’t sanction this but I can think of worse crimes to commit when it comes to tax withholding. 

Deadline Extended to Participate in the International Stock Plan Design and Administration Survey

Due to overwhelming demand, we’ve extended the deadline to participate in our International Stock Plan Design and Administration Survey until December 19. But don’t put this off any longer–we will not be able to extend the deadline again.  As an added incentive, one person from every company that completes the survey is entitled to $100 off any of the NASPP’s online courses (including our newly updated Restricted Stock Essentials course).   

Reason #5 to Renew Your NASPP Membership:  The NASPP’s Stock Plan Design and Administration Survey

While we’re on the subject of the NASPP’s Stock Plan Design and Administration Survey, I’d like to point out that the data we provide in the survey report is easily worth the cost of your NASPP membership.  The 2007 domestic survey report was over 130 pages long with over 400 respondents.  This is by far the industry’s most comprehensive survey on trends in stock plan design and practices.  We ask the questions on one else asks and provide more robust data for those questions that are covered by other surveys.  Not only that, but we’ve been conducting the survey since 1996–that’s more than a decade of data and trends.  I expect that you’d pay well over the cost of your NASPP membership to get this extensive of a report from any other source.  But, here at the NASPP, we provide it free of charge to all our members.   

2nd Annual NASPP Webcast on Tax Reporting

Later today, Robyn Shutak, the NASPP’s Education Director, and I will present our annual webcast on tax reporting, where we answer the tax-related questions you’ve been asking all year long in the NASPP discussion forum.  Former employees, consultants, outside directors, death, divorce…we’re going to cover it all, complete with sample Forms W-2 and 1099.    

NASPP “To Do” List

We have so much going on here at the NASPP, it can be hard to keep track of it all, so I’m going to keep an ongoing “to do” list for you here in my blogs. 

– Barbara    

December 4, 2008

Idea vs. Reality: effective equity compensation programs

This Tuesday, I had the privilege of attending the CEPI’s 5th Annual CEP Symposium at the Santa Clara University. NASPP’s own Robyn Shutak and Barbara Baksa both received 2008 Volunteer Excellence Awards, and Barbara had the exceptional honor of being a “Super-SME”(subject matter expert)! If you are a CEP already, don’t forget that the volunteer efforts by outstanding CEPs like Robyn and Barbara are an essential part of the CEP program. For more information on volunteering, visit the CEPI site for CEP designees at If you are still in the process of earning the CEP designation, there are some fantastic opportunities through the NASPP to gain the knowledge expertise you will need like the Stock Plan Fundamentals and the Restricted Stock Essentials.

The keynote address and general session of the CEP Symposium centered on an issue that most companies should be grappling with today: the idea vs. the reality of equity compensation programs. The keynote address delivered by author and professor Hersh Sefrin really highlighted for me not only how psychology dominates our markets, but also the success (or lack thereof) of our equity compensation programs. It ties closely with companies moving to performance-based compensation in an effort to tie principal (shareholder) interests with agent (executive) interests. One thing that stood out for me is the realization that people are more risk averse when they have the potential to lose a “sure gain”. In other words, once an executive has reached a point at which their equity compensation has significant value, they may be less likely to take productive risks with the direction of the company than they would be while they still want to see an increase in the value of their equity compensation. A real way to counter this is to balance out the carrot with the stick; to incorporate a potential for loss or penalty that will create incentive to continue to be innovative and engage in productive risk. For more information on performance-based equity compensation, check out the Performance Plans portal on our site.

The general session, delivered by Sheila Lyons and Miriam Solomon of BNY Mellon, was on communicating the value of your equity compensation program. An essential part of communicating your program is to have a solid idea of what goal (or goals) your company is pursuing with equity compensation. It is important to make sure that the goal of the company is being met by the program. One common example of misalignment that I see is when the company would like to promote an ownership culture across the board as the main goal, but is not able to give grants that are sizable enough to be of any significance to the participant. Another issue to watch out for is conflicting goals within the program. If a company wants to use stock as a part of compensation and as a way to promote an ownership culture, then these two goals may conflict with each other and create difficulty when trying to communicate the value of the program to employees (will you compare it to salary/compensation or promote share retention?). I thought the best idea to come out of this session is that companies should probably be looking at stock plan communications from a marketing viewpoint to promote the value of the program to employees. This means identifying employee needs and promoting education around those needs. Some great ways to do this are to interview or survey employees to understand their experiences with the program, to work with managers so that they can talk with employees in a smaller setting, and to bring financial planning education into the mix through a 3rd party that does not represent the company. Don’t be afraid to get outside your comfort zone and employ some clever marketing when it comes to your equity compensation!

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