The NASPP Blog

Monthly Archives: May 2009

May 28, 2009

Outside Director Taxes?

Your outside directors should be making estimated tax payments to the IRS on compensation they receive from your company in exchange for their services as an outside director. This includes income realized from equity compensation. Sometimes companies are tempted to withhold taxes on outside director stock transaction. At face value, this may appear to be simple common sense–we know that they will owe taxes, why not facilitate a sell-to-cover or withhold shares to cover those tax payments? The truth is that withholding taxes on outside director transactions is something that your company really should not be doing.

Why not withhold shares?

There has recently been a lot of focus on the accounting consequences of withholding shares above the statutory minimum, because this triggers liability accounting under FAS123(R) (see Paragraph 35). Many companies are struggling with this issue when it comes to share withholding on restricted stock in locations where there is no flat statutory tax rate associated with stock transactions. In the case of non-employees, any taxes withheld will be above the statutory minimum. Therefore, if you withhold shares on a transaction made by an outside director, then the entire grant would be classified and accounted for as a liability. Even worse, if you establish a pattern of allowing shares to be withheld above the minimum statutory required tax obligation, then it is possible that you will trigger liability accounting for the entire plan.

Why not withhold FIT?

So, what about facilitating a sale of shares to help the outside director cover taxes due? As attractive as that may sound, this also is a problem for both the company and the outside director. In addition to the general issues surrounding excess tax payments, reporting the income and tax withholding will prove to be a challenge. Payments for services made to non-employees must be reported on a Form 1099-MISC. You can’t properly report that federal tax payment on a 1099-MISC. This is because there is no provision in the tax regulations for withholding taxes on payments made to non-employees. Additionally, if you withhold federal income tax, then the IRS may determine that FICA and FUTA should also have been withheld, which could result in penalties for the company.

Why not withhold FICA?

This is a bad idea all around–bad for the company and bad for the director. The outside director will need to pay both the income taxes and the self-employment taxes on his or her equity compensation from your company. Self-employment tax includes both the FICA payment and what would be the company’s matching payment. If you withhold FICA at the time of the transaction, it won’t exempt the outside director from also having to pay the self-employment tax on that same income. For the company, if FICA is withheld, then the IRS is going to expect to see a matching company payment. Failing to make that matching payment could result in penalties for the company.

Why not just report everything on a W-2?

Reporting payments made to a non-employee on a W-2 goes against Regulation §1.6041-2(a)(2), which specifically states that the W-2 is for reporting payments made to an employee. Additionally, failing to report the income on a Form 1099 puts the company’s tax deduction in jeopardy–the company would need to prove that the outside director had properly reported the income and paid the income taxes and self-employment taxes on it in order to receive the corporate tax deduction.

Ah, but there is an exception.

If your outside director received a stock grant as an employee (before becoming an outside director), then the some or all of the income from a transaction on that grant may be subject to tax withholding and be reported on a W-2.

We have several great resources on the NASPP site to help you deal with your company’s tax withholding and reporting obligations. Our best resource is the NASPP Tax Withholding and Reporting portal. You can also go back and review our annual webcasts on Tax Withholding and Reporting–the 2008 Webcast has fantastic points on dealing with non-employees! Also, don’t forget about the NASPP Discussion Forum. Take advantage of the key word search to find questions other members have submitted; you might find that the answer to your question is already available.


Tags: , , , ,

May 26, 2009

RSA Vesting During a Black-Out Period

I recently fielded a question from a member about a restricted stock award vesting during a black-out period. The member wanted to know if the company could make an exception to their trading policy to allow the insider holding the award to sell the vested shares to cover her tax obligations.

No Exceptions from the SEC

The company can make whatever exceptions it wants to its own policies, but the cold hard truth of the matter is that the SEC doesn’t make an exception to the prohibition on insider trading for employees that don’t have any other way to finance their tax payments. If the employee has material, non-public information (which presumably she does, since she is subject to the trading black-out), the only way for her to safely sell the stock is via a pre-established Rule 10b5-1 plan (see Rachel’s April 16 blog on Rule 10b5-1 Plans and our Rule 10b5-1 Portal for more information on trading plans).

When employees have material, non-public information, they have an advantage over investors that don’t have this same information. Employees aren’t allowed to use this advantage, no matter how badly they need the money. Even if their sick child is dying and they need the money to pay for an operation, they still can’t trade while in possession of material, non-public information.

Not only that, but when employees do violate insider trading laws, the company can sometimes be penalized for their trades as well–if the company didn’t create an environment that discouraged employees from trading on material, non-public information. So, making an exception to the company’s policy could have ramifications for the company as well as the employee.

The Alternatives

In this situation, where the employee doesn’t have cash readily available and a Rule 10b5-1 plan isn’t in place to cover the trade, I think you are left with the following alternatives to cover the taxes due upon vesting of the restricted stock award:

  • The employee liquidates another investment (not company stock) to come up with cash to pay the taxes.
  • The employee takes out a short-term loan to cover the taxes and then sells stock when the window opens to pay off the loan. Note that if the employee is an officer or a director of the company, the company cannot make this loan or arrange for it; the officer or director needs to arrange for the loan completely on his/her own.
  • Share withholding also might be permissible since it doesn’t involve an open market transaction. But it’s a risk, depending on how conservatively you view the laws prohibiting insider trading. Some securities lawyers believe that because the shares that are withheld are valued at the current market price, it is possible that this transaction would still be subject to insider trading laws. Unless your company’s insider trading compliance policy already specifically allows share withholding during a black-out period without a Rule 10b5-1 plan in place, I recommend that you check with your legal advisors before allowing this.

What About Allowing the Employee to Wait Until the Window Opens to Pay Her Taxes?

The company is going to have to deposit the taxes with the IRS within the week after the award vests, possibly even within one business day, so letting the employee wait until the window opens to pay the taxes probably won’t work. If the company makes the tax deposit on time, I think it could be viewed as a loan to the employee (which, at a minimum, would have to be subject to interest, and is prohibited for officers and directors). If the company doesn’t make the deposit on time, there’s no loan but the company will owe penalties to the IRS (see my May 11 blog on Seven-Figure Tax Penalties).

Avoiding This Trap in the Future

In the future, the company might want to consider either of the following alternatives:

  • Granting RSUs, where this sort of problem is easily resolved by reliance on the short-term deferral provisions under Section 409A, or
  • Having all employees holding RSAs enter into Rule 10b5-1 plans to sell stock to cover their tax obligations (the plan can even be built into the grant agreement for future grants). See the section on “Managing Tax Withholding Issues for Full Value and Performance Awards” in the article “Keeping Up with the Joneses: The Hottest Equity Compensation Issues Today,” available in the NASPP Document Library).

Everything You Need to Know About Restricted Stock and Units

For more information on managing restricted stock and unit plans, don’t miss this year’s NASPP pre-conference session, Restricted Stock Essentials. Register by June 26 for our “last-chance early-bird savings”!

Reason #26 to Renew Your NASPP Membership:  The NASPP Staff
The NASPP staff–Danyle Anderson, Rachel Murillo, Robyn Shutak, and I, are always happy to assist with your stock-plan related questions.  We often get questions like the one I’ve blogged about today and we do our best to answer them.  We’re also happy to help you find articles and other resources on the extensive, but sometimes unwieldy, NASPP website. Hearing from you helps us stay in touch with your needs, so email us today at and we’ll get right on it!

“Last-Chance Early-Bird Savings” on the NASPP Annual Conference
The 2009 NASPP Annual Conference will be held in San Francisco from November 9-12. NASPP members that register by June 26 save $100 and then receive half-off all subsequent registrations from the same company/location. We haven’t offered the Conference at this price for a long time and it will be a long time before we offer a price like this again, so make this the year you attend!

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

– Barbara

May 21, 2009

Recharge Agreements

A recharge agreement is a written agreement between a parent corporation and its subsidiary under which the subsidiary reimburses the parent corporation for the cost of equity compensation. Companies enter into this type of agreement in order to secure a corporate tax deduction at the subsidiary for equity compensation to its employees. In many countries, if a tax deduction is allowed, the subsidiary must bear the costs of the equity compensation either directly or indirectly via a written agreement. Additionally, a recharge agreement may be a tax-free way for the company to repatriate funds to the U.S. (so that the transfer of funds is not considered a dividend). For many companies, recharge agreements may be a sound corporate strategy; however, there are some pitfalls that you should be aware of if your company is considering implementing or has already entered into recharge agreements.

First, you will need to know the timing of when a recharge agreement must be in place in order for the company to take a corporate tax deduction. In some countries, the agreement must be in place at the time of grant. It is possible that the recharge agreement may even need to be a part of the grant language. This may mean that even with a recharge agreement in place, it is possible that not all grants will be part of the corporate tax deduction.

Second, there may be special requirements for tax deductibility beyond the recharge agreement. For example, deductibility may not apply to officers and/or directors of the subsidiary, the parent company may be required to use treasury shares, or the shares may need to be purchased by the subsidiary on the open market. Additionally, the requirements may differ between types of grants.

Third, the recharge agreement may cause exchange control or labor law issues in some countries. For example, the agreement may require exchange control approval, which may not be easy or likely to achieve. On the labor law side, the recharge agreement may cause the income from equity to be considered a part of compensation, which may open the company to entitlement issues.

Finally, the recharge agreement may trigger tax withholding on the gain in countries where a tax withholding on equity compensation income may not otherwise be required. This is important for two reasons. First, it means that with the recharge agreement in place, you will need to coordinate tax withholding with your payroll team in that country. Second, it may mean that the employer social insurance payment is required for employee equity income. This may even be high enough to negate the benefit of the corporate tax deduction.

Another consideration for recharge agreements: Don’t assume your company isn’t using them. Check with your tax team to make sure that your company hasn’t entered into an agreement that will impact your day-to-day operations (like tax withholding) or create unforeseen exposure for your company.

Want a quick review of tax deductibility for the countries your company does business in? We have several great resources on our Global Stock Plans portal. You can find information in the Country Guides as well as many of the matrices posted to the left portion of the portal.


Tags: , , ,

May 19, 2009

Section 16 Updates

SEC Simplifies Authentication of Form ID
Any NASPP members that have had to submit Form ID for a new Section 16 insider know that a notarized authentication (usually a copy of the Form ID) is required to complete the submission.  Although Form ID has been submitted electronically for many years now, until recently, the authentication document had to be faxed to the SEC.

Now, the SEC will accept a scanned PDF of the notarized authentication that can be submitted along with the electronic filing.  The SEC even has a fill-in PDF of Form ID that filers can use for this purpose.  Using this new form changes the steps involved in submitting Form ID slightly:

  1. Fill out the PDF of Form ID and print it out. 
  2. Have the Form ID manually signed and notarized.
  3. Scan the notarized Form ID and save it as a PDF. (If you don’t have a scanner readily available, an efax number works great for this purpose. Just fax the document to your efax number and viola, a “scan” of the document is emailed to you.  If you are only receiving a few efaxes per year, you can even obtain an efax number for free.)
  4. Submit the electronic Form ID and include the PDF of the notarized Form ID. 

Hopefully this will streamline the process of obtaining a CIK for new insiders.  Under the old system, matching the electronic Form ID submissions with the faxed notarized versions has been time-consuming for the SEC. Including the notarized authentication with the electronically submitted Form ID eliminates this step and hopefully shortens the SEC’s response time.

The SEC does still permit the notarized authentication to be faxed for those that prefer that method. 

Aggregate Reporting of Sale Transactions
It has recently come to my attention that some folks still aren’t aware of last summer’s no action letter on aggregate reporting of purchase and sale transactions by insiders.  When insiders buy or sell stock, the orders are often executed in a series of small transactions at many different prices. This is because the number of shares involved in the order exceeds the amount for which the insider’s broker can find a single buyer or seller.  And, until last summer, the SEC required that each individual transaction be reported on a separate line on Form 4.

In a no action letter issued last June, the SEC Staff indicated that it is permissible to report multiple open-market transactions in aggregate (e.g., on a single line) on Form 4, provided that the following conditions are met:

  1. The transactions are either all purchases or all sales (reported with code P or S). 
  2. The transactions all involve the same security owned in the same manner (e.g., directly owned common stock).
  3. The transactions all occur on the same day.
  4. The transactions are all executed within a $1 price range.

When reporting the transactions, the weighted average execution price should be reported in the appropriate column on Form 4, with a footnote disclosing the range of prices involved in the transactions.  In addition, the footnote should undertake to provide full information on the transactions upon request.

For more information on aggregate reporting, see the NASPP alert “SEC Staff Reverses Itself and Allows Aggregate Reporting.”

Answers to All Your Section 16 Questions
I read about both of these developments in Peter Romeo and Alan Dye’s quarterly Section 16 Updates newsletter, which is part of what you get with a Section 16 Annual Service subscription.  Your subscription also includes the full “Section 16 Forms and Filing Handbook”–subscribe now to get the 2009 edition as soon as it is published–and the “Section 16 Deskbook.”  Subscribers are also entitled to discounts on other Section 16 poducts, such as the newly updated “Section 16 Treatise” and the Section 16 Filer.  These are all must-have resources for anyone responsible for Section 16 compliance. Subscribe today at  

Reason #25 to Renew Your NASPP Membership: The International Stock Plan Design and Administration Survey
The NASPP’s International Stock Plan Design and Administration Survey, co-sponsored by Deloitte Tax, is easily the industry’s most comprehensive report of trends and practices in stock plans for non-US employees. Catch a sneak preview of the most recent edition of the survey this Thursday, when we highlight the survey results during the webcast “Top Trends in Stock Plans for Overseas Employees.”

NASPP Conference 2-for-1 Rate Ends Next Week
If you haven’t yet registered for the Conference, make sure you do so by this Friday, May 22.  NASPP members from the same company and location can receive 2-for-1 registrations and members that register on an individual basis also qualify for a substantial discount. But don’t wait to register any longer–we won’t be able to offer these discounts after this Friday.

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

– Barbara 


May 14, 2009

Getting to Know Your Stock Plans

You’ve heard it said many times; stock plan administrators must be familiar with their company’s incentive stock plans. In fact, it’s a good idea to have an administrator’s summary of the plan with the major parameters of each plan ready and available for quick reference. But, what does that mean, exactly? What information should you be aware of? Here are some important pieces of information that you should know about each of your company’s plans. Although this is not an exhaustive list, it will give you an idea of what should be detailed in each plan.

First, you should know the date each plan was adopted, and when each will (or did) expire. Whether the plan is currently active or has already passed the expiration date, these dates are important for helping you keep track of grants that may fall within the plan. Once you know the valid dates for your plans, you will want to know the total number of shares available for issuance under the plan. Note whether or not the plan has an “evergreen” provision that automatically increases the number of available shares periodically and if cancelled and/or forfeited shares will return to the pool of available shares.

It is important to know who has the authority to administer the plan. The plan administrator is not the same as the person or group of people who are responsible for the day-to-day administration of the plan, but rather who has the authority to approve grants, determine the payment methods, modify grants, etc. Most plans give administrative authority to a compensation committee, and many also include the ability for the compensation committee to further delegate authority.

The next major item to know is what types of awards are permissible under each plan. Many plans today are omnibus type plans that will allow multiple types of stock grants, even if your company is only granting one type at the moment. Know whether the plan has a bifurcated share pool; if the number of shares for certain types of grants (ISO grants, for example) is allocated separately. You will also want to understand how grants will impact your plan share reserves. For example, is there a one-to-one relationship (one granted share reduces the shares available by one share), or does your plan have a flexible (fungible) share reserve?

Once you know what types of grants are available under each plan, you should determine what payment methods are permissible for both purchase or exercise price and tax withholding. The permissible purchase/exercise methods should be called out in a separate section than the tax withholding methods, but will often include many of the same choices (such as cash, share withholding, or open market sale).

Although plans should not include specific vesting schedules, each should provide a standard for how grant shares will be impacted by both changes in employee status (such as terminations, death, and disability) as well as corporate transactions (such as a merger change in control, or spin-off).

Finally, each plan should state how dividends and dividend equivalents will be handles, even if it is simply at the discretion of the plan administrator. This is true regardless of whether or not your company currently issues dividends.

Take some time this quarter to create a “cheat sheet” for your company’s plans. Make sure you know how each plan deals with all of the issues I’ve listed here, as well as anything else that is called out in your plans. If you have a plan that is missing any of these data points, meet with your legal counsel to discuss the impact and to determine if any changes should be made.


Tags: ,

May 11, 2009

Seven-Figure Tax Penalties; New Twist on Option Exchanges

Timely Tax Deposits Still an Issue for the IRS
Kaye Thomas of Fairmark Press tells me that he recently spoke with an IRS Appeals officer who told him that the IRS is still finding that many companies aren’t making timely deposits of tax withholding collected in connection with stock compensation. 

As many of you know, taxes withheld on stock compensation are generally deposited according to the company’s regular payroll deposit schedule, but if a company’s cumulative deposit liability (for all compensation, not just stock compensation) exceeds $100,000, the tax withholding must be deposited by the following business day. Stock plan transactions can frequently cause companies to exceed this threshold, triggering the accelerated deposit.  For same-day sale exercises of stock options, the deposit liability accrues on T+3 (per an IRS Field Directive issued in 2005). For other types of option exercises, SARs, and restricted stock/unit transactions, the deposit liability accrues on the transaction date (there is some question of whether the field directive could be relied on for SAR and restricted stock/unit transactions involving an open market sale).

Kaye tells me that even though non-compliance is rarely intentional and is usually due to a failure to understand the deposit requirements, this kind of minor operational failure can still result in severe penalties. The IRS appeals officer indicated that he’s seen penalties into seven figures. 

For more information on the tax withholding requirements, see the NASPP’s portal on Tax Withholding and Reporting.  Better yet, take our online Fundamentals of Stock Plan Administration program to learn about the full gamut of tax regulations that apply to your stock plans. 

Option Exchange Program with a Twist: Employee Choice
Intellon recently filed a Schedule TO for an option exchange program in which employees can choose to receive their replacement awards in the form of options or RSUs. The exchange ratio for options to options is 1.01-to-1; the ratio for options to RSUs is 2.03-to-1. It will be interesting to find out which vehicle employees choose.

Intellon includes a thorough set of examples (small increase in stock price, moderate increase, significant increase, decrease in stock price, significant increase and termination of employment, significant increase and then a decrease in stock price–count ’em, that’s six different possible future outcomes) to help employees decide whether or not to participate in the program and whether to elect to receive options or RSUs. It’s worth taking a look at.

Reason #24 to Renew Your NASPP Membership:  The Global Stock Plans Portal
The extensive country guides in the NASPP’s Global Stock Plans Portal are easily worth more than the cost of NASPP membership.  We’ve recently posted new or updated guides for Australia, China, Ireland, Mexico, and the United Kingdom–bringing the total number of guides we offer in the portal up to 27.  In addition to the guides, we’ve posted a hot-off-the-press updated edition of Baker & McKenzie’s 40-country matrix of Selected International Tax & Legal Consequences.

NASPP Conference 2-for-1 Rate Ends Next Week
If you haven’t yet registered for the Conference, make sure you do so by May 22.  NASPP members from the same company and location can receive 2-for-1 registrations and members that register on an individual basis also qualify for a substantial discount. But don’t wait to register any longer–we won’t be able to offer these discounts after May 22.

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

– Barbara

May 7, 2009

Top Five Data Reconciliation Items

As a stock plan administrator, you should be running regular audits of the underlying data in your stock plan database. Regular plan share reconciliation can uncover transactional issues such as late reported terminations or exercises that were entered after the period-end. Most, if not all, stock plan administration software has some type of data check that can uncover incongruous data such as a termination date that is prior to a hire date or grants that have more exercised shares than vested shares. Both periodic plan share reconciliation and running the software’s built-in data check should absolutely be a part of your regular procedures. However, neither of these is a substitute for a periodic audit of underlying data.

Here are the top five additional data audits that you should complete on a regular basis:

1. Active employees

This is a fast check, and with the right IT team can be easily automated. Simply run all your current, active employees from each database (I recommend your HR, Payroll, and stock plans databases) and confirm that each has the same list. Do this audit for both the employee ID and the SSN or other identifier to help catch rehires who have accidently been assigned a new employee ID.

If your stock plan administration database stores the history, match up the new hire, termination, and rehire dates for employees in your database against the HR records. If your company has a policy that re-instates grants when the rehire takes place within a set period of time, then this check will be particularly important for catching changes in rehire date that could impact the status of grants.

2. Changes in employee status

Audit your employee records to confirm that changes in employee status reflect correctly in your stock plan administration database. This includes leaves of absence, changes from and to part-time, moving from employee to non-employee status, and any other changes that may impact eligibility for equity compensation. Most HR databases will record the current status of employees and transmit this information to at least the payroll department. If you are unable to do a full employee status history audit, then at a minimum check to see that the current status is accurate.

3. Fair market value

Hopefully, you (or your service provider) complete a daily verification of the share prices that are entered into your database as the fair market value for company’s shares. These values may be used to determine grant size, exercise price, ESPP purchase price, and income/tax amounts for transactions. In addition to your daily check, it is a good practice to do a periodic audit of the values in your stock plan database against two outside sources. Occasionally, important share prices such as the day’s high, low, or closing price are corrected after market close. If your daily confirmation takes place prior to the change, you will not know about it without this additional audit. Additionally, you should confirm that all sale prices for same-day sales as well as applicable ISO and ESPP sales fall between the high and low share price for the transaction date.

4. YTD supplemental income and social security paid

The year-to-date supplemental income and social security paid for your U.S. employees can impact the appropriate tax withholding amounts for their transactions. The best practice is for year-to-date supplemental income and social security tax amounts to be communicated automatically from your payroll database to your stock plan administration software. Regardless of whether or not your company has automated this data upload, a regular audit of these amounts can help uncover corrections made in payroll that either were not loaded to the stock plan administration software or were not corrected in a timely manner and data that is simply incorrect in the stock plan adminstration software. In addition to your regular audit of these amounts, you should have a process in place to catch transactions that are transmitted to payroll with a tax withholding rate that is either too high or too low based on the current payroll information.

5. Employee demographic fields

Your company should be tracking key employee demographics in the stock plan administration software. These may include department, work location, cost center, or other identifying factors. These fields must be accurate for your expense allocation, tax deductions, future cost projections, and most one-off reports that other departments may request.

Keep in mind that all of these data audits can be automated or incorporated into regular exchanges of data. Work with your service provider(s) and your IT to see what opportunities for automation you may be overlooking. Even if the automation simply alerts you to inconsistent data points, it can simplify your audit process. Remember, these pieces of data are the foundation for all the information that comes out of your stock plan administration software. Including these audits in your regular procedures will help you remove bad data before it shows up as an issue in your periodic reporting.


Tags: , , ,

May 5, 2009

And Another Thing…

I’ve spent the past week ruminating about Steve Jobs’ mega grants and I’ve got a little more to say on the matter. I also have an interesting tidbit on RiskMetric’s proxy proposal requesting more shares for their own stock plan. 

Jobs’ Memory Loss
Jobs’ request for an additional grant only a year after he received an option to purchase 20 million shares only proves my point about executives and short memories. Just one year after receiving what is arguably one of the largest option grants in history, Jobs’ asked for another grant because he felt like Apple’s board wasn’t looking out for him. Is he kidding?  20 million shares aren’t enough to take care of him?  It seems like Apple’s board might have been better off doling that 20-million share grant out over several years.

It is true that the 20-million share option was underwater when Jobs requested the second option, but it was only a year old. Jobs still had another eight or nine years for that option to be back in the money–hardly the time to panic. If Jobs had hung onto to that option, instead of trading it in for restricted stock, it would be worth over $4 billion today and still wouldn’t expire until next January. (Jobs traded in both his 2000 and 2001 mega grants for $7.4 million worth of restricted stock. At the time of the exchange in early 2003, the 2001 grant was underwater by only about $3 and the 2000 grant was underwater by about $28. Combined, both grants would be worth around $6 billion today. The restricted stock that Jobs received is worth about $1.3 billion.) Not only does Jobs have a short memory, he also doesn’t seem to have much of a long-term perspective on Apple’s stock.  The whole scenario illustrates why executive compensation needs to be structured so as to focus execs on long-term growth and prevent them from profiting on short-term gains. 

NASPP Blog Poll: If you didn’t take my poll last week on mega grants, take a moment to participate now. Click here to take the poll. The poll is only one question, so it won’t take more than a few seconds of your time.

What’s Next for RiskMetrics–A Repricing?
RiskMetrics (formerly ISS) has included a proposal in this year’s proxy statement to extend the term of their 2007 stock compensation plan to June 2012 (it is scheduled to expire this June) and add 3.5 million shares to it. Interestingly, the additional share allocation will cause their overhang to increase to just over 32%, and, I’m told, causes them to exceed their acceptable Shareholder Value Transfer limits (I’m not able to run the SVT numbers myself). It certainly looks excessive when compared to average overhang levels reported in the NASPP’s 2007 Stock Plan Design and Administration Survey (co-sponsored by Deloitte)–only 6% of public companies reported overhang in excess of 25% and most (79%) reported overhang of less than 17.5% (a little over half the size of RiskMetrics’ overhang).

In the discussion of the plan, RiskMetrics points out that if they exclude options that have been outstanding for more than four years, their overhang drops to a little over 21%. That’s nice, but under their own guidelines, they don’t allow this exclusion. They will allow the exclusion of options that have been outstanding for longer than six years, but only if certain conditions are met, e.g., sustained positive stock performance, reasonable dilution, and sound compensation practices. (See the NASPP Practice Alert on ISS’s Corporate Governance Policy Update for 2008.) I wonder if RiskMetrics will have to recommend that institutional investors vote against their own plan?

In reviewing their 2007 plan, I noticed that it is an omnibus plan that allows for grants of ISOs, NSOs, SARs (payable in cash or stock, tandem or standalone), restricted stock, RSUs, unrestricted stock, and performance awards. I was surprised, however, that the plan doesn’t include a flexible share reserve or a limit on the number of shares that can be granted as full value awards. I guess that means that RiskMetrics treats all the shares under the plan as full value awards for purposes of their SVT calculation….

Thanks to Tami Bohm of Radian Group for bringing the RiskMetrics proxy filing to my attention.

Reason #23 to Renew Your NASPP Membership: Restricted Stock Essentials for Just $445
NASPP members that are attending the NASPP Conference can register for the NASPP’s acclaimed program, Restricted Stock Essentials, for just $445 until May 22 ($595 if you aren’t attending the NASPP Conference).  This one-day program, held on November 9, in advance of the NASPP Conference, covers everything you need to know to administer restricted stock and unit programs.  This year’s program has been updated to include panels on administering global programs and performance awards.  Register today.   

NASPP Conference Hotel Nearly Full
With the overwhelming response we’ve received to our unprecedented 2-for-1 early-bird rate on the 2009 NASPP Annual Conference, the hotel is nearly full.  The Conference will be held at the San Francisco Hilton from November 9-12; make your reservations today. If you have any difficulty making your reservations, please call our office at (925) 685-9271 and we’ll be happy to assist. 

If you haven’t yet registered for the Conference, make sure you do so by May 22.  NASPP members from the same company and location can receive 2-for-1 registrations and members that register on an individual basis also qualify for a substantial discount. But don’t wait to register any longer–we won’t be able to offer these discounts after May 22.

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

– Barbara