The NASPP Blog

Monthly Archives: August 2010

August 31, 2010

Repricing and Company Performance

Repricing and option exchange programs have long been a controversial practice. A study released earlier this year looks at whether repricings boost company performance.

The Repricing Controversy
In the NASPP’s 2010 Stock Plan Design Survey, although 61% of respondents indicated that more than 50% of their options had been underwater in the past two years, only 7% had repriced (another 4% exchanged underwater options for full value awards, cash, or a combination of stock and options). Critics argue that repricing underwater options rewards employees for poor performance while proponents counter that repricing is necessary to retain employees and motivate future performance.

Repricing and Company Performance Studied

The study, “Employee Stock Options and Future Firm Performance: Evidence from Option Repricings,” co-authored by Ron Kasznik of Stanford University’s Graduate School of Business, Nicole Bastian Johnson of the Haas School of Business at UC Berkeley, and David Aboody of UCLA’s Anderson School of Management, looked at over 1,300 companies whose stock had declined by 30% or more annually from 1990 to 1996. Approximately 22% of those companies repriced; the study compared the performance of companies that repriced to those that didn’t.

Overall, the study found that the companies that repriced performed better over one, three, and five years. More specifically, the study found that companies that repriced only options held by executives outperformed the companies that did not reprice. On the other hand, companies that repriced only options held by non-executives did not outperform the companies that did not reprice.

Broad Implications for Stock Options  

The authors hypothesize that this indicates that granting options to rank-and-file employees doesn’t enhance company performance. I haven’t read the whole study (not because I’m lazy–although that’s certainly a contributing factor–but because I can’t seem to access a copy of it for a nominal cost and, given how inscrutable the last study I blogged about turned out to be–see my August 18 entry, “Section 6039 and the Recession,” I’m not willing to make much of an investment here), but, according to the abstract, the authors assumed that once the options were underwater, any incentive effect they were having disappeared and that repricing the options would restore this incentive.  If company performance didn’t improve after the repricing, I guess (emphasis on “guess,” as the reasoning that led to the conclusion isn’t clear from the abstract) the authors assumed that the options weren’t creating any incentive to begin with.

I Have Some Doubts

I’m not sure I’d make that leap–granted, I know next to nothing about conducting studies like this, but it seems to me that if you’re going to argue a point about the incentive effect of stock options, you ought to include some companies that don’t grant options as a control in the study.

It also seems like there are any number of other reasons why the repricings might not have improved company performance. For example, the rank-and-file employees could have lost faith in the options as a result of their being underwater and, while the repricing may have fixed the immediate tangible problem of the options being underwater, it may not have done anything to address the larger intangible issue of employees no longer believing in the company’s future growth potential. While this would impact the incentive effect of the repriced options, it doesn’t necessarily mean the options weren’t having an incentive effect before they were underwater. Or employees could be anticipating future repricings if the stock price declines further.  Or, an even simpler explanation could be that the repriced options didn’t remain in-the-money–it isn’t clear from the survey abstract that the authors considered this.

The study also doesn’t say anything about retention–one of the primary reasons companies cite for undertaking repricings and option exchange programs. Valuation specialists have told me that in-the-moneyness is an important factor in estimating expected forfeitures, which leads me to believe that repricings could have their intended impact when it comes to retention.

Moreover, I’ve got to believe that the number of companies that repriced options held by executives only is a pretty small sample. Seriously, who does this?  So I wonder how meaningful that data is.

Finally, what about the companies that repriced both executive and non-executive options?  How did they perform?

Just 20 Days Until the 18th Annual NASPP Conference
The 18th Annual NASPP Conference is less than three weeks away (and the hotel is already sold out)!  Register today for the Conference, which will be held from September 20-23 in Chicago. I hope to see you there! 

Last Chance for NASPP New Member Referral Program
The NASPP’s New Member Referral Program ends this Friday, September 3.  Any members you refer that join by this Friday receive 50% off their NASPP membership and you get $150 off your NASPP Conference registration (and an entry in our raffle for an iPad). Don’t wait–all memberships have to be completed by this Friday to qualify. 

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 

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August 26, 2010

Access Control

Stock plan management teams are responsible for handling a significant amount of confidential data. Access control procedures are essential to maintaining an appropriate level of security to ensure that confidential information remains confidential. In creating an access control policy, both inadvertent and intentional access must be considered. There are data privacy laws both in the U.S. and internationally that dictate how data is transmitted. Confirming with your legal team that your company’s practices adhere to privacy laws is crucial. However, there are daily practices and considerations that are easy to overlook and could compromise the integrity of your practices by weakening the controls in place to limit data access. Here are my top three “hidden” areas to focus on when considering your department’s access control practices.


Because the stock plan management team will be working with and talking about confidential information, the actual location of the team is crucial to access control. For example, desks should be located in a space where both printed material and computer monitors cannot be easily viewed by other employees and confidential conversations won’t be overheard.

It’s also important to know that access to the stock plan management work area can be prohibited when none of the members of the team are present. In many companies, the stock plan management team shares office space with another department. If this is necessary, it is best that the other employees sharing that space have access to equally sensitive information so that they are familiar with the company’s data privacy practices.


Administering stock plans can generate a bulk of both hard-copy and electronic documents that need to be retained on site or in archives. Just like the general workspace, the location of these document files is an essential consideration for access control. Both hard copy and electronic documents can be safeguarded not only by locks (or passwords) but also by their location. Access control for hard copy documents stored on location can be maintained simply by placing locked filing cabinets in a room that also can be locked. However, if the volume of hard copy documents requires off-site storage archiving, make sure that there are controls in place for who in the company can request access to the archives.

Electronic documents, especially in the form of spreadsheets, often contain a higher volume of confidential information than do paper documents. In addition, data stored electronically is far more likely to be a part of daily procedures. Access control for archived electronic documents is just as straight-forward as it is for paper documents: they should be password protected and housed in folders and/or servers where access can be limited. With current documents, on the other hand, that are needed for daily processes it is much easier to let access control slip. It’s important to maintain password protection, even on active documents, and avoid saving documents in unprotected locations–especially on a laptop that may be removed from the workspace.

Distributed Materials

Distributed materials present the biggest challenge to maintaining access control. The stock plan management team can’t avoid sharing certain confidential information with external partners or other departments. The key is to establish how to ensure that the shared data doesn’t ultimately become available to parties that should not have access to it. If regular data sharing is required, establish an automated process that transmits data between systems or a protocol for file exchange. It’s best if confidential information never be sent via email, even internally and even if it is password protected.

Your company’s IT and legal teams can help you establish the best protocol for data privacy, but insufficient access controls can undermine those practices. As with all processes, document your access control procedures and make sure that everyone who does have access to confidential information understands the importance of those procedures. For more on internal controls, visit our Internal Controls Portal .

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August 24, 2010

Things Employees Should Know

I see a lot of articles providing advice to employees on stock compensation, much of which focus on things like knowing what type of award you have and how it is taxed. While this information is important, I feel like it doesn’t really get to the heart of the matter or address employee’s most pressing questions concerning their stock compensation. So today I have my top six things your employees need to know about their stock compensation.

1. Just because your option/award is vested, doesn’t mean you should sell.

Likewise, employees shouldn’t hold an option just because it isn’t expiring soon. Employees should primarily base decisions to exercise stock options and sell option or award shares on investment-related considerations: the percentage the shares represent of their net worth, their tolerance for risk and the level of risk involved in holding the option/award/shares, and how they plan to use the gains.

2. Just because you work here, doesn’t mean the stock will always increase in value.

When deciding to hold an option/award/stock, employees should ask themselves if they are prepared to accept a situation where the stock loses all its appreciated value and becomes worthless. Of course, employees should also ask themselves if they are okay with losing out on future appreciation if they sell now.

3. Tax considerations shouldn’t drive investment decisions.

While it is important to know the tax treatment (see #4), ultimately, this is an investment and the primary drivers of decisions regarding options/awards/stock should be grounded in sound investment strategies (see #1).

4. Taxation of stock compensation is tricky–be careful, be very, very careful.

Wash sales, AMT for ISOs, ill-advised Section 83(b) elections, and losses on ESPP disqualifying dispositions are just a few of the potentially disastrous tax traps that abound in stock compensation (and, starting in 2011, add Form 1099-B cost-basis reporting to this list).

5. Know what you have, when you’ll have it, how long you’ll have it for, and what you have to do to secure it.

Employees should make sure they know their grant type, vesting requirements, termination and expiration conditions, transaction procedures, and other key grant terms to ensure they don’t inadvertently lose out on any benefits.

6. Don’t believe everything you read on the internet!

Employees should be especially wary of the stuff they read in anonymous discussion forums (and should never look to these forums for answers to their own questions). Some of the misinformation out there on stock compensation is downright horrifying.

You might want to review your educational materials to make sure they address these topics (especially #6). For information on stock compensation that is always accurate and is easy for employees to understand, check out and “Consider Your Options” by Fairmark Press.

The 18th Annual NASPP Conference
Hear some great ideas for educating employees at the session “Effective Electronic Education and Communication” at the 18th Annual NASPP Conference, from September 20-23 in Chicago. Register for the Conference today.

NASPP New Member Referral Program Extended!
Due to overwhelming demand, we have extended the NASPP New Member Referral Program to September 3. But don’t wait–we won’t be able to extend the deadline again. Use our sample email today to get started on your referrals today, so you have plenty of time to qualify.

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

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August 19, 2010

Prove It!

A significant portion of stock plan administration involves employee communications. Communications break out into four basic categories: standard education materials, plan documents and agreements, individual statements and alerts, and correspondence. It is important to not only document delivery of (or access to) many communications, but also archive them so that they are accessible in the future. Plan documents and grant agreements receive the most scrutiny when it comes to documentation and archival procedures. It’s more difficult to know which of the other communications may either be the focus of a misunderstanding or the resolution to it.

Standard Education Materials

This is what your plan participants look to for answers regarding their own equity compensation. As you update educational materials, be sure to document the dates and locations that older versions were available. This is true for both printed and electronic materials. For printed versions, ensure that outdated versions are no longer available at any location within your company. It’s a good idea to date each printed version of your educational materials, with a note that the current version supersedes any previously distributed version(s). If your materials are posted on the intranet or otherwise available online to plan participants, be sure that there no outdated materials or links remain accessible after they have become obsolete. In addition, alert participants to updated materials so that they are aware of changes being made.

Individual Statements and Alerts

In the case of individual statements and alerts, aside from confirming the accuracy of all information delivered, possibly the most important factor is being able to prove delivery. Your broker may be able to assist with this for statements delivered via the individual brokerage account. Confirm what technology is available and for how long.

If you send alerts or statements to employees internally, consider how you will document delivery. See if you can use a return receipt, or if it’s possible to deliver via the intranet and archive access records. In addition, it’s best if you can archive the actual statements and alerts rather than relying on your stock plan administration database to reproduce it at a later date.


Of these four, correspondence generally receives the least amount of scrutiny and is least likely to be archived. It’s not feasible to have your legal team approve each and every response that you provide to participant inquiries, and so the risks of communicating information that is inadvertently incorrect, misleading, or could be taken as tax or investment advice. Additionally, it’s likely that some correspondence takes place outside the stock plan management team.

Ideally, your company would have a common repository for interaction records with employees that could be easily referenced by employee, date, or subject. Since I don’t actually know of one single company that has a system like this in place, I’ll scrap the ideal for now. If all you have is Outlook, then devise a strategy for archiving sent e-mails, including which types of correspondence qualifies as important enough to archive. It could be by location, topic, or whatever makes the most sense for you and your team. Don’t forget to document your strategy for future reference!

Why Bother?

This all might sound like a lot of work, but there are two very good reasons to have a robust communications archiving practice. First, it may be necessary to recover communications in the event of a legal or compliance issue. Second, it can serve as a way to calm an agitated employee who feels that the stock plan management team failed to provide enough information. This is particularly true for alerts–if you can tactfully show an employee that they actually did receive a “missing” alert, she or he will be less likely to focus anger and frustration at the stock plan management team. Also, that employee will be way more likely to pay attention to communications from the stock plan management team in the future!

A Cautionary Note

The flip side of diligence in archiving communications is that they can be made available in the event your company is involved in a lawsuit. Depending on the issue and how closely it relates to equity compensation, it could obligate the stock plan administration team to a significant amount of time dedicated to retrieving archived communications.


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August 17, 2010

The Future Under Dodd-Frank

As those of you that have been keeping up with my blog entries know, for the past few weeks, I’ve been covering the executive compensation-related provisions of the Dodd-Frank Act, highlighting tidbits I learned at a presentation by Mike Andresino of Posternak Blankstein & Lund and David Wise and Sara Wells of Hay Group at the July Silicon Valley NASPP chapter meeting. This week I discuss some of the changes David thinks we can expect to see for stock compensation as a result of the Act. (If you’re keeping score, that’s three blog entries from one chapter meeting–now that’s what I call a productive meeting!)

Stock Compensation Under Dodd-Frank
Here are a few changes we might see to stock compensation under the Dodd-Frank Act.

More Double-Triggers

In the NASPP’s 2010 Stock Plan Design Survey (co-sponsored by Deloitte), I was surprised by the number of companies with plans that provide for immediate acceleration of vesting on a change-in-control. With shareholders now given the opportunity to vote on executive pay packages and a separate vote for change-in-control provisions that haven’t previously been voted on, expect to see more companies move to a double-trigger (i.e., vesting accelerates only if the executive is terminated within a specified period after the CIC).

Greater Use of Performance Awards

With companies now required to disclose how executive pay relates to performance, it seems fairly clear that this will propel the use of performance-based awards.  At the same time, the requirement to disclose the ratio of CEO pay to median employee pay may cause boards to look for ways to reduce the value of CEO pay. Since this disclosure is based on amounts in the SCT–rather than actual payouts–one way to accomplish this is to grant options and awards that are subject to performance conditions. 

For LTI programs in general, David expects to see more interest in relative goals (because absolute goals have become so challenging to set), more use of multiple goals (e.g., an absolute goal with a relative goal), more companies using three measures instead of just two measures, lowering of plan maximums, and longer vesting schedules. 

Premium-Priced Options

Options granted with a price above the grant date FMV have never really caught on, but do result in a lower grant-date valuation. Since this is the value reported in the SCT, premium priced options could help improve the CEO to median employee pay ratio, perhaps increasing their popularity.

Broad-Based Plans?

Another way to make the CEO to median employee pay ratio look better is to increase employee pay.  Could this cause companies to consider expanding eligibility for stock compensation programs? Maybe–if you are looking at raising pay, seems like it would be easier to do this with a non-cash expense than with cash compensation.


More companies may also start requiring deferred payout for awards.  David points out that deferrals serve two goals: (i) they can be of assistance in enforcing clawback provisions–now required under Dodd-Frank and (ii) they help facilitate enforcement of stock ownership/holding requirements–a primary means of risk mitigation in stock plans. 

The 18th Annual NASPP Conference is Just Five Weeks Out!
Scheduled for Sept 20-23, the 18th Annual NASPP Conference is timed perfectly to help our members prepare for mandatory Say-on-Pay and the other requirements of the Dodd-Frank Act. We’ve added a special Say-on-Pay track, featuring key advice and real-world strategies from in-the-know practitioners. Register for the Conference today.

NASPP New Member Referral Program
Refer new members to the NASPP and your NASPP Conference registration could be free.  You can save $150 off your registration for each new member you refer, up to the full cost of registration. You’ll also be entered into a raffle for an Apple iPad and the new members you refer save 50% on their membership–it’s a win-win! Don’t delay–this program ends on August 31.    

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

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August 12, 2010

Speaking of Presentations

Yesterday, I had the privilege of spending the day at the Wente Winery taking in the fabulous sessions put together by our San Francisco chapter at their all-day event. I have to say that I love going to local chapter meetings and events. What a great way to network with stock plan professionals and soak up new information! I really enjoyed the speakers selected for yesterday’s event, several of whom are frequently invited to present at industry events. Have you ever considered breaking into the world of public speaking?

Speaking at presentations during industry events does take time, energy, and a healthy dose of bravery. But, there are many rewards to being involved in this way that really can’t be substituted. First, the exposure itself can boost your networking. I’m not talking about networking to find a new job or new clients–of course it helps that. Networking with peers gives you a wealth of resources to tap into when you come up against new issues on the job. Whether it’s a technical, strategic, or compliance issue, your peers can be a great sounding board (especially if it turns out they’ve dealt with a similar situation). This exposure and networking can also be an asset for your own professional development. It looks great on your review and on your resume!

Another great reason to be a speaker is the unique opportunity to learn something new about issues that you thought you were completely familiar with when you present with other equity professionals. In hashing out the details of a speaking engagement, I almost always learn a valuable tidbit that may not end up being a part of the final presentation. This creative environment is one where you can ask difficult questions to a select few peers who have intimate knowledge and/or experience with the specific topic you are addressing.

So, how do you go from never having presented in front of a group of people to leading a session in a national or international industry event? These are my top three suggestions:

Well, first things first–you start small. You may start by presenting internally at new hire orientation, “train the trainer” sessions, brown bag lunches, or for your clients. Then, get out into the world of industry events. For example, local chapters of the NASPP are always on the lookout for good speakers and topics! Once your peers have seen what a great presenter you can be, you will find yourself on the list of subject matter experts for the topics you have covered.

Second, pay attention to what impacts you. If you have questions about new legislation or are facing a daunting situation at your own company, then odds are that there are other stock plan professionals out there struggling with the same or a similar issue. You’ll be a particularly hot commodity if you’ve found a solution to a problem that other companies may face. Finding the right topic is essential to building a reputation as a good speaker.

Finally, team up with experienced speakers or other subject matter experts. For many subjects, a combination of service providers and issuers works best. When submitting your topic for consideration, being part of a great combination of speakers really sets you apart and gets your presentation idea noticed. If you recently conquered a difficult problem by working closely with your own service provider or a peer, then these are great places to start on your hunt for speaking partners.

My last little bonus tip is that finding your opportunity to speak at industry events doesn’t have to start with actual presentations. You can get your foot in the door by participating in other public forums like the NASPP’s own Discussion Forum or by responding to questions and polls put out by peers and service providers. The more you participate, the more people know who you are and the higher your odds are on being tapped for a speaking engagement.

Now, get out there and get speaking!


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August 10, 2010

What State Are Your Employees In?

Today we continue our series of blog entries guest authored by speakers for the 18th Annual NASPP Conference. For this installment of the series, we feature Carol Rutlen of Rutlen Associates on State-to-State Mobility: What State Are Your Employees In?

State-to-State Mobility: What State Are Your Employees In?
By Carol Rutlen, Rutlen Associates

What happens when an employee moves to another state while holding an equity award (e.g., stock option, restricted stock, restricted stock unit, etc.)? In many cases both states, (the state the employee moved from and the state the employee moved to) will tax all or part of the income related to the award.

Historically companies have not tracked employees moving from state to state. Companies have merely reported the equity compensation in the state of residency when the taxable event occurs (e.g., exercise of an option or vest of a restricted stock/restricted stock unit). Rutlen Associates recently conducted a survey of how companies track employee movement and report equity awards for employees that move from state to state. (Approximately 150 companies participated in the survey.) The survey results indicated about 20% of survey respondents meet the withholding and reporting requirements for reporting equity awards for mobile employees. Compliance varies depending on the type of mobile employee. Compliance is higher for employees on temporary assignment and employees permanently transferring to a new state. Compliance for business travelers is significantly lower.

In the Rutlen Associates’ survey the reasons for noncompliance vary:

  • 50% could not allocate the income to more than one state because of limited system functionality and/or manual resources.
  • 38% determined the amounts were insignificant.
  • 35% didn’t know the compliance requirements for each state.
  • 27% didn’t have information about employee movement.

Information about employee location/movement is more readily available for permanent transfers than temporary assignments and business travelers. Frequently the change of address when an employee permanently moves to a new state provides better documentation of employee movement.

Despite the challenges associated with compliance, more companies are reassessing the way they track and report state-to-state moves. Increased attention from the tax authorities in various states is encouraging companies to reevaluate their processes. Many states, especially New York and California, are focusing on enforcement of the withholding and reporting requirements for individuals moving into and out of the state. For example, New York is targeting high-level executives. During a recent audit New York State revenue agents reviewed payroll and expense reports for all executives–even executives with no ties to New York. Any company doing business in New York may be selected for this additional scrutiny. For many companies the potential tax assessment may not be significant, but the administrative cost of complying with the requested documents may be onerous.

Many software vendors are adding functionality in the stock plan database to track the historic location of the employee and employee mobility. Of course, adding functionality to track employee movement is a double-edged sword. The improved functionality makes compliance easier–knowing which employees are moving and the move date is the first step to complying with the reporting and withholding requirements. Once you have information on employee movement, however, the tax authorities are less likely to tolerate noncompliance and more likely to assess penalties for ignoring the compliance requirements.

The moral of this story is that it is an excellent time to reevaluate your handling of the issues surrounding state mobility.

With many states facing tight budgets, expect enforcement activity on multi-state taxation of stock compensation to increase.  Make sure you’re prepared by attending Carol’s session, State-to-State Mobility: What State Are Your Employees In?,” at the 18th Annual NASPP Conference.  The Conference will be held from September 20-23 in Chicago. Register today!

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August 5, 2010

Beyond Say-on-Pay

Last Tuesday, I blogged about the Say-on-Pay provisions of the Dodd-Frank Act, but the Act includes a number of other corporate governance provisions that are of interest to stock plan professionals. Luckily, the presentation I attended by Mike Andresino of Posternak Blankstein & Lund and David Wise and Sara Wells of Hay Group at the Silicon Valley NASPP chapter meeting covered these aspects of the Act as well.

The Dodd-Frank Act: More Than Say-on-Pay
The Dodd-Frank Act is very broad in scope, with banking legislation and consumer protections as well as regulating private placements and private investment funds–that’s nice to know, but we don’t really care about any of it for purposes of this blog.  I want to focus on the areas of the Act that are likely to intersect with my readers’ job responsibilities.

Internal Pay Equity

As I noted in my June 29 blog, the Act requires companies to disclose the ratio of CEO pay to the median pay of all other employees.  I understand that the jury is still out on how this ratio will actually be computed–preparing a Summary Compensation Table for all employees just to calculate their median pay may not be feasible–but, regardless, this disclosure is likely to cause a lot of consternation (David Wise pointed out that it was a top focus of the business lobby). The definition of all employees could include employees in overseas operations, including, say, manufacturing plants in countries where wages are considerably lower than in the United States. We are only beginning to contemplate the implications of this disclosure.

Relationship of Pay to Performance

Companies will be required to disclose the relationship of executive compensation to corporate financial performance. Like Say-on-Pay, this is another provision that I naively thought we already had–i.e., the performance graph in the executive compensation disclosures.  Silly me. As Mike Andresino pointed out, the Act doesn’t limit the disclosure to just the top five NEOs, so this “pay for performance” disclosure could be quite a bit more work to put together than the performance graph.

According to a Pearl Meyer & Partners memo on the Act that we’ve posted in the NASPP’s Say-on-Pay Portal, there are lots of issues to resolve for this requirement, including which “executives,” what “compensation,” what “financial performance,” the time period the disclosure covers, and whether the disclosure is on an aggregate or individual basis (or by component of compensation–imagine what fun that would be to put together).


The Act expands the requirements for companies to adopt clawback policies for compensation paid to executives beyond what was required under Sarbanes-Oxley.  According to the NASPP’s 2010 Domestic Stock Plan Design Survey (co-sponsored by Deloitte), only 32% of respondents have clawback policies for stock compensation and of those that don’t, only 20% are considering adding one. That’s going to have to change.

Broker Non-Votes

The Act requires the SEC to direct the stock exchanges to prohibit brokers from voting uninstructed shares for director elections, executive compensation matters (e.g., Say-on-Pay), and any other significant matter (brokers are already prohibited from voting uninstructed shares on matters relating to stock plans).     

This doesn’t leave a whole lot that brokers can vote uninstructed shares on.  Mike Andresino pointed out that if there’s nothing in the proxy that brokers can vote on without instruction, companies may have problems achieving a quorum at shareholder meetings.

Compensation Committees

The Act requires the stock exchanges to establish new independence standards for compensation committee members. In addition, the committee must have the ability to retain its own independent (per standards to be determined by the SEC) comp consultants, legal counsel, and other advisors.

18th Annual NASPP Conference
Scheduled for Sept 20-23, the 18th Annual NASPP Conference is timed perfectly to help our members prepare for mandatory Say-on-Pay and all of the other executive pay reforms required under the Dodd-Frank Act. Just announced–we’ve added a special Say-on-Pay track, featuring key advice and real-world strategies from in-the-know practitioners. Register for the Conference today.

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 



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August 3, 2010

The Horror! The Horror!

Today we continue our series of blog entries guest authored by speakers for the 18th Annual NASPP Conference. For this installment of the series, we feature Emily Cervino of the CEP Institute on “Night of the Living Dead: Equity Compensation Horror Stories–The Sequel!

Night of the Living Dead: Equity Compensation Horror Stories–The Sequel!
By Emily CervinoCEP Institute

The NASPP Conference agenda is full of best practices, emerging trends, and successful case studies. But, don’t forget about the darker side of equity compensation. At the 2009 Conference, the “Night of the Living Dead” panel was a huge hit…and 2010 will bring back the same concept, with a completely new slate of horror stories!

Why are we dwelling on epic failures, monumental disasters, and crippling catastrophes? Because we can learn just as much (if not more) from these fiascos as we can from stunning successes. Hearing these horror stories will help attendees avoid a similar fate, stockpile their ammunition for making a case to management, and sleep easier knowing that even with these calamities, not a single panelist has had to enter the witness protection program. A major problem doesn’t end your career…if you know how to handle the problem and ensure it doesn’t happen again.

For example, take the humble ESPP…these plans may not have the allure or status of other equity programs, but with broad participation, infrequent processing, and the final regulations for Section 423 plans providing for the possible inadvertent disqualification of the plan, the risks for ESPP are at an all time high.

One of the horror stories starts as many horrors do… as a new employee, quickly flung into the frenzy of processing an ESPP. The ESPP had been run on “autopilot” and on the date of the purchase, the fearless new stock plan administrator received the report of payroll contributions for the plan participants. Noticing that there were suspiciously high amounts for many employees, a frantic red flag was raised. The “investigative work” resulted in a shocking revelation–the company had been allowing employees who hit the $25,000 limit following a purchase to carry over those leftover funds to the next offering period. Just to be clear…the company was carrying forward the contributions, not the limit. So, if an employee hit the $25,000 limit, the company did not refund the excess contributions, but added those contributions to the payroll contributions for the next offering. This was clearly not permitted under the plan. Other employees weren’t permitted to make a lump sum contribution. So, what we have here is the dreaded violation of the equal right and privileges provision of Section 423.

The end result was a frantic scramble on the day of the purchase to recalculate, notify the impacted (and now unhappy) employees about sizeable refunds, and determine what those refunds were. Lessons learned? Read your plan. Don’t accept the status quo when you are in a new position. Get ESPP contributions (or, at a minimum, estimated contributions) at least a week in advance of the purchase. Educate and befriend Payroll. And, in case you missed that first one…it bears repeating–read your plan.

Join us as we frighten you with nightmare stories and set you on the path to safety with recommendations on how to avoid similar misfortune. Due to the popularity of last year’s premier, our panel is offered twice, during Session III on Tuesday at 1:45 PM and again during Session V on Wednesday at 9:00 AM.

Got your own horror story to share? The NCEO is soliciting stories for an edition of the book “Don’t Do That” focused on equity compensation. This is a great way for others to learn from the challenges you have overcome. Submit your story today!

Night of the Living Dead: Equity Compensation Horror Stories–The Sequel!” promises to keep attendees on the edge of their seats. Make sure you’re there to enjoy the thrill at the 18th Annual NASPP Conference.  The Conference will be held from September 20-23 in Chicago. Register today and bring popcorn!

NASPP Members Eligible for Discount on CEP Exam
If you’ve been thinking about enrolling for the Certified Equity Professional exam, now is the time to do it. Because the NASPP serves on the CEP Institute Advisory Board, we are able to offer NASPP members a $200 discount on the November 6, 2010 exam.*

The CEP program is the certification standard for the equity compensation industry, comprised of a three-level, self-study program in the technical regulatory issues affecting equity compensation.  

Visit the CEPI website for more information on the program. To take advantage of the NASPP member discount, contact the CEPI at (408) 554-2187.

* The Fine Print: Eligible registrations include new Level 1, Level 2 or Level 3 registrations for individuals who are involved in administering or managing their own company’s equity programs. Deferrals and re-tests are not eligible for a discount. Individuals already registered are not eligible for a retroactive discount. Candidates from service providers do not qualify. Questions regarding eligibility can be directed to the CEPI at (408) 554-2187.

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