The NASPP Blog

Monthly Archives: January 2011

January 27, 2011


Last week, I blogged about succession planning for equity compensation. One aspect of succession planning is preparing someone else to step in and do your job when needed. A great way to do that a job share arrangement within your team or across department lines.

Job sharing is like advanced cross-training. It goes beyond just documenting your processes and training someone else to do a portion of your job by having that back-up person step in to actually do it regularly. In this scenario, you are also cross-trained on an equivalent piece of your partner’s job and you both exchange functions periodically so that you both stay current and fresh. Instead of scrambling at the last minute or coming back from vacation to a whole lot of overtime, if you were job sharing all along, one person can step away (e.g., go on vacation or take on another roll) and the other person can step in and do it.

Got a Team?

Job sharing is easiest to implement if you have a stock plan management team. For companies that have multiple people, you’ve got a built-in structure ready for job sharing. The first step is to get management involved. If you are management, get upper management on board. It’s important that everyone understand the value of job sharing for both the company and the employees who are participating. Next, identify standard job functions that require similar time commitments.

A great way to ease a team into job is to implement an audit process. Audits are an essential piece of risk management and provide team members with a basic familiarity with each other’s responsibilities. Then, step it up a notch and trade off basic, regular functions. For example, if you have a team member who is solely responsible for ESPP and one who processes large RSU vests, this would be a great fit for a work sharing exchange. You can even split portions of stock plan management and alternate between who completes a section and who audits it.

On Your Own?

Whether you are a team of one or there aren’t enough equivalent responsibilities among your team members to do a full trade, there are still ways to accommodate job sharing. When it comes to exchanging with members outside your team, you have the added bonus of getting the inside scoop on how data is transmitted and managed in that department; so does your counterpart. For example, exchanging with payroll gives you firsthand experience in how payroll processes equity compensation income and withholding and shows payroll how that data is collected and audited on your end. Finance, legal, compensation, and HR, and benefits are all top choices for job sharing opportunities.

It’s a win-win-win for everybody. You have a back-up plan for yourself; surely your potential partners need back-up for some of the stuff that they are doing as well. Your company benefits by having more flexibility to respond to unplanned workload increases (e.g., a new regulation or IRS audit) or decreases. It also means that you get to learn new skills, increase your value, and increase the visibility for all the hard work that you do.


When you do start the process of sharing your workload, it is important that communications don’t get lost in the shuffle. This means ensuring that emails routed directly or indirectly to you are accessible to your counterparts when they need them (and vice versa). In addition, make the job sharing schedule transparent to any other departments that interact with the equity compensation team.

The Long Haul

Job sharing is great for short leaves, but if you find that you or one of your partners require an extended absence, the additional workload without an exchange can be too much. Alternatively, there may be portions of your responsibilities that you can’t find someone internally to take over. For situations like this, it’s a good idea to establish a relationship with a service provider or independent consultant early on–before you need them. If you’re wondering who is available, check out our Online Vendor Exhibition Hall where we have service providers listed by the types of services they offer. Or, you can start a new thread in our Discussion Forum to get recommendations from your peers.


January 25, 2011

Section 16 Exit Reporting – Part 2

Last week, I covered the ground rules for Section 16 exit reporting. This week, I have a few more pointers on the topic.

Best Practices

I’ve already covered a couple of best practices: whenever insiders cease to be subject to Section 16, review their transactions for the year for any that haven’t been reported and file a Form 4 to report these transactions at that time, rather than waiting until the end of the year, when you are more likely to forget about them. Also, be sure to include these former insiders in your year-end surveys and reconciliations for Section 16 (and obtain a “no Form 5 due” statement from them).

It’s also a good idea to review their transactions for the past six months for any non-exempt transactions. Count out six months from their last non-exempt purchase and that tells you how long they need to report non-exempt sales. Then count out six months from their last non-exempt sale to determine the last date they need to report non-exempt purchases. Inform former insiders of these dates, so they are aware that their non-exempt transactions are still subject to Section 16, both for reporting purposes and short-swing profits recovery purposes. If the company will continue to assist with their post-Section 16 reporting, you may want to make a note of these dates in your calendar as well.

The Exit Box

Both Form 4 and Form 5 include a checkbox to indicate that the reporting person is no longer subject to Section 16, commonly referred to as the “exit box.” Any time a new form is submitted after an insider is no longer subject to Section 16, whether to report newly occurring non-exempt transactions that are still reportable or to report previously unreported transactions, this box should be selected.

Who Is Responsible for Post-Termination Reporting?

Section 16 imposes an obligation on the individual insider, but, as my readers well know, most companies assist their officers and directors with this obligation by preparing and submitting the required forms on their behalf. And my guess is that this continues to be the case during that short period where the individual has ceased to be a designated insider but is still subject to the reporting and short-swing profits recovery provisions of Section 16.

I would certainly expect this to be the case if the individual is still employed by the company but has merely experienced a reduction in responsibility (no sense in adding insult to injury by making them take on their own Section 16 filings). But, even in the case of former insiders that have terminated their employment, the company probably still submits their Section 16 filings for them. The exception might be where an insider has left on bad terms, e.g., was dismissed for some sort of egregious behavior or violated a non-compete or other agreement. In that case, some companies might leave the offending insider to his/her own devices for Section 16 purposes (and be happy to disclose a reporting violation and recover profits in the event that the insider doesn’t manage the obligation sufficiently).

What About Form 144?

Most Section 16 insiders are also considered affiliates of the company and are required to sell under Rule 144. They are subject to Rule 144 by virtue of the authority they possess over the company. If they no longer possess this authority, then they also should no longer be subject to Rule 144 (unless, of course, they hold unregistered shares). But when exactly does Rule 144 no longer apply?

Although the determination should be made based on the relevant facts and circumstances, the Rule 144 experts we look to here at the NASPP–Jesse Brill, Bob Barron, and Alan Dye–generally believe that, in most cases where individuals have cut all ties to the company, they cease to be subject to Rule 144 when their employment ends. A recent SEC interpretation, however, suggests that it is a good idea for former affiliates to sell under Rule 144 for three months or until the company files its next periodic report and many companies have implemented similar policies.

Got Questions on Section 16?
Alan Dye has the answers. Tune in later today for his popular, annual Q&A webcast on Section 16

Quick Survey on Section 6039
Take our Quick Survey on Section 6039 and learn how companies are planning to comply with this new tax reporting requirement. A mere seven questions–you can complete the survey in less than five minutes!

ShareComp 2011
The NASPP is happy to announce its support of ShareComp 2011, a fully virtual conference on stock compensation. NASPP members can attend the event for free using the sponsor pass “VCP”; feel free to share this sponsor code with others at your company.

ShareComp 2011 will be held live on February 23, 2011 and all presentations, documents, and booths will be available on-demand for a year afterwards. More than just a series of webinars, ShareComp is a 3-D rendered environment with all of the features of a physical conference, without the cost and time of travel. Benefits of attending include:

  • 16 hours of live global interactive learning and networking
  • Best practices for designing, implementing and managing stock compensation programs
  • Instructional sessions that will share real-world examples, tactics and lessons learned
  • Facilitated discussion forums with experts and practitioners
  • A searchable library, including presentations, Q&A sessions and booth materials
  • A year of access to the conference center and materials

To find out more, visit Register today for this no-risk, high-impact event (be sure to enter sponsor pass “VCP” for free registration). While you are attending the event, we hope you’ll stop by the NASPP virtual booth to say hello.

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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January 20, 2011

Bench Strength

With Steve Jobs taking another medical leave, the internet is abuzz with the idea of succession planning. Even if it doesn’t make headlines, the unplanned exit of a stock plan manager can have drastic and long-term effects on an unprepared company.

Succession planning is a process that ensures a company is recruiting and grooming employees to fill key positions within the company. Shareholders may not be calling for a publicized succession plan for the stock plan manager any time soon, but it’s in both your and the company’s best interest that you do have one. Stock plan management should be considered a key position in the company. It is a hard-to-replace position that requires a unique skill set and is essential to daily operations. Every company should be prepared for a seamless transition for at least the key components of stock plan management.

The Fear Factor

A lot of employees, regardless of their position in the company, fear succession planning. Nobody wants to feel replaceable. However, being irreplaceable means that you can’t be promoted or take an extended leave (or maybe even a short vacation). It means that you haven’t demonstrated your skills as a people manager. Even if you are a team of one, creating a succession plan demonstrates that you have a managerial level grasp on the company’s needs. Also, you can’t expect to hang onto your job simply because nobody else can do it.

A Visible Advantage

Part of succession planning is transparency. The advantage to creating transparency is that people know what you do. It has to be very clear what you do in order for someone else to take over it in a pinch, but in the process of preparing for a transition you will be communicating your own value. When you start to coordinate with other members of your team or colleagues in other departments, sharing your efforts with management boosts everyone’s image. People can’t appreciate what they don’t understand. The stock plan administrator tends to be an underappreciated position simply because the people who are making budget decisions do not understand the importance and complexity of managing the company’s equity compensation program.

The Action Plan

Unless you are actually planning to leave your position in the near future, your succession plan doesn’t have to be elaborate. In fact, you have probably already started on some of the essential elements for a great plan just by documenting processes for your auditors. The first step is to identify the critical skills and experience necessary to fill your shoes. Next, detail the procedures you are responsible for that present the greatest risk for the company if they are either not done or done incorrectly (e.g., completing an ESPP purchase or RSU release, Section 16 reporting, or processing daily exercises). Outline which of these functions are immediate needs and which are periodic. Then, articulate the additional skills that you know you possess that make your day run smoothly. These are great to have for your next review, anyway, and will help your company identify the strength of potential candidates when the time comes. Finally, train someone else internally. Even if your company plans to bring in a consultant for emergency transitions, it’s important that there is at least one individual within your company who can instruct and monitor the consultant’s work (i.e., mind reading shouldn’t be a critical skill).


January 18, 2011

Section 16 Exit Reporting

With Alan Dye’s annual Q&A webcast coming up next week, I’ve got Section 16 on my mind, so I thought I’d address an issue that comes up quite frequently in the NASPP Q&A Discussion Forum: the required reporting when an insider ceases to be subject to Section 16.  I’ve found that many people assume that all transactions that occur in the six months after Section 16 status ceases are reportable, but this is not true. In many cases, no post-Section 16 reporting is required at all.

Previously Unreported Transactions

First off, any reportable transactions the insider engaged in while still subject to Section 16 that haven’t yet been reported still have to be reported. For example, suppose an insider gifts stock; since gifts are reportable on Form 5, the gift may not be reported immediately. If the insider ceases to be subject to Section 16 prior to when the gift is reported, this doesn’t let the insider off the hook: the gift still must be reported.

Probably the smart thing to do is to check for any unreported transactions whenever an insider ceases to be subject to Section 16 and file a Form 4 to report those transactions at that time, so you don’t forget about them later. Even so, when reviewing insider transactions and holdings for Forms 5, it’s a good idea to include individuals that ceased to be subject to Section 16 during the past year, to make sure nothing was missed (and to get a statement from them that no Form 5 is due).

No Reporting Necessary for Exempt Transactions

Once someone ceases to be subject to Section 16, none of his/her exempt transactions is reportable, no matter how shortly the transactions occur after cessation of insider status. Thus, option exercises and forfeitures of restricted stock that occur after an individual is no longer subject to Section 16 generally are not reportable.

Moreover, cancellations and forfeitures of derivative securities, such as options and restricted stock units, for no value are never reportable, even if they occur while the holder is subject to Section 16.

Reporting Might Be Required for Non-Exempt Transactions (But Then Again, Might Not)

Non-exempt transactions (such as open market purchases and sales) that occur after cessation of insider status may be reportable, but only if they occur within six months of an opposite-way, non-exempt transaction that the individual engaged in while still an insider. 

For example, assume an insider terminates employment and is no longer subject to Section 16 as of her last day of employment.  She did not engage in any non-exempt transactions in the six months prior to her termination. After termination, she engages in a same-day sale exercise.  The exercise should be an exempt transaction; as such, it is not reportable.  The sale is a non-exempt transaction, but, as such, it would only be reportable if it occurred within six months of a non-exempt purchase that the insider had engaged in prior to her termination.  We know that this isn’t the case, since she had no non-exempt purchases within the six months before her termination. Thus, the sale also is not reportable.

Now, let’s take the same scenario, but, this time, let’s assume that the insider purchased stock on the open market five months prior to her termination. An open market purchase is a non-exempt transaction.  This fact changes things a bit.  As an exempt transaction, the post-termination exercise still does not have to be reported. The sale of the exercised shares will have to be reported if it occurs within six months of the pre-termination open market purchase:  

  • If the sale occurs within the first month after the insider terminated, the sale will be within six months of the purchase and, thus, will be reportable. Incidentally, this is the exact situation in which short-swing profits recovery is also required; assuming the sale price is higher than the purchase price, the company might as well get started on that also. 
  • If the sale occurs more than one month after the insider terminates, it will be more than six months after the open market purchase and the sale will not be reportable (nor will any profits have to be recovered). 

More Next Week

Be sure to tune in next week, when I will cover who is responsible for post-termination Section 16 reporting, the Exit box, Forms 144, and best practices. 

Got Questions on Section 16?
Alan Dye has the answers. Email your burning Section 16 questions to and Alan will answer them during his popular, annual Q&A webcast on Section 16.  This year’s webcast will be held on January 25; this is your one chance all year to get answers from one of the nation’s foremost authorities on Section 16–don’t miss it!

Quick Survey on Section 16
Take our quick survey on Section 16 and find out how your practices compare to your peers’.  With only 12 questions, the survey can be completed in less than five minutes!

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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January 13, 2011

Section 6039 Odds and Ends

As the deadline for Section 6039 returns and information statements gets closer, the activity on the NASPP Discussion Forum regarding them increases. This week, I’d like to highlight some of the issues that have been coming up for stock plan administrators and give a couple reminders.

If you don’t already peruse the Discussion Forum, submit your questions, or share your experience there, you really should check it out. It is a great place to bounce ideas off other stock plan professionals before you confirm with your own advisors.

Paper Forms

If you planning on ordering Forms 3921 and/or Forms 3922 for paper filing with the IRS, they aren’t yet available. (Thanks to Bruce Brumberg of for bringing this to my attention!) It’s my understanding that you should be able to place an order by the end of January, giving you plenty of time to complete them even with the 7-10 day processing period. Alternatively, you may choose to do an electronic filing even if your company is eligible for paper filing.

If you are planning on ordering the forms to use for employee information returns and are concerned about the timing, consider using a substitute form. We have examples available on the Section 6039 portal. To order official IRS forms or to check on the status of availability, call 1-800-TAX-FORM (1-800-829-3676).

Same-Day Sales

Unlike W-2 reporting, a disqualifying disposition of ISO shares does not impact your Section 6039 reporting. Even if the exercise is a same-day sale, you are required to report the exercise on Form 3921. (See Topic 6689.)

Multiple Transactions

If you have multiple transactions for an employee to report, you may choose to create a substitute form that consolidates all ISO exercises into one substitute Form 3921 and all ESPP transfers into one substitute Form 3922. However, you may not report multiple transactions on a paper filing of either form with the IRS. Electronic filing, of course, is not impacted by the format you choose for the employee statements. Also, if you have more than one transaction for an employee, you will need to include a unique account number for each transaction on the filing to the IRS and most likely also need to include it on any substitute form that you use for employee communications. (See Topics 6782, 6778, and 6710.)

Foreign Nationals

You will most likely need help to identify any foreign nationals for whom a Form 3921 or 3922 is required because of the complexity surrounding resident status. You do not need to file for foreign nationals who are considered nonresident aliens and who have not received a Form W-2 from the company between the grant and the ISO exercise or ESPP transfer. However, you should file a return and send an employee statement to all U.S. citizens with applicable transactions regardless of their current location. (See Topics 6790, and 6713.)

Unusual Situations

For ISOs that are treated as an NQ at the time of the exercise (e.g. more than three months after termination), you should not have a Section 6039 reporting obligation for the exercise. (See Topic 6787.)

If you have an ISO that was exercised in 2010 by the beneficiary or estate of a deceased employee, it would be safe to file Form 3921 and provide an information statement to the beneficiary or estate for the exercise. There is nothing in the Section 6039 regulations to indicate that there is an exemption for these types of transactions, a you would absolutely want to check with your advisors if you are leaning towards not filing in this situation. (See Topic 6773.)

Reminder #1: The returns are due to the IRS by February 28 (if filing on paper) or March 31 (if filing electronically). You can, however, receive an automatic 30-day extension by filing Form 8809, which can be filed electronically or on paper by the applicable deadline for filing returns.

Reminder #2: If you are filing electronically and haven’t already sent a test file, the FIRE system is accepting test filings through February 15th. IRS Publication 3609 details the electronic filing process. If you still need a TCC Number, you must apply for one 30 days prior to the filing deadline.


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January 11, 2011

Stock Compensation and Academia

It looks like hope of being the next Randall Heron and Erik Lie (of the options backdating study fame) remains alive in the world of academia. Three studies relating to stock compensation have recently been published.

Non-GAAP and Street Earnings: Evidence from SFAS 123(R)

This study looks for patterns in decisions to exclude stock compensation expense from non-GAAP earnings and earnings forecasts.

Somewhat predictably, the study finds that companies exclude stock compensation expense from non-GAAP earnings when doing so presents a more positive financial picture of the company to investors (e.g., increases or smoothes earnings, or helps the company achieve earnings benchmarks). Financial analysts, however, exclude stock compensation expense from earnings forecasts when doing so helps them to better predict future earnings performance. Hmmm, now that I’ve written this, it seems hard to believe a 52-page study was needed to figure this out.

Incentives, Targeting and Firm Performance: An Analysis of Non-Executive Stock Options

In a nice counterpoint to the study “Employee Stock Options and Future Firm Performance: Evidence from Option Repricings,” that I blogged about in August (“Repricing and Company Performance,” August 31, 2010), this study finds that companies with broad-based options programs have better operating performance (based on return on assets), at least in smaller companies and in companies with higher growth opportunities per employee. The authors believe that options encourage cooperation and mutual monitoring among employees and may also serve to attract and retain higher quality employees.

Exercises of Executive Stock Options on the Vesting Date

This study looks at whether executives that exercise their stock options on the vesting date are motivated to do so by confidential information they have about the company. The study concludes that vesting date exercises are more likely motivated by the executive’s need to diversify his/her portfolio.

Time Has Run Out!
All NASPP memberships expire on a calendar-year basis–if you haven’t already, renew your membership for 2011 today.

Got Questions on Section 16?
Alan Dye has the answers. Email your burning Section 16 questions to and Alan will answer them during his popular, annual Q&A webcast on Section 16.  This year’s webcast will be held on January 25; this is your one chance all year to get answers from one of the nation’s foremost authorities on Section 16–don’t miss it!

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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January 6, 2011

2010 – The Year in Review

Today I planned on providing a review the top regulatory changes and legislative initiatives impacting equity compensation that we saw in 2010. However, in order to talk about the changes in 2010, we have to start in the last two months of 2009.

November 16, 2009: IRS released final regulations for Section 6039 reporting. For stock plan managers, this meant determining how to submit statements to the IRS and employees as well as organizing general employee communications. (We now have an entire portal dedicated to Section 6039!)

On the same day, the IRS also issued the final regulations for Section 423 ESPPs, to be effective as of January 1, 2010. In response, stock plan managers needed to review their ESPPs to ensure that plans are compliant by at least confirming plans specify a maximum numbers of shares that may be purchased in each offering, checking that they are properly computing the $25,000 limit per the actual plan language, and confirming that all 423 plans have a unique share reserve. The final regulations also opened up new possibilities for plan design by permitting unique terms for different offerings under the same plan.

December 16, 2009: The SEC announced executive compensation disclosure changes effective for all proxy filings made on or after February 28th, 2010. These include reporting the aggregate grant date fair value in the period that grants are awarded, rather than over the periods in which they are paid out as well as a discussion of how compensation practices relate to risk management. Depending on the level of involvement of the stock plan management team in proxy reporting, at a minimum this changes the way compensation is calculated for determining the company’s NEOs.

So, with the end of 2009 still ringing in our ears, we dove into 2010!

February 24, 2010: The SEC provided a statement in support of adopting IFRS, but extended the earliest adoption date to 2015. Stock plan managers may have breathed a collective sigh of relief, but still need take a look at their companies’ grant practices to see how difficult expensing could be under IFRS with current vesting parameters and withholding practices.

July 21, 2010: The Dodd-Frank Act was signed into law, calling for shareholder voting on executive compensation and change-in-control payments. The Act also expands clawback requirements and establishes additional disclosure requirements.

October 11, 2010: The IRS released final regulations for cost basis reporting, which was required under the Economic Stabilization Act of 2009. Stock plan managers will need to understand how brokers will be reporting cost basis on equity compensation through the implementation timeline and determine how best to educate employees.

October 18, 2010: The SEC followed up on the Dodd-Frank act by proposing regulations for say-on-pay.

November 8, 2010: The IRS finally released the final versions of Forms 3921 and 3922.

November 30, 2010: The IRS expanded the 409A documentation correction program to include stock options and SARs that were not intended to be exempt from Section 409A.

December 17, 2010: The tax relief bill (with a very long name), was signed into law, extending reduced tax rates, reducing the employee Social Security rates, and raising the amount of income exempt from AMT.

What is in store for 2011? One thing is certain; the NASPP will keep you up to date on whatever regulators throw our way. Be sure to renew your NASPP membership for 2011 (if you aren’t an NASPP member, join today) and stay ahead of the curve!

January 4, 2011

We Have a Winner!

Last year, over 500 NASPP members registered to play the NASPP Question of the Week Challenge, which ranks your equity compensation prowess against that of your peers’. The challenge is now complete for 2010 and a champion has emerged.

The Power of Flowers

The number one ranked contender in the Question of the Week Challenge is Flower power 121, with a score of 310 points out of a possible 330.

Coming in close behind and tied for second place are gonefishin and SNOWPEA, with 275 points each. Ranked third is AMC35, with 270 points.

(You didn’t think I was going to post the actual name of the winners, did you? We promised anonymity to all players–that’s the reason for the screen names. I could tell you the names, but then I’d have to kill you and I don’t want to lose any blog readers.)

What’s in a Name?

Not only are the challenge participants a pretty smart bunch, but they are also very clever when it comes to screen names. Color me impressed (speaking as someone who doesn’t have an eBay account because I can’t think up a clever enough name).

In the category of stock compensation related names, my favorites are Bob: Maximum Supreme Commander, Equity Department; Got Equity?; and Sleepless in Stock Plan Admin. Land; with an honorable mention to Equity Ed.

Register for the 2011 Challenge

The NASPP’s “Question of the Week” challenge allows you to compete against your peers and colleagues (and sworn enemies) in feats of intellectual strength and skill. You are pitted against the finest in the profession to see how your expertise stacks up–and learn in the process.

Each week a new question is posted; you get ten points for each question you answer correctly. Your score is then ranked against all of the other players to see how you compare. But don’t worry, the rankings are on an anonymous basis–you choose your screen name when you register to play–so no one will know your score but you.

The challenge begins anew for 2011! If you didn’t play in 2010, choose your screen name now so you can play this year (if you played in 2010, don’t re-register–keep playing under the same screen name so we can compute your all-time score). Don’t wait–we’ll leave all the questions up for the month of January, but beginning in February, if you miss a week, you miss out on the full points for that week’s question.

Time Has Run Out!
All NASPP memberships expire on a calendar-year basis–if you haven’t already, renew your membership for 2011 today.

Got Questions on Section 6039?
We have answers!  Submit your questions now for the next webcast in the NASPP’s Ask the Experts series, “Last Chance to Ask Questions About Section 6039 Returns,” and our experts will address them during the webcast on February 3.

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