The NASPP Blog

Monthly Archives: October 2011

October 27, 2011

Highlights: 2011 NCEO Private Company Equity Compensation Survey

Across my desk this week came highlights from the NCEO’s recent survey on equity compensation in private companies. The NCEO says that the survey was intended to cover a wider range of closely held companies and to look at granting practices not just to executives, but to all employees. For this week’s blog, I share a snapshot of the survey results.


201 companies and 32 service providers completed the survey. The large majority of participating companies (81%) have been in business for 5 years or more. Over half the respondents (56%) indicated their likely exit strategy would be a sale to another firm; only 10% are planning an IPO. A wide demographic was represented, with 42% of respondents representing biotech, software or other technology industries; 16% in professional services; 12% in manufacturing; and 30% in other industries. Seventy-two percent (72%) of the companies have outside venture or angel capital investors.

Plan Operations

Over half the participating companies use an outside administrative firm for administering their stock plan(s). The rest use a variety of approaches for stock plan administration. 47% of respondents use an outside appraiser to value the company’s shares. Twenty percent (20%) rely on their board to determine stock value, using the assistance of outside professionals.

Equity Distribution

Nearly all of the responding companies give at least some of their C-level employees equity; 77% of the companies give equity to all of their C-level employees. Most companies give C-level employees and senior management grants on hire, but only 44% of supervisory employees and 29% of hourly/non-supervisory employees receive grants. About half of the companies make occasional or periodic grants to eligible employees. C-level executives receive an average of 56% of the awards; other management receives an average of 19%, supervisory and technical 12% and hourly/non-supervisory 4%. Two-thirds of the companies utilize stock options, whereas restricted stock was far less common, at just 29%. Phantom stock, stock appreciation rights and restricted stock units are all used by less than 10% of the companies. The mean percentage of equity held by non-founders through awards is 15%.

More Information

The survey seems to capture feedback from a broad representation of closely held companies, with representation from both small and large companies, as well as demographics in multiple industries. Additional highlights of the survey can be found in our Private and Pre-IPO portal. The complete survey results are available for purchase from the NCEO. NASPP members who wish to purchase the survey are eligible for the NCEO member price ($150 vs. $250 for non-members). To take advantage of this pricing, enter the discount code SURVEY during checkout.

I look forward to seeing many of you at the 19th Annual NASPP Conference in San Francisco next week!


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October 25, 2011

Hottest Topics in Stock Compensation

Wondering what the hottest topics in stock compensation are today? You can find out at the 19th Annual NASPP Conference, with the session “Today’s Hottest Topics in Stock Compensation.” I happen to have caught a glimpse of the panel’s slide presentation, so, in today’s blog entry, I “leak” a few of the topics that will covered.

Today’s Hottest Topics in Stock Compensation
I’ve been saying all year that performance-based awards are red-hot and I’m pleased to see that our expert panel agrees (it’s always nice to be right). The panel plans to discuss a number of tricky issues relating to performance-based pay that have emerged over the past year, including:

  • Setting long-term performance goals in today’s volatile economy without jeopardizing 162(m) deductibility.
  • Best approaches for disclosing in the CD&A the use of non-GAAP financials for performance awards.
  • Trends and emerging practices with respect to double-trigger CIC vesting of performance-based awards.

The panel also plans to discuss whether stock options will become more performance-based in light of ISS concerns.

Next year’s proxy season is also clearly on everyone’s minds these days. Here are the proxy-related topics that the panel plans on discussing:

  • Under what circumstances might a company defy ISS guidance and how should they prepare for the consequences?
  • Drafting the CD&A disclosure of the Compensation Committee’s response to Say-on-Pay votes.
  • How will ISS’s new policy (currently in draft form–see the NASPP alert “ISS Issues Draft of 2012 Policy for Comment“) regarding the evaluation of executive pay affect plan design, benchmarking, and support for management’s Say-on-Pay proposals?
  • What best practices have evolved for developing a strategy for shareholder Say-on-Pay?

The panel will also discuss clawback provisions (particularly what to do about them if the SEC doesn’t finalize rules before the 2012 proxy season).

Don’t miss “Today’s Hottest Topics in Stock Compensation” at this year’s NASPP Conference.  The panel wil be moderated by Art Meyers of Choate Hall & Stewart (and of the NASPP Executive Advisory Committee). Art’s co-panelists will be Mike Melbinger of Winston & Strawn (and author of Melbinger’s Compensation Blog on, Mark Borges of Compensia (and author of Borges’ Proxy Disclosure Blog on, and Paula Todd of Towers Watson (and of the NASPP Advisory Board).

See You Next Week in San Francisco!
It’s hard to believe, but the 19th Annual NASPP Conference is next week! I hope to see all of my readers at the Conference, which starts next Tuesday, November 1, in San Francisco. We expect to have around 2,000 attendees–it’s going to be a very exciting event; register today to ensure you don’t miss out (and make your hotel reservations, because the hotel is close to selling out).

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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October 20, 2011

Should Insider Trading be Legal?

Last week, hedge fund manager Raj Rajaratnam was sentenced to a record 11 years in prison, following his conviction last May for insider trading. From my desk in metropolitan Washington, D.C., I could almost hear the celebration echoing from the Justice Department and the SEC.

In catching up on the news of the sentencing, I came across several op-ed articles that began to raise a provocative question: should we just take the plunge and legalize insider trading? My first thought: really? My second thought: REALLY? Intrigued, I began to dig deeper into the various opinions on the matter.

The Argument for Legalized Insider Trading

I can guess where the SEC falls in the debate over legalized insider trading. Mr. Rajaratnam’s conviction sends a message that the SEC is still focused on enforcement of insider trading violations. Interestingly, in Japan, where insider trading enforcement is nearly non-existent, CEOs are paid less in salary, but still come out overall as wealthy as their American counterparts. Some surmise that one reason may be that insider trading is more widely accepted in Japan. As a result, Japanese CEOs earn less in guaranteed pay, and rely on inside information to make lucrative trades in their company’s stock. Supporters of legalized insider trading claim that it’s a win-win situation. The CEO and company employees make money, but it’s a benefit of their employment and also motivates them to have a more vested interest in the upward mobility of the company’s stock price. When the stock price moves upward, all shareholders benefit. In addition, if employees rush out to trade on inside information, the flood of activity will cause the stock price to react more quickly to the information, limiting their immediate upward gain potential. Other arguments for the issue include the cost of enforcement.

Public Opinion
In the U.S., public opinion seems to be clear: insider trading is unfair and should be punished. The argument: Why should I have to work hard for an average pay, while the elite gain access to privileged information and use it to make themselves wealthier? In addition, the impact on corporate governance, public disclosures to shareholders, and economic issues are also hefty considerations in the debate. Would executives become more secretive in disclosing information to their boards and shareholders if they knew they could legally trade on material non-public information?

Taking a Stand

Where do I stand? I find myself squarely on the side of public opinion. We have enough problems in our economy; we shouldn’t even begin to entertain the idea of legalized insider trading. I’m always in favor of learning from my own mistakes and those made by others. In the case of Mr. Rajaratnam, the SEC and Justice Department seem to have sent a clear message: you can’t get away with it. In seeking meaning to the message, I believe we have an opportunity to remind employees that the SEC means business when it comes to enforcement of insider trading violations, and for now it appears that the laws aren’t going to change. So dust off that Insider Trading policy and take a moment to remind employees about the dos and don’ts of trading in the company’s stock.

One detailed article on this subject is Larry Harris’ op-ed article in the LA Times. You may also want to visit our Insider Portal for more information and sample documents.


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October 18, 2011

More from the NASPP Survey

This week I look at a section of the NASPP’s 2011 Domestic Stock Plan Administration Survey (co-sponsored by Deloitte) that came as a big surprise to me–the design and usage of stock ownership guidelines.

Trends in Stock Ownership Guidelines
Maybe I haven’t been paying attention, but the significant increase in companies that have ownership guidelines was a big surprise for me.  73% of respondents in the 2011 survey report having ownership guidelines, up from only 54% of respondents in the 2007 Domestic Stock Plan Design and Administration Survey (also co-sponsored by Deloitte), a 35% increase. Back in 2007, we also asked how many respondents were considering implementing ownership guidelines in the next two years. Based on the responses to that question, I would have expected around 65% of respondents in the 2011 survey to have ownership guidelines, quite a bit less than 73%.

In case you are wondering, 25% of respondents to the 2011 survey that don’t currently have ownership guidelines said they are considering implementing them in the next three years. That would add around 35 companies to those that have guidelines, so I’d expect the percentage of respondents with ownership guidelines in 2014 (the next year the survey is planned for) to be close to 80%. All the cool kids are doing it, is your company one of them?

What Counts?

Everyone counts shares owned outright, whether purchased on the open market or through some type of compensatory or private arrangement. Of the respondents that offer the following types of arrangements, here’s the percentage that count them toward their guidelines:

  • 70% count unvested restricted stock
  • 60% count unvested phantom stock and RSUs
  • 93% count vested phantom stock and deferred RSUs
  • Only 31% count unvested performance shares

72% of respondents indicated that they offer stock options but don’t count them toward the guidelines.

We asked about a bunch of other types of arrangements in the survey, but the ones I list above are the most interesting.

Who Counts?

Ownership guidelines are largely applied only to top executives–98% of respondents said that the guidelines apply to their CEO and CFO and 95% apply the guidelines to their other NEOs. Only 71% apply the guidelines to other senior executives. From there, application of the guidelines drops off sharply, with only 12% applying the guidelines to other management.

How and When to Count

Most, or 78%, of respondents base required ownership levels on a multiple or percent of compensation. 68% allow up to five years to meet the guidelines; another 13% percent require guidelines to be met in three years.

How Much to Count

For CEOs, required ownership levels are pretty high. 74% of respondents require the CEO to own stock equal in value to five or more times his/her compensation (49% of respondents require exactly five times compensation). That is perhaps reflective of how much CEOs get paid in stock. For the CFO and other NEOs, the requirement is a little lower, with 78% of respondents indicating that their requirement for these positions falls in the range of two to four times their compensation.

Need to Catch Up?

For more on stock ownership guidelines, don’t miss the double session at the NASPP Conference, “A Sensible Approach to Stock Ownership Guidelines” and “Stock Ownership Guidelines: Towards the Achievable, Meaningful, and Manageable.”  You can also check out the articles and tools in our new Stock Ownership Guidelines Portal.

To learn more about the results from the 2011 survey, listen to the archive of the survey webcast and check out my blog from last week, “Trends in Stock Plan Administration.”

See You in San Francisco in Two Weeks!
It’s hard to believe, but the 19th Annual NASPP Conference is just two weeks away! I hope to see all of my readers at the Conference, which is scheduled for November 1-4 in San Francisco. The last Conference in San Francisco sold out a month in advance–and that was without the reality of Dodd-Frank and mandatory Say-on-Pay hanging over our heads. With Conference registrations going strong–on track to reach nearly 2,000 attendees–this year’s event promises to be just as exciting; register today to ensure you don’t miss out (and make your hotel reservations, because the hotel is close to selling out).

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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October 13, 2011

Did Steve Jobs have a Beneficiary?

I was saddened to learn of the death of Apple Inc. co-founder and chairman, Steve Jobs, last week. Whether or not you are a user of Apple products, surely you can appreciate the contribution Mr. Jobs made to global technology.

The Legacy We Leave Behind

While Mr. Jobs’ passing was on my mind, I wondered about his restricted stock holdings and how his massive empire would be transitioned to his intended heirs. I realized that this was a good reminder about estate planning. No one likes to talk about death, but since immortality is not a clause that exists in stock plan (or any other) agreements, planning for the inevitable is a wise step. I’d prefer to have my descendants reflect on the positive impact I had on their lives, rather than the way I bungled their inheritance!

Does Designating a Beneficiary Help?

There are varied opinions about whether beneficiaries should be designated for stock plan grants and awards, such as stock options or restricted stock. Maintenance of such designations and the fact that generic beneficiary forms can be problematic due to varied local estate regulations are some of the core arguments against the use of such forms. See Robyn’s 2009 blog on this topic. The issues with designating beneficiaries have taken center stage in recent court cases. In January of 2009, the U.S. Supreme Court ruled, in the case of Kennedy, executrix of the Estate of Kennedy v. Plan Administrator for DuPont Savings and Investment Plan et al, that a deceased man’s pension plan was to be paid to his ex-wife, based on a 27 year old beneficiary designation that the man filled out shortly after his marriage. Even though their divorce decree years later had divested her rights to his pension plan, he never changed the beneficiary with the plan administrator. This failure to change the beneficiary designation resulted in what appears to be an unintended payment to his ex-spouse rather than to his estate. I think many would agree it’s reasonable to assume that was probably not the outcome he’d had in mind in crafting his estate plan.


I’m guessing that Steve Jobs had a solid estate plan in place. He certainly had the benefit of having enough resources to engage top advisers to assist him in this area. In general, the loss of another often prompts us to evaluate our own mortality. As individuals, it’s a timely reminder to have our ducks in a row, and to periodically assess the plan to ensure our instructions reflect our most current intentions. Has there been a change in the family (marriage, divorce, death or birth) that would impact prior designations? As plan administrators, it’s also an opportunity to nudge our employee populations about doing the same, with a reminder about how the company will handle such a situation administratively and what documentation may be required. An unpleasant topic? Yes. Yet we should be talking about it, because it’s an area where informed planning can make a world of difference. Year-end is just around the corner. In preparing the related employee communications, consider including a reference to estate planning. We send out about reminders about much more routine things such as to set our clocks back an hour, or that the social security tax withholding accumulator resets on January 1st. Why not include some important information on how they can manage their estate planning in line with company policy? You may also want to visit the session at the 19th Annual NASPP Conference on Death, Taxes and Senior Executives: Estate Planning and Retirement Programs.


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October 11, 2011

Trends in Stock Plan Administration

For today’s blog entry, I highlight results from the NASPP’s 2011 Stock Plan Design and Administration Survey (co-sponsored by Deloitte). If you missed our webcast highlighting the results, you can still catch the audio archive (and the transcript will be up in a couple of weeks). The full results will be published later this month; I’ll cover more highlights from the results in future blog entries. 

The 2011 Domestic Stock Plan Administration Survey
The last time the Domestic Stock Plan Administration Survey was conducted was in 2007, when it was part of the Domestic Design survey. This is the first time the Domestic Administration survey has been conducted and published independently.

Respondent Demographics

We received 603 responses, compared to 428 responses in 2007. High-tech companies still comprised the single largest industry in the survey, but dropped from 43% of the respondents in 2007 to only 34% of respondents in 2011. We picked up respondents in the “other” industries categories, which is a mish mash of industries that don’t fit into any of the other categories (one thing I like about writing a blog is that I can use words like “mish mash” that I can’t use in anything else I write). Respondents from the western region also dropped from 35% in 2007 to only 29% in 2011. We picked up respondents primarily in southeast and a little in the northeast. 37% of respondents are Fortune 500 companies (this was almost the same as in the 2007 survey).

Staffing and Outsourcing

A question I am asked a lot is what department stock plan administration is located in. 60% of respondents reported that HR/Comp & Benefits has primary responsibility for administering the company’s stock and option plans. This was up from 57% in 2007. I was surprised to see the number of companies that locate primary responsibility for stock plan administration in Treasury/Finance drop from 16% in 2007 to just 5% in the current survey. 9% of respondents task accounting with primary responsibility for stock plan administration, which did not change from the 2007 survey.

The percentage of companies that have no personnel dedicated solely to administering their stock and option plans increased from 31% in 2007 to 39% in 2011. At the same time, the number of companies outsourcing more than 75% of stock plan administration increased to 41%, up from 33% in 2007. Perhaps the increase in outsourcing contributed to the decline in staffing.

The Electronic Age

Companies continue to move to electronic processes. The percentage of respondents distributing grant agreements in paper format dropped to 33%, from 47% in 2007. 47% of respondents permit a digital signature on grant agreements for some or all employees, up from 34% in 2007.

Participant Communications

76% of respondents require employees to accept their grant agreements, which did not change significantly from 2007. Enforcement practices also did not change significantly, but an additional 4% (19%, up from 15% in 2007) of respondents cancel grants if they aren’t acknowledged within a specified period.

We are seeing more companies notify employees of expiring in-the-money options. Only 20% of respondents don’t provide this notice, down from 25% in 2007. And more companies are relying on a third-party to provide the notice (45% of respondents, up from 31% in 2007). I expect that this is the result of the brokers and other third-party administrators developing the functionality to provide these notices to employees and more companies getting comfortable with relying on the brokers to provide this notice.

See You in San Francisco!
I hope to see all of my readers at the 19th Annual NASPP Conference, which is scheduled for November 1-4 in San Francisco. The last Conference in San Francisco sold out a month in advance–and that was without the reality of Dodd-Frank and mandatory Say-on-Pay hanging over our heads. With Conference registrations going strong–on track to reach nearly 2,000 attendees–this year’s event promises to be just as exciting; register today to ensure you don’t miss out (and make your hotel reservations, because the hotel is close to selling out).

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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October 6, 2011

A Passionate Perspective

It feels great to be part of the NASPP, and I appreciate the warm welcome I’ve received. For my inaugural blog I decided to focus on something I’m particularly passionate about: employee communications. Those who know me know that this is a soapbox I can often be found standing atop, waving my arms.

The Need to Communicate
The need to communicate with employees about stock plans knows no boundaries. Whether you are a public or private company, you have a large or small employee population, or you simply service those types of companies, employee communication is a core and critical aspect of offering and administering stock plan benefits. It is also an area that often is downgraded in priority when other demands rise. Year-end is just around the corner, and many companies are preparing to send out communications that are legally required, such as those mandated by IRC Section 6039. What about the communications that are not required by a statute? Is there a plan in place to carry out a voluntary long-term communication strategy?

Crafting a Communication Strategy
I’ve thought of a few areas to begin in focusing on a long-term communications plan:

Choose your mediums, and use multiple! Don’t limit yourself to just one mode of communication with employees, such as email. Communication research shows that people receive and process information differently. Sometimes a visual is needed, sometimes in-person contact is necessary. Ideas for mediums include email, presentations, in-person meetings, FAQs, webcasts, mailers, and social networking sites (Facebook, Twitter).
Craft a message that repeats itself. One mistake often made in communication efforts is assuming that the message is heard and retained the first time. It often takes several attempts for a message to clearly register. Ensure your communication campaign involves repetition of your core message.
Don’t forget the value proposition. It’s easy to focus on communicating about the process, whether it is the process for accepting a new grant, accessing a brokerage web site, or other functional “must know.” In your quest to inform participants about how to do something, don’t forget to include why it is important. Your stock plans are only as valuable to your participant as the participant perceives the benefit. Remember that the total value of a grant or award is comprised of both the tangible cash value (e.g. the intrinsic value of a stock option) and intangibles, such as how the employee feels about their grant and worth to the company.
Think of key events and use them as opportunities. Communication doesn’t have to be a stand-alone event. Think of key events in the stock plan life cycle (new grants, vesting, exercise/release, significant company events such as a merger or major milestone achievement, etc.) and tie your communication efforts into those moments.

Last Thoughts
As you sit down to develop your year-end communication strategy, I challenge you to expand your efforts to include a plan for the entire year. Certainly unforeseen events will arise throughout the year that will require additional communication. The key is to place emphasis on managing participant perception of stock plan benefits by keeping in touch consistently, repetitiously, and using effective mediums. For communication ideas, be sure to stop by our Employee Communications Portal to view sample documents and other tidbits of information. You may also want to attend the “Maximizing Perceived Value of Equity Compensation” session at the 19th Annual NASPP Conference in November.


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October 4, 2011

The Newest NASPP Staff Member

Some of you may have noticed that NASPP Blog entries and the NASPP Question of the Week Challenge have been a little inconsistent lately. Well, with the addition of Jenn Namazi to the NASPP staff, things are going to get back on track around here.

The NASPP Welcomes Jennifer Namazi
I’m excited to report that Jennifer Namazi has joined the NASPP staff as our Editorial Director. Jenn will be responsible for maintaining the NASPP website, including the Question of the Week Challenge and the Compliance-O-Meter, as well as posting articles, alerts, and new portals, and generally keeping the website current.

In addition to the website, Jenn will blog once week (on Thursdays) and will write the “Administrators’ Corner” column in The NASPP Advisor.

Jenn most recently worked for Stock & Options Solutions and has also worked for Adaptec, Broadcom, and Sicor Pharmaceuticals, so she brings a wealth of experience to the NASPP.

Getting to Know Jenn

Many of you already know Jenn from her presentations at numerous NASPP Annual Conferences and in our online education programs. In fact, Jenn has been an active contributor to the NASPP for years now; here are just a few of her contributions:

I hope you’ll join me in welcoming Jenn to the NASPP staff and look for her inaugural blog entry this Thursday.

Conference Hotel Almost Sold Out
The 19th Annual NASPP Conference is quickly approaching and the Conference hotel is nearly sold out. The Conference will be held from November 1-4 in San Francisco. The last Conference in San Francisco sold out a month in advance–and that was without the reality of Dodd-Frank and mandatory Say-on-Pay hanging over our heads. With Conference registrations going strong–on track to reach nearly 2,000 attendees–this year’s event promises to be just as exciting; register today to ensure you don’t miss out.

Video Preview of “Did it Pass?”
Keith Bishop of Allen Matkins will lead the session “Did it Pass? Understanding Shareholder Voting Issues” at the 19th Annual NASPP Conference. Recently, Keith starred in a video preview of the session.  Check it out!

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