The NASPP Blog

Monthly Archives: July 2012

July 31, 2012

What’s Your Limit?

The last couple of weeks have been fun but it’s time to get back to serious stuff.  Last week, my Google alert for stock options exploded with articles on Barnes & Noble’s snafu relating to an option granted to their CEO. One day’s alert had three articles on this topic, with more articles in subsequent alerts. For today’s blog entry, I offer my take on the blunder.

Oops–Can We Have That Grant Back?
Back in early December 2011, Barnes & Noble’s compensation committee decided to grant the CEO an option to purchase 1,000,000 shares. Unfortunately, no one noticed that a grant of this size exceeded the plan’s limitation on the number of shares that can be granted to an individual. The error wasn’t discovered until somewhere around six months later (the amended Form 4 correcting the original report of the grant was filed on June 28, so I’d guess they discovered the error towards the end of June).

Barnes & Noble really had no choice but to rescind the portion of the grant that exceeded the limitation (500,000 shares), as if it had never been granted. The grant wasn’t valid under the terms of the plan and, as an NYSE-traded company, Barnes & Noble can’t make grants outside of its shareholder approved plans (unless the grants themselves are approved by shareholders). They are now asking shareholders to approve an amendment to the plan that will increase the individual limit; if passed, another option to purchase 500,000 shares will be granted to the CEO at the then-current FMV.

What the Heck?

This individual limit is required for options granted under the plan to be considered performance-based compensation under Section 162(m). If your company is public, you probably have a limit like this stated in your plan. If you don’t know what it is, now would be a good time to dig out your plan and look it up. 10 pts to anyone who already knows what the limit in their plan is without peeking. You might also want to verify whether the limit is adjusted for stock splits.

Last year, the IRS issued proposed regs to clarify that just stating a maximum number of shares available for grant under the plan isn’t sufficient to satisfy this requirement (even though this does effectively limit how many shares can be granted to an individual). The plan must have a separately stated individual limit (see the NASPP alert, “Proposed Regulations Under Section 162(m),” July 2011).

Shouldn’t Someone Have Noticed?

It seems like this error should have been caught sooner. Ideally, stock plan administration would be informed of any grant recommendations to be submitted to the compensation committee for approval in advance, so that they can review the grants to for problems like this (and also so they can get a head start on the Form 4 filing, if they are responsible for it).

I understand that this doesn’t always happen–sometimes stock plan administration is the last to know about new grants to executives. But they should be informed of the grants shortly after approval, so that the grants can be entered into the administrative system and properly accounted for. Part of this process should include reviewing all grants to ensure that the plan limit isn’t exceeded. Remember that this isn’t an individual grant limit; it’s a limit on the cumulative number of shares that can be granted to an individual over a period of time. Even a relatively modest grant could be the fabled straw that breaks the camel’s back, if an individual has previously received an excessive number of grants or excessively large grants. Having an appropriate control procedure in place here can allow stock plan administration to raise the red flag before the grants are publicly reported and a media circus ensues.

Don’t Do That

Diligent readers of my blog already know my opinion of mega grants like this (see “And Another Thing,” May 5, 2009). Running afoul of the individual grant limit in your plan is just one other reason to avoid them.

More Section 162(m) Traps for the Unwary

For more Section 162(m) gotchas, don’t miss the session “Section 162(m): Keeping Your Executive Compensation Deductions Safe from the Tax Man,” at the 20th Annual NASPP Conference.

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July 26, 2012

Keeping Up with the Updates

This week, we feature another installment in our series of guest blog entries by NASPP Conference speakers.  Today’s entry is written by Marlene Zobayan of Rutlen Associates, who will lead the session “Keeping Up With The Updates.”

Global Updates Without the Headaches
By Marlene Zobayan of Rutlen Associates

When I first started in the global equity field over 15 years ago, we would prepare specific reports for companies wishing to offer equity globally. For each client, we would send their plan to a local expert in each country who would write a report on the tax and legal consequences of that plan. The overall report would be compiled by a US representative who managed the relationship with the client and talked the client through the findings. In a field that was new to most, this process a good path to follow. It was a surprise to most companies that not all countries followed the same logic as the U.S. when taxing equity compensation.

However, as time went on, the information became more readily available and the level of knowledge among industry members grew. It is no longer ‘news’ to anyone that Australia taxes stock options at vest or that the employer can save money through a French qualifying plan. In fact most of this information is now readily available on the web. However, now we have the opposite issue–the information available is overwhelming, confusing to the layperson and oftentimes contradictory. Additionally, the underlying laws seem to change at an unprecedented rate, for example the first quarter of 2012 there were at least 24 updates of new and pending legislation impacting global equity awards.

Information Overload?

Many accounting, consulting and law firms distribute newsletters to clients and friends whenever there is a change in the international laws impacting equity awards. While a useful tool, and often extremely well written and informative, the net result is that many companies get inundated with similar newsletters from different sources. There is little time to read and understand them all.

Regardless with the rapid pace of international developments all global companies must make the time and effort to keep up to date otherwise they can quickly find their practices and processes out of date and non-compliant.

A Free Resource for NASPP Members

In the NASPP Conference session “Keeping Up With The Updates“, the panel will review the wealth of information available on the NASPP’s Global Stock Plans Portal. These include the alerts which notify companies of updates and the Country Guides, all organized in a searchable archive by country. These resources provide a good foundation for an administrator whose company is expanding into a new country, extending a new type of plan or who simply wants to stay up to date. Although the NASPP global portal is a great resource to educate yourself, it is not a substitute for professional advice. The panel will help companies understand how to identify when the free resources are insufficient, and technical expertise is needed. Finally, the panel will cover some recent updates with a surprise guest.

How many other sessions can help keep your company out of trouble, save you money and provide a surprise guest too?

Don’t miss Marlene’s panel, “Keeping Up With The Updates,” at the 20th Annual NASPP Conference.

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July 25, 2012

NASPP To-Do List

I’ve decided to start publishing the NASPP To-Do List on Wednesdays, instead of at the end of my blog on Tuesdays. I’m not sure if this will make it harder or easier to ignore, but it will at least make the blogs on Tuesdays a little shorter.

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 we keep an ongoing “to do” list for you here in our blog. 

Also, check out Nell Minow’s article, “More Shareholders Are Just Saying No on Executive Pay,” in BusinessWeek. Nell is the opening keynote for the 20th Annual NASPP Conference. The article also quotes our own Broc Romanek, editor of 

– Barbara 


July 24, 2012

East Coast Chapter Meetings

Last week, I completed a three-city tour of the northeast, speaking at chapter meetings in Philadelphia and New York/New Jersey and at Boston-CT chapter all-day conference. Here are a few pictures from the meetings.


waiting.JPGAttendees enjoy lunch and mingle before the Philadelphia chapter meeting begins.  Thanks to Terry Adamson of Radford and chapter president, John Hammond
 of AST and chapter vice president, and the rest of the chapter board for organizing the meeting.

koi.JPGThe meeting was held at the lovely Urban Outfitters campus. The offices are pretty cool, complete with an indoor koi pond.  Thanks to Bill Cody and the rest of the folks at Urban Outfitters for providing such a great meeting space.
More pictures of the Philadephia chapter meeting.
New York/New Jersey
Martha.JPGMartha Steinman of Hogan Lovells and president of the NY/NJ chapter. Thanks to Martha and the rest of the chapter board for organizing the meeting and to Morgan Stanley Smith Barney for providing the meeting space.
James Nancy Alan.JPGJames Humza of Bank of American Merrill Lynch, Nancy Mesereau of Mesereau Consulting, and Alan Nadel of Strategic  Apex Group attended the meeting.
More pictures of the NY/NJ chapter meeting.

Boston/CT All-Day Conference

Boston CT board members.JPGMembers of the Boston and CT boards take a moment from the day’s festivities for a photo shoot.  Kudos to both boards for putting together such a great event.
Ed.JPGThe NASPP Conference bags hold up!  Edgar Vanagas of MassMutual is still using his bag from 1999 Conference.  Join the NASPP in New Orleans this year for our 20th Annual Conference and get your own nifty bag.
More pictures of the Boston/CT all-day conference.
– Barbara

July 23, 2012

NASPP Chapter Meetings

Here are this weeks NASPP chapter meetings:

Austin: Jon Doyle of International Law Solutions will present on “Global Hot Spots–Where the Rubber Meets the Road.” (Tuesday, July 24, 11:30 AM)

Wisconsin: Kim Kovacs of OptionEase and Joanne Wendler of Demand Media will presented on “Generation Y: Powered by Technology.” (Tuesday, July 24, 1:00 PM)

Denver: Jim Sillery of Buck Consulting will presented on “Performance Share Plans and Equity Effectiveness: Part of the Solution or Part of the Problem?” (Thursday, July 26)

Portland: Replay of NASPP webcast, “Capped Stock Awards: The Next Generation?” (Thursday, July 26, 11:45 AM)

San Fernando Valley: Alan Unger will present “Tools for maximizing your Stock Options and Restricted Stock” (Thursday, July 26, 11:30 AM).

Check out the pictures from last week’s Philadelphia (Urban Outfitters has a very cool office) and NY/NJ meetings. Pictures from the Boston/CT all-day conference are coming soon.


July 19, 2012

Say-on-Pay: Yesterday’s News?

It’s been a little while since I’ve heard much of anything about Say-on-Pay. I can’t say that I’ve been disappointed about that, either. It’s nothing against those who spend their time working on and following that topic, but with the overdrive of talk and discussion on Say-on-Pay over the last couple of years, it’s been nice to focus some thoughts elsewhere. I was nearly asleep (at least in terms of monitoring Say-on-Pay) when some interesting information on the subject crossed my desk last week.

2012 Failures Higher than 2011

According to Ed Hauder in his Say-on-Pay blog, 55 companies have reported failed SOP votes thus far in 2012. That’s higher than the 44 companies who failed to obtain a passing vote in 2011. This surprises me a bit, as I had assumed the numbers would continue to decline as more companies refined their Say-on-Pay practices. Or, maybe I thought shareholders would lessen their vigor as time moved on. It seems I was wrong about both assumptions. The list of companies is published in Ed’s blog, and they aren’t no-name companies either. Companies like Abercrombie & Fitch, KB Home, Chesapeake Energy, Citigroup and Pitney Bowes all made the list.

It does seem that Say-on-Pay is working as intended. I note that Apple had no trouble gaining approval for CEO Tim Cook’s $378 million dollar compensation package, but that gives credence to the thought that when the company is performing well, shareholders don’t mind compensating top management. That’s not to say that doing well gives a company a “get-away-with-say-on-pay” card, but it does seem to be true that companies who are under-performing are more targeted than those that are meeting or exceeding expectations. It kind of reminds me of playing blackjack in a casino. Have you ever watched someone who is winning big? As long as they’re winning, they have no trouble plinking down big bets and tipping the dealer handsomely. Watch that same person hit a bad run of cards and enter a losing streak: the tips disappear and the size of the bet shrinks.

Not Yesterday’s News

The message seems to be that it’s not time to get too secure in expecting a passing Say-on-Pay vote. Companies that have yet to enter their 2012 proxy seasons should take note that shareholders haven’t forgotten about Say-on-Pay; it is still very relevant and has not faded like yesterday’s news.

Looking forward, I think there is a lot more about Say-on-Pay that we’ve yet to hear about. Last month Britain unveiled its own proposed version of Say-on-Pay, with far more stringent items on the table, like binding votes on compensation and the ability to vote on the ratio between fixed and variable compensation.

What to Do?

While we as stock plan professionals may not be the primary drivers of initiatives that fall under the Say-on-Pay umbrella, we’re certainly involved in administering or managing aspects of compensation. As compensation strategies are discussed and brought to the table, we can and should ensure that Say-on-Pay is and remains an important part of the discussion.


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July 17, 2012

Silicon Valley NASPP Chapter All-Day

I attended the Silicon Valley NASPP Chapter All-Day Conference last Wednesday. The program featured 11 sessions, including keynotes on making compensation equity work for your company and the top five equity compensation issues for 2012. For today’s blog entry, I feature pictures of the event (click on the thumbnails to view larger pictures).

Opening KeynoteEmily Cervino of Fidelity, David Knopping of Radford, and Carol Rutlen of Rutlen Associates presented the opening keynote, “The Artist (A Not So Silent Discussion on Making Equity Compensation Work for your Company).”  The presentation included a few lighter moments, as you can see in this picture. 

ESPP sessionIn keeping with their theme, panelists Sara Roberts of Stock & Option Solutions, Alison Wright of Baker & McKenzie, and Bernice Toy of BeUbiq broke out Ray-Bans and white button-downs for their session, “Risky ESPP Business: Avoiding and Mitigating Risk in 423-ESPPs.”
Jacobin and Colleen.JPGChapter board members Jacobin Zorin of LinkedIn and Colleen Ledesma of Netapp hand out nifty reusable grocery bags to attendees. My weekly grocery shopping trips always feature several bags from the conference I’ve attended.

exhibit hall.JPGAttendees mingle in the exhibit hall.


Pam and Fred.JPG
Pam Ellis of Solium and Fred Whittlesey of Compensation Venture Group answer questions for attendees after their session on “The Executive Compensation Controversy and What it Means for Equity Plan Managers.”
Mike.compressed.JPGMike Melbinger of Winston & Strawn flew out from Chicago to present the afternoon keynote on “Top Five Equity Compensation Issues to Review in 2012.”
Visit the NASPP’s Facebook page for more pictures of this great event!
– Barbara

July 16, 2012

Chapter Meetings

I’ve decided to start every Monday with a blog entry listing upcoming chapter meetings for the week. I was including this information in my blog on Tuesdays, but I think that blog is a little long and I’m not sure anyone actually managed to read all the way to the bottom where I list the meetings.

This is a good week to start this approach because there is a lot going on at the local chapter level. Here are this week’s meetings:

Philadelphia:  I will be presenting on Top Ten Gotchas for Performance Plans.  I hope to see you there! (Monday, July 16, 11:30 AM.)

Chicago:  Speakers from UBS and Winston & Strawn will present on “Rule 10b5-1 Plans:  How to Transact Your Business Safely and Efficiently.” (Tuesday, July 17, 7:30 AM.)

Los Angeles:  Barbara Canup of Accretive Solutions and Marianne Brannock-Hill of FRS Equity Strategies wil present on “It’s Hidden in Plain Sight: Review of the Regulatory Expense Details of Your ESPP.” (Tuesday, July 17, 1:00 PM, webcast)

NY/NJ: I will be presenting on Today’s Hottest Topics in Stock Compensation.  I hope to see you at this meeting as well! (Tuesday, July 17, 12:00 PM.)

Boston/CT:  The Boston and CT chapters have joined forces to present their annual all-day conference.  Topics include highlights from the 2012 proxy seasion, qualified vs. nonqualified ESPPs, trends in rule 10b5-1 plans, global survey results, Canadian tax traps, and performance plans.  Emily Cervino of Fidelity and I will be presenting on Today’s Hottet Topics in Stock Compensation–making this a three-city tour for me. If you miss me on the first two stops, I hope to see you in Boston. 

Carolinas:  The chapter will feature a presentation on managing the challenges of a global workforce with equity income. (Thursday, July 19, 11:30 AM)

DC/VA/MD:  James Sillery and Sandra Sussman of Buck Consultants will present on “Achieving Equity Effectiveness–A New Perspective.”  (Thursday, July 19, 4:00 PM)

Atlanta:  Craig Rubino and Karen Weiskopf of E*TRADE Financial will present on “Getting the Message to Employees: Strategies for Effective Communication and Education.” (Friday, July 20, 11:30 AM)

Also, check out the pictures from last week’s Silicon Valley chapter all-day conference on the NASPP’s Facebook page.

– Barbara


July 12, 2012

50 Ways to Pay (and Tax) Your Board of Directors

This week, we feature another installment in our series of guest blog entries by NASPP Conference speakers.  Today’s entry is written by Narendra Acharya of Baker & McKenzie, who will lead the session “50 Ways to Pay (and Tax) Your Board of Directors.”

50 Ways to Pay (and Tax) Your Board of Directors
By Narendra Acharya, Baker & McKenzie

While Board director compensation does not receive the same level of media focus as executive compensation, it does not escape scrutiny (see “Companies With the Highest-Paid Boards of Directors,” The Bottom Line, June 15, 2012). Earlier this year, director compensation was also the subject of a recent unsuccessful shareholder proposal to expand Say-on-Pay to director compensation (see Proposal 5 in Apple’s 2012 proxy statement).

At the same time, director compensation varies across companies to a greater degree than executive compensation practices and is more likely to be more influenced by the company’s historical practice than the company’s executive compensation practices. As a result, there can be substantially greater differences in the structure of director compensation than executive compensation, even within the same industries. Director compensation correlates more with company size than with industry (see “Annual Survey Reveals Emergence of New Compensation Practices,” The Conference Board, November 2, 2011.) These differences in the structure include different vesting practices as well as the availability of deferral elections.

Even when director grants are made under the same equity compensation plan that is used for employee awards, the process and procedures for implementing grants often is quite separate from the employee grant procedures and the grants may be administered by a group that does not generally administer employee awards.

As the makeup of boards becomes more international–recent surveys indicates that up to 10% of non-employees directors are not U.S. nationals–more companies need to address the specific US tax requirements that apply when non-employee directors are a US nonresident alien for income tax purposes. In the absence of specific tax treaty relief, companies can be required to withhold at a flat 30% rate on all of the director compensation paid to US nonresident alien directors. This can be a surprising result–in contrast to the treatment of compensation paid to US citizen/resident directors.

At the 20th Annual NASPP Conference, the session “50 Ways to Pay (and Tax) Your Board of Directors” will provide a multi-disciplinary review of trends in pay practices for directors. The session will also provide an overview of the US tax consequences of directors’ compensation including the use of stock and deferral programs. Finally, the session will address the unique US tax issues related to directors that are not residents of the United States for income tax purposes.

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July 10, 2012

Dividends and Section 162(m)

On June 21, 2012, the IRS issued Rev. Rul. 2012-19 to clarify the treatment of dividends paid on awards that satisfy the requirements to be considered performance-based compensation under Section 162(m). For today’s blog entry, I summarize this ruling.

Background on Section 162(m) (That You Probably Already Know But I Feel Compelled to Include Anyway, Just in Case)

Section 162(m) limits the tax deduction companies can claim for compensation paid to specified executive officers to $1 million per year. Performance-based compensation, as defined under the code and associated regulations, is exempt from this limitation. There are numerous conditions that must be met for awards to be considered performance-based, including that the awards must be payable only upon achievement of performance targets and cannot be paid out prior to certification (by the compensation committee) that the targets have been satisfied.

Treatment of Dividends Under Section 162(m)

Under the ruling, the dividends (and dividend equivalents) are viewed as separate awards–thus, they don’t taint the status of the underlying awards even if they will be paid to award holders before the performance conditions have been met (or will be paid even if the conditions aren’t met).  But the dividends or equivalents themselves are considered performance-based compensation only if they also meet the requirements for this treatment under Section 162(m)–i.e., if they will be paid only upon attainment of performance targets and meet the other requirements specified under Section 162(m).

The easiest way to ensure that the dividends/equivalents will be considered performance-based under Section 162(m) is to pay them out only when the underlying award is paid out.  If the award is forfeited, the dividends/equivalents accrued on it are forfeited as well. This is also a best practice for accounting purposes and from a shareholder-optics standpoint (ISS specifically identifies paying dividends on unvested performance awards as a “problematic pay practice”–see my December 15, 2010 blog entry, “ISS Policy Updates“).

Interestingly–in a grotesque-but-can’t-look-away sense–the ruling says that the dividends/equivalents don’t have to be subject to the same performance criteria as the underlying award–you could have one set of goals for the award and different goals for the dividends. That seems like a disaster just waiting to happen–a mess from both an administrative and participant education standpoint (as if your executives really need another set of goals to focus on, in addition to the award goals and the cash bonus plan goals).  But now that the IRS has suggested it, I fear there is a compensation consultant already trying to design a plan that incorporates this feature.  Just say “No!” 

No Deduction for Dividends Paid on a Current Basis

Where the dividends will be paid out prior to satisfaction of the performance conditions–i.e., where they are paid to award holders at the same time they are paid to shareholders–the dividends are not considered performance-based compensation and are subject to the limit on the company’s tax deduction under Section 162(m).

This is just one more nail in the coffin for paying out dividends on a current basis.  Even if the dividend payments aren’t that significant, I imagine trying to separate them from the original award for purposes of computing the company’s tax deduction will be a challenge. I have a headache just thinking about it.

No Surprises

My sense, from reading Mike Melbinger’s blog on (“Code Sec. 162(m), RSUs, Dividends and Dividend Equivalents,” July 2, 2012) and the Skadden memo we posted on this, is that this is pretty much what everyone was doing anyway. It certainly seemed like common sense to me–if there is such a thing when it comes to the tax code. So, just like last month’s “Section 83 Update” (June 12, 2012), I’m a little surprised that the IRS doesn’t have anything more important to worry about.  I’m sure this will be discussed at the IRS and Treasury Speak panel at the NASPP Conference–it will be interesting to hear why the IRS felt the need to issue this ruling.

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 we keep an ongoing “to do” list for you here in our blog. 

– Barbara 

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