The NASPP Blog

Monthly Archives: October 2012

October 31, 2012

NASPP To-Do List

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. 


October 30, 2012

2013 COLAs, Sandy and EDGAR

In today’s blog, I provide an update on the status of FICA taxes as we head into next year and include a note from Alan Dye on the impact of Hurricane Sandy on EDGAR filings.

FICA Tax Increases for 2013
The Social Security Administration announced in a press release on October 16 that the annual wage base for Social Security tax is increasing to $113,700 in 2013 (up from $110,100 in 2012).

In addition, the current 2% rate cut for the employee portion of FICA is due to expire at the end of this year. If Congress doesn’t take action before the end of the year, the withholding rate for Social Security will return to 6.2% next January. If I managed to do the math correctly (something you should never take for granted), that will bring the maximum Social Security tax payment for 2013 up to $7,049.40. This is up from $4,624.20 this year, an increase of over 50%.

For the first time since I’ve started working in stock compensation, the Medicare tax is also increasing, at least for those in the top income tax brackets. As noted in my August 7 blog, “The Supreme Court and Stock Compensation,” wages in excess of $200,000 per year ($250,000 for married taxpayers that file jointly, $125,000 for married taxpayers that file separately) are subject to an additional .9% Medicare tax. Companies will apply the higher rate to any wages in excess of $200,000, regardless of the employee’s filing status and the rest will be sorted out when employees file their tax returns.

The additional Medicare tax applies only to employees; the company’s matching payment is not increased.

There are already a couple of threads started on administering the new Medicare tax in the NASPP Discussion Forum, see topics 7186 and 7354.

Highly Compensated Employees
The wage threshold for which employees are considered highly compensated for purposes of Section 423 qualified ESPPs will remain at $115,000 for 2013.

Hurricane Sandy and EDGAR Filings
Alan Dye notes in his blog on that Hurricane Sandy is preventing folks on the East coast from submitting Section 16 filings and that the SEC was quick to offer relief. From Alan’s blog yesterday:

With Hurricane Sandy bearing down on DC and much of the Northeast, some filers and filing agents are having trouble getting to their offices to make Section 16(a) filings that are due today. The staff is taking an accommodating position for purposes of Section 16(a) and Item 405, saying that “For those affected by the hurricane — filers (or their lawyers/agents) along the East Coast — we won’t object if the filings that are due today are filed tomorrow (assuming that tomorrow is a day on which people can go to work). For filers not affected by the hurricane, then today is a regular business day and filings due today have to be filed today. So, this is effectively a no action position for only those filers (or their lawyers/agents) affected by the hurricane.”

Presumably filers not affected by the hurricane have no need for relief and will file on time. Filers scrambling to find a filing agent, though, now have some breathing room and can file tomorrow (assuming tomorrow is a normal business day). Thanks to the staff for getting on top of this issue quickly.

Hurricane Sandy and Option Exercises
We also had a couple of threads started in the NASPP Discussion Forum on how employees that are up against the contractual expiration of their in-the-money stock options can exercise despite the market’s unexpected closure due to Hurricane Sandy.  Here is a quick list of the alternatives:

  • pay cash for the exercise
  • net exercise
  • stock-for-stock or pyramid exercise
  • margin loan to be closed out when the market reopens and the stock acquired up exercise can be sold
  • loan from the company (if the optionee is not an officer or director) to be repaid as soon as the market opens and the stock can be sold

See NASPP Discussion Forum topics 7361 and 7362 for more information.  

Stay dry, everyone!

– Barbara

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October 29, 2012

NASPP Chapter Meetings

Here’s what’s going on at your local NASPP chapter this week:

Orange County: Amy Wood of Cooley leads a panel discussion on “Knowing When to Let Go: Practical Advice on Amending vs. Replacing Your Equity Compensation.” (Thursday, Nov 1, 11:30 AM)

Silicon Valley: Elizabeth Dodge of Stock & Option Solutions and Emily Liu of PwC present “Myriad Missteps and Mistakes in Accounting for Equity Compensation.” (Thursday, Nov 1, 11:30 AM)


Note that the meeting that the DC/VA/MD chapter had scheduled for today has been cancelled due to the hurricane forecasted for the DC area.


October 25, 2012

Perception VS Expense Reality: Increasing Perceived Value via Participant Access

For today’s blog, we feature a guest entry from Bryan Wells of OptionEase on encouraging participants to value their stock compensation more.

Perception VS Expense Reality: Increasing Perceived Value via Participant Access
By Bryan Wells of OptionEase

The disconnect between the fair value of awards from an accounting perspective and the perceived value of awards from a participant’s perspective has complicated equity compensation plan success since the introduction of FAS 123(R) (now ASC 718). While companies must take expense based on the accounting fair value of awards, it is the value that participants “perceive” their awards to be worth that actually drives behavior. There are many factors that contribute to the gap between accounting fair value and perceived fair value, but most will agree that communication is a major one. In many cases, participants either don’t fully understand their awards, or feel alienated from them due to a lack of real-time information and set of actionable interpretive tools. Thus, participants attribute a lower perceived value to the awards, making the awards expensive from an accounting perspective relative to the level of attraction, motivation, and retention that they create.

Most service providers offer actionable, real-time participant portals that help narrow this value gap.

  • These portals typically can be configured to communicate the specific information that administrators wish to show participants, as well as allow participants to actively manage their awards. Administrators are finding that providing plan-related documents, explanatory materials and alerts within their system to participants in a controlled environment increases participant understanding and involvement while decreasing administrative burden. 
  • The intuitive dashboard-style user interface that some service providers are using allows participants to accept, exercise, and set tax elections for their awards with ease.
  • Participants leverage portal payout modeling tools to create a more concrete connection between their awards and the participant’s potential gain. This is particularly important due to the rise of performance grants with complex payout structures.
  • Brokerage integrations give further control to participants by allowing them to view detailed transaction scenarios before executing an exercise order, calculated with real-time data provided by the broker. Participant access transforms the equity compensation experience by empowering participants to take control over their award information.

The increase in retention and productivity that equity compensation provides is directly correlated with how participants, not valuation models, value the awards. Empowerment via participant access increases perceived value by giving participants both a greater understanding and sense of control. With many service providers offering robust, actionable, and easy to use participant portals, now is the time to consider opening your system up to your employees.

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October 24, 2012

NASPP To Do List

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. 


October 23, 2012

ISS Draft of 2013 Policies

ISS has issued a draft of proposed updates to its corporate governance policies for the 2013 proxy season.

Speak Your Mind–But Be Quick About It

If you have an opinion on the draft that you’d like to express to ISS, you need to get your comments in by October 31. I know you’re thinking that maybe I could have mentioned this a little sooner, but actually, I couldn’t have. The draft was just released last week, after my blog was published. If you follow the NASPP on Twitter or Facebook, however, you at least knew about the draft by last Thursday, when we posted an NASPP alert on it.

You Probably Don’t Have a Lot to Say Anyway

The quick turnaround time for comments probably isn’t a problem because my guess is you aren’t going to have much to say about the proposed changes. ISS is proposing only three changes on their policies relating to executive compensation and only one of those changes relates directly to stock compensation.  Here are the proposed changes:

  • New methodology for determining peer groups
  • Qualitative analysis will consider how “realizable pay” compares to grant date pay
  • Allowing executives to pledge company stock will be considered a problematic pay practice

Peer Groups

ISS’s determination of peer groups is critical to their analysis of whether CEO pay aligns with company performance. ISS puts together a peer group of around 14 to 24 companies (I have no idea why 14 to 24 and not, say, 15 to 25–that’s just what ISS says): if your CEO’s pay outpaces the peer group by more than the company’s performance, ISS perceives a possible pay-for-performance disconnect.  As noted in my blog “Giving ISS an Earful” (August 14, 2012), the peer group methodology was already an anticipated target for change in this year’s policy.

Up to two years ago, ISS based peer groups solely on GICS codes. Last year, ISS updated it’s policy to base peer groups on revenue and market capitalization, in addition to GICS codes.  This year, ISS is further refining peer identification to take into account the GICS codes of the company’s self-selected peers.

Realizable Pay vs. Grant Date Pay

If you follow Mark Borges’ Proxy Disclosure Blog on, you know that a number of companies have been comparing the grant date pay disclosed in the Summary Compensation Table to “realizable pay.” Grant date pay, is, of course, the fair value of awards at grant. Realizable pay is a calculation of how much the executives could realize from their awards as of a specified point in time (usually the end of the year).  As I’m sure my reader’s can imagine, the values are usually very diffferent. 

Where ISS perceives a pay-for-performance disconnect, it will perform a more in-depth qualitative analysis of the CEO’s pay.  In this year’s policy, ISS is proposing to include “realizable pay compared to grant pay” in that analysis.

ISS doesn’t provide any further information, such as what might be considered a favorable comparison or even how “realizable pay” will be determined. In taking a quick gander at the realizable pay disclosures Mark has highlighted recently in his blog, it seems that there is significant variation in practice as to how companies calculate this figure. Some look at pay realizable only from options and awards granted during the current year, others look at all outstanding options and awards, and others look at options and awards granted within a specified range (e.g., five years).  I’m not sure whether ISS will perform its own realizable pay calculation (and whether it would have sufficient information to do so) or just accept the number disclosed by the company (assuming a company chooses to make this voluntary disclosure). 

More Information

For more information on ISS’s proposed policy updates, including their discussion of the policy around pledging and proposed changes to their policy for Say-on-Parachute-Payment votes, see the NASPP alert “ISS Draft of 2013 Policy Updates.”

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October 22, 2012

NASPP Chapter Meetings

NASPP chapter meetings this week:

Seattle: Jon Burg of Radford presents “So ESPPs Aren’t Dead After All? A Design and Accounting Primer.” (Wednesday, October 24, 7:30 AM).

Phoenix: The Phoenix chapter presents highlights from the 20th Annual NASPP Conference. (Thursday, October 25, 11:30 AM)

Portland: The Portland chapter’s annual roundtable discussion of top take-aways from the NASPP Conference. (Thursday, October 25, Noon)


October 18, 2012

Hot Topics in Equity Compensation

Our 20th Annual Conference is over, and, I’ll admit, I’m still recovering from the buzz. When I say buzz, I mean the literal energy and enthusiasm that seems to vibrate throughout every conference. It was great to engage with so many members, as well as listen in on sessions that are so timely and relevant to the challenges we face today. Having been to a dozen conferences over the years, I’d rank this year’s conference as our best ever. I won’t recap the full conference in today’s blog (you’ll have to wait for our next Advisor edition for that), but I wanted to share my observation on some of the top topics trending in our world of stock compensation based on things seen and overheard.

The Unofficial Top 5

1. Performance Plans and associated Valuation Strategies: Performance plans are migrating from plainer vanilla (I can’t use the term plain vanilla, because I don’t know of a performance plan that was that simple to administer) to more creative approaches (things like the use of relative TSR). In conjunction with new pay for performance models, the relative accounting impact and considerations are worth understanding.

2. Say-on-Pay: As we’ve passed through the peak of the second annual proxy season since the implementation of Say-on-Pay, it’s still a very much a hot topic. With more companies receiving negative Say-on-Pay votes from shareholders in 2012 than 2011, companies are more invested in ensuring their disclosures will withstand shareholder scrutiny.

3. Global Administration and Mobility: Learning to navigate the intricate nuances of managing global and mobile employee populations continues to be top priority for stock plan professionals. Sessions on global administration always rank highly on our conference attendance lists, and this year was no different.

4. Executives, Executives, and Executives: Handling tricky issues and situations relatives to executives and their compensation ranks high on the interest scale. Things like terminations and pay for performance top the list.

5. Stock Ownership Guidelines: I’ve heard many people talking about the rapid trend towards adopting stock ownership guidelines. If you work for an issuer (or a vendor who provides direct support to issuer stock plan administrators) and are asking “what are stock ownership guidelines?”, you’d better find out quick (in short, they are guidelines implemented by a company regarding minimum amounts of share ownership certain employees must attain and retain.) The vast majority of public companies report having such guidelines in place, and, in my opinion it’s a matter of “if” and not “when” for the stragglers who haven’t implemented guidelines yet.

Many of you likely have some or all of these topics on your radar list. These are definitely trends to observe in the coming months; areas where we’ll likely see lots of activity, new ideas, and administration challenges.


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October 17, 2012

NASPP To-Do List

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. 


October 16, 2012

How Independent Is Your Comp Committee?

As required by Exchange Act Rule 10C-1, which was recently adopted by the SEC pursuant to the Dodd-Frank Act (see my June 26 entry, “Comp Committees and Their Advisors“), the NYSE and NASDAQ have proposed changes to their listing standards with respect to compensation committee independence.

The More Things Change, the More They Stay the Same

I almost titled this blog that way, because, frankly, I thought we already had rules in place on compensation committee independence. And, it turns out, I was at least partly correct.  We definitely already have them under Section 16 and Secton 162(m), but the exchanges already had their own standards in this area as well. The proposed rules continue to require companies to have compensation committees comprised of independent directors and largely just reaffirm the requirements that already exist in each exchange’s current listing standards with respect to director independence.

So What’s New?

The SEC’s rule calls for a couple additional factors that should be taken into consideration in assessing director independence: (1) the source of the director’s compensation, including consulting, et. al. fees, and (2) any affiliations the director has with the company. Both exchanges propose to incorporate these additional assessments into their standards.

Under both proposals, #2 is not a dealbreaker, however; the proposals concede that there could be some situations where affiliation does not impair a director’s independence (e.g., in the case of a director that is an affiliate by virtue of stock ownership). The NYSE and NASDAQ proposals depart with respect to #1 however. Under NASDAQ’s proposal, any fees paid to the director (other than for service as a director) preclude independence; the NYSE proposal just includes this as a factor to consider–the fees aren’t necessarily a dealbreaker.

NASDAQ also proposes to require that companies have a formal compensation committee (the NYSE already requires this).

What Else is New?

Probably the most significant new requirement is that the compensation committee must evaluate the independence of any advisors (compensation consultants, legal advisors, etc.) that it relies on. Given that I think this is significant, you’d think I’d have more say about it, but that’s all I’ve got. I’m sure you don’t need me to blather on about why this is significant.

In addition, the compensation committee must have authority and funding to retain compensation advisors and must be directly responsible for appointment, compensation, and oversight of any advisors that it uses.

For more information, see the NASPP alert, “Exchanges Issue New Standards for Compensation Committee Independence.”

– Barbara

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