The NASPP Blog

Monthly Archives: October 2013

October 31, 2013

Are You Riding a Communication Dinosaur?

The Internet and cell phones (now smartphones) have completely changed the way the world communicates. It hasn’t been a slow process; the evolution is occurring at lightning speed. What was “new” a few years ago is now mainstream; what’s coming down the pike will soon be the norm. If you’re with the camp of stock plan professionals that have been using the same modes and strategies to communicate with participants for a while now (let’s say more than a couple of years – and I’d guess there are many of us in this camp), it’s time to rethink the tools and resources available. In today’s blog I share a few things to consider in getting off the dinosaur and focusing on emerging ways to communicate with participants.

A New Era Underway

The modes of communication are changing…rapidly. Long emails, newsletters, static intranet sites and hard copy mailings are losing their luster in the shiny new world of communication. What’s in? Video, blogs, podcasts, Google “hangouts”, mobile friendly apps and social media, for starters. Of all of these, the use of video is my prediction for the next king of communication tools. With the birth of YouTube, anyone with a smartphone, tablet or webcam can create and distribute a video. So if you’re thinking “big budget” when it comes to video, think again. There are a range of possibilities – from done-for-you video service firms to do-it-yourself and host/access on sites like YouTube or Google Plus. With the array of mobile devices now in our hands, video is also accessible on the fly, allowing you to engage with participants around the clock. As with any mode of communication, you’ll want to get buy-in from other key decision makers (legal for starters) before you start creating videos and distributing them. The take away here is that it’s much easier than you think, and will show participants that you’re ready to engage in modern fashion,on their terms. There was a fantastic session at our recent 21st Annual Conference (“Stock Compensation Goes Hollywood”) on using video for stock plan communications – if this has perked your interest, I highly recommend accessing the session materials (free for conference attendees) and audio (available for purchase).

How Well Do You Know Your Participants?

Get to know your audience and expand your communication vehicles. Communication is not a one size fits all approach, nor is it a one mode per generation concept. It’s short-sighted to think that employees over 55 won’t be receptive to social media (in fact, 2013 surveys show that 60%+ of 50-64 year olds are active on social media). Likewise, it’s equally limiting to expect that your 20-something population will only want to receive communications via social media. The fact is, there are distinct patterns of communication emerging. So much depends on age, location, culture and other factors. One mistake communication “senders” can make is to deliver content in their own preferred method of communicating. This may not work for the “receiver.” If you have multiple generations in your stock plan population, you may want to consider a quick survey to identify preferred methods of communication. Additionally, it’s wise to consult with contacts in non-U.S. jurisdictions to evaluate preferred modes along with cultural considerations. The bottom line? Consider adopting a multi-mode approach to delivering your equity compensation content to participants.

Broaden the Content Horizon

When crafting communications, think in terms of “benefits,” in addition to features. Features are great, but a list of them in a communication doesn’t always answer the question in participant minds: “What’s in it for me?” Let’s face it – we’re living in the era of “me,” and employees want to know what they are going to gain at any given point in time. When highlighting the “features” of various plans, awards or programs, try to also list the benefits. A simple way that I like to think about benefits? A benefit follows the phrase “…so you can…”. For example:

Join the new ABC Company ESPP Plan! The plan offers:

  • 15% discount on company stock (feature)
  • Change your contribution at any time (feature)

Simply adding in the benefit behind the feature can give the employee answers to questions they may have about why it’s a good thing for them to be involved in these programs. If you tweak the language to incorporate the feature and the benefit, it may look like this:

  • Automatic 15% discount on company stock, so you can be assured that your purchase price will be less than the fair market value of the stock on the date of purchase.
  • Contribution rates may be changed at any time, so you can have peace of mind knowing that even if your circumstances change during the offering, you can make adjustments as needed.

I’m not a lawyer, so please do check with your legal advisers about this approach. At minimum you’ll want to make sure that you aren’t selling participants on an investment decision (so note that the benefits I’m talking about are not “financial” reward related or promises about future gains).

It’s time to move into the next era of communication. With so many possibilities, it’s an exciting time and a great opportunity to really get in touch with your participants on a whole new level.


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October 30, 2013

NASPP To Do List

Free Registration to SOS Aspirations
The NASPP has two free registrations to give away to the SOS Aspirations conference on November 12 in Silicon Valley.  Email me at by tomorrow, Thursday, October 31, if you’d like one of them. If I get more than two requests, I’ll enter all the requests in a raffle to decide who gets to go. Please be sure to include your name in your email.

NASPP To Do List
Here’s your NASPP “to do” list for this week.

– Barbara


October 29, 2013

ISS Policy Changes for 2014

ISS has proposed changes to its corporate governance policy for 2014. You have until November 4 to comment on the changes.

What’s Changed?

In terms of stock compensation, or even compensation in general, not much. So the good news is this maybe isn’t something you have to spend a lot of time on this year and I can have a short blog entry today. Of course that’s also the bad news–things aren’t going to get any better next year in terms of the restrictions ISS places on your stock compensation program.

Evaluating Alignment of Pay to Performance

The only proposal that relates directly to compensation that ISS is looking at changing is the Relative Degree of Alignment (RDA) measure, which compares the difference between a company’s TSR ranking and its CEO’s pay ranking among its peers. For example, if the company’s TSR ranks in the 25th percentile among its peers (meaning that the company’s TSR is better than only 25% of its peers) and its CEO’s pay is in the 75th percentile (i.e., the CEO’s pay is more than 75% of his/her peers), ISS might be concerned that there is a pay for performance misalignment. This is just one of several measures ISS uses to assess whether CEO pay aligns with company performance.

Currently ISS calculates RDA on a one-year and three-year basis. They are proposing to eliminate the one-year calculation and instead consider only three-year RDA. If your RDA score has been trending downwards, you are probably pleased as punch about this; if your RDA score has been trending upwards, you are probably a little less thrilled (but what goes up most come down and, under the proposed calculation, if you do have a down year, that year won’t impact your RDA score as much).

More Information

The entry “Companies Have Until November 4 to Comment on Draft ISS Policies for 2014” (October 24, 2013) in Towers Watson’s Executive Pay Matters Blog provides a nice summary and some thoughts on the change.

– Barbara

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October 24, 2013

What Do the Top 10 Most Highly Paid CEOs Have in Common?

I realize the title of my blog is somewhat broad – I mean, I’m guessing that highly paid CEOs have a lot in common (a nice office, fancy cars, access to private jets, world travel…). Alright, daydreaming aside, I’ll kill the suspense and answer my own question. In today’s blog I’m angling for an answer along the lines of “at least $95M each in income last year from stock compensation”.

With a rallying stock market, a legendary IPO and other favorable factors, the 10 most highly paid CEOs in 2012 (based on a recent poll by GMI Ratings – a corporate governance rating group) all earned in excess of $100M. The top two in that group earned in excess of a billion dollars. “Ah, so what?”, I thought. Then I looked a little closer and realized that that largest cash bonus in that group was $9.5M. The landslide majority of that compensation all came from stock compensation – both restricted stock and stock options.

It’s been a banner couple of years for executive pay. Once again, equity compensation appears to be squarely on top of the executive compensation pie. Of course the concerns about disproportionate gains (executives who are winning big while shareholders still are not) have surfaced, too. I’m going to avoid that discussion today, but if you’re interested in more on that topic, see Broc Romanek’s recent blog. Remember, the GMI Ratings information reflects 2012 compensation. With the stock market soaring, it seems that 2013 may even outpace 2012 in terms of realized gains on stock compensation.

When I start to see such record gains from stock compensation, and the corresponding publicity, I think about several things that stock administrators should consider:

  • Prepare for trading activity. As year-end draws near and the stock market is going gangbusters, this seems to be the perfect combination for increased trading activity from executives. Even those with 10b5-1 plans may still lead to increased activity – if the 10b5-1 plan was based on a series of limit orders, those limits may execute quickly in an up market. Tax and financial advisers may also encourage executives to liquidate some of their position for one reason or another. This means there could be a surge in executives looking to trade in the coming weeks (requiring availability for pre-clearance procedures, and assurance the executive knows who to contact to execute the transaction).
  • Consider whether there will be say-on-pay considerations for your upcoming proxy season. Is your company up for a say-on-pay vote this coming proxy season? With record executive compensation, there is bound to be scrutiny as to how those gains compare to shareholder returns. This opens the window to more of a microscope when the say-on-pay filter is applied. Even if you don’t get overly involved in the proxy preparation, given that a huge portion of executive compensation may have come from stock option or restricted stock transactions, you may need to be more involved in providing information for the disclosures. Now, for those who yawn at the mention of say-on-pay, let me just go tangential for a second to say that as of last week, there were 64 companies so far this year with a failed say-on-pay vote – already exceeding the 61 failures in all of 2012. So this is not an area where bygones have become bygones.
  • Is it time to beef up year-end communications? Have you been considering sprucing up the old examples you use in your year-end communications? With an up stock market, I’m guessing the equity compensation windfalls may not be limited to just executives. With more employees cashing in on market gains, they are bound to be more interested in your year-end communications. Now’s the time to consider enhancing those communications with more detail and timely examples in order to proactively address employee questions. Remember, this is the first year some of those quirky taxes (like the additional medicare withholding rate) kick in, so employees may not be fully aware of how they may be or have been affected by these changes.

Who doesn’t love a good stock market rally? As keepers of the stock plans, this is what we hope for when we issue those grants and/or awards. Try to keep that in mind during those times when volume of transactions is up, and more year-end preparation is needed.


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October 23, 2013

NASPP To Do List

NASPP To Do List
Here’s your NASPP “to do” list for this week.

– Barbara


October 22, 2013

Cost-Basis Reporting: Still a Nightmare

As we head into the year-end season, I know many of you are going to be looking at your year-end communications to see which parts need to be updated. I thought it might be a good time to remind you that the regulations governing cost-basis reporting for shares acquired under stock options and ESPPs are changing as of January 1.

What’s Changing?

Beginning January 1, 2014, brokers will no longer be allowed to include the compensatory income recognized in connection with shares acquired under an option or ESPP in the cost basis reported on Form 1099-B.  Instead, brokers are required to report only the purchase price as the basis and employees will have to report an adjustment on Form 8949 to correct the gain or loss they report on their tax return (see my blog entry, “Final Final Cost-Basis Reporting Regs,” May 7, 2013)

Until next January, brokers can voluntarily choose to include this income in the basis, but are not required to do so. Thus, we are going from a situation in which the cost basis reported on Form 1099-B is actually sometimes correct to a situation in which it will virtually always be wrong.  Ten points if you can name a scenario in which the purchase price is actually the correct basis for shares that were acquired under a stock option or ESPP.

[Note that, technically, the regs will only apply to options acquired after January 1, 2014, but we think most brokers will apply them to all shares acquired after the date, even if the shares were acquired under an option granted prior to that date.]

How Does This Impact Forms 1099-B for Sales in 2013?

That is a good question!  Right now, we are in a transition period. Brokers can continue to report under the old rules for 2013 or they can voluntarily change over to the new rules. A good first step to reviewing your year-end employee communications will be to check in with your brokers on this, so you know what they are planning to do and can adjust your communications appropriately, if necessary.

Does this Impact Restricted Stock and Units?

In most cases, it will not have any impact on restricted stock or RSUs.  Arrangements in which employees don’t pay cash for the shares aren’t covered by the regulations so brokers don’t have to report any basis for them at all on Form 1099-B.  That still applies under the regulations going into effect as of January 1, 2014.  So I expect that most brokers aren’t reporting a basis for RS/RSUs now and still won’t report a basis once the new regs go into effect.

The only exception will be those brokers that are currently reporting a cost basis on a voluntary basis for RS/RSUs (which I understand to be few and far between).  Brokers can still voluntarily report a basis for shares acquired under RS/RSUs, but for shares acquired after January 1, 2014, that basis cannot include any of the compensatory income recognized in connection for the award. In other words, the broker can still report a basis but the reported basis has to be $0. I hope that brokers don’t do that–I think it would be better to not report a basis at all than to report an incorrect basis of $0.

Can the NASPP Help?

Why, yes, we can! Our Cost-Basis Reporting Portal includes some great sample materials to help you explain all of this to your employees.  We have sample tax forms, flow charts, and extensive FAQs. Check it out today and keep an eye on the portal; we will update it as new tax forms become available from the IRS.

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October 21, 2013

NASPP Chapter Meetings

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

Chicago: Kathy Lietz and Karen Walters of USG, Mike Sorensen of Exequity, and Tom Zidlicky of Morgan Stanley present “Market Share Units–A Performance-Based Equity Vehicle.” (Tuesday, October 22, 7:30 AM)

Portland: Local issuers and service providers who attended the 21st Annual NASPP Conference will share their top takeaways from the conference in a lively roundtable discussion, including an update on regulatory developments for equity compensation, current trends in stock plan design, tax developments, and what to expect for the 2014 proxy season. This meeting will also include the election of chapter officers for next year; you must attend the meeting to vote in the election. (Thursday, October 24, noon)


October 17, 2013

Government Reopens, Insider Trading Verdict

I had a different blog topic in mind for today, but as I was literally putting this to bed, Congress voted to end the 16 day government shutdown and raise the debt ceiling – at least temporarily. We promised updates as things changed, so I’ll take this opportunity to assess the situation. Separately, there was a verdict yesterday in the high-profile insider trading civil case brought against billionaire celebrity Mark Cuban that will round out today’s news.

Government Back Online

As I write this, the word on the street is that the government will reopen “immediately”. I wasn’t quite sure what that meant, but based on news reports, it appears that “immediately” means today or at some point shortly thereafter. Since Congress voted late at night, I’m wondering if word will really get out that government workers need to return to work first thing today. But things should be back to the normal routine soon. I’ve heard that the National Zoo will be one of the last places to reopen, and they are presently saying Friday, October 18th will be the day. I guess we’ll know for sure that the government has reopened on a widespread basis when the panda cam at the zoo (which went dark in the shutdown – depriving many of us fans the ability to tune into the latest panda baby) is back on.

Areas where we’ll see some changes are:

  • The IRS should reopen and resume accessibility for taxpayer questions. Other pending activities, such as audits and refunds should move forward imminently as well.
  • The SEC’s filing systems were never shut down, so everything related to company filings should still be business as usual.
  • The poison ivy eating goats furloughed in New Jersey should be back to work soon. If you’re wondering what I’m talking about, see my blog on the Government Shutdown: Part 2 from a couple of weeks ago.

An Insider Trading Verdict

Billionaire Mark Cuban (owner of the Dallas Mavericks basketball team, star of TV’s Shark Tank) was found not guilty of insider trading by a jury yesterday. The SEC first initiated action against Cuban back in 2008, filing a civil suit alleging that he dumped his 6.3% stake in ahead of negative news, based on insider information. The initial lawsuit was dismissed by a judge, but the SEC persisted, and the case was revived on appeal in 2009. Cuban refused to settle and, after a tooth and nail 5 year fight in which Cuban refused to settle, the case went to trial, culminating with yesterday’s verdict. This case was part of a long string of cases brought by the SEC in recent years. The SEC has quite a track record of success in these cases. According to the SEC’s web site (yes, I obtained this information from their web site even in spite of the government shutdown), 161 entities and individuals have been charged with insider trading as of September 1, 2013, resulting in more than $1.53 billion in penalties. The Cuban verdict was one of few losses for the government in this long string of insider trading cases (though the SEC has lost some other high profile cases as well), which is part of what makes it newsworthy. Some prominent newspapers are already asking the question of whether this verdict will undermine the SEC’s movement to hold more individuals accountable for insider trading. It seems the SEC is not giving up, though. In a statement, the SEC spokesperson said that “while the verdict in this particular case is not the one we sought, it will not deter us from bringing and trying cases where we believe defendants have violated the federal securities laws.” All indications are that this long insider trading crackdown is yet to be over.

One message to employees continues to be that SEC action is not limited to larger cases like Cuban’s. In a recent blog, I highlighted another case that amounted to a mere profit of $7,900 for one guilty party, and consequences for an unintentional tipper that didn’t profit at all. While some cases get a lot of publicity, like Cuban’s case, it’s important to remember that no trade is too small or person too insignificant to escape SEC scrutiny.


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October 16, 2013

NASPP To Do List

Conference Raffle Winners
Erin Madison of Broadcom won the Question of the Week Challenge raffle at the 21st Annual NASPP Conference and Rick McLaughlin of Morgan Stanley won the Conference evaluation raffle. Both Erin and Rick each received an iPad mini. Erin is excited to improve her cat photography skills with her iPad and has already started practicing; here is a picture of her two cats taken with her new iPad mini:

Erin's cats

Erin Madison’s cats looking appropriately disapproving of all this iPad/photography nonsense (click the thumbnail to enlarge and see their stern expressions).

NASPP To Do List
Here’s your NASPP “to do” list for this week.

– Barbara