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Monthly Archives: November 2013

November 26, 2013

Just Wondering…

It’s a holiday week so I thought I’d do something a little lighter for today’s blog entry.  Over the nearly 20 years that I’ve worked in this industry, I have asked a lot of questions about stock compensation.  I’ve also found the answers to a lot of them, but there are still a few questions that remain a mystery to me.  For today’s entry, I present some of my unanswered questions.


The international financial reporting standard for stock compensation is IFRS 2. Two? Is this really the second standard that the IASB drafted? Seriously? Of all the possible areas of discrepancy in worldwide accounting, stock-based compensation was the second most important area they could think of? And, if so, what the heck was so important that it beat us out for the number 1 spot?

Why Two and a Half Months?

What is magical about two and a half months after the end of the calendar year for the IRS? Would anyone care if the deadline were just two months (i.e., the end of the second month)? Because in terms of explaining both the provisions of 409A and the FICA short-term deferral rule, this would be a heck of a lot easier to say.

Forms 1 & 2?

Whatever happened to Forms 1 and 2? I must remember to ask Alan Dye about this. Wouldn’t it have made more sense to call Forms 3, 4, and 5 something like “Forms 16A, 16B, and 16C”? Or maybe 16H (“H” for holdings), 16NE (“NE” for non-exempt transactions), and 16E (“E” for exempt transactions)? The form for Rule 144 is called “Form 144,” why not use the same naming system for Section 16 forms?

When Is 30 Days After June 30?

Why does Form G-4 (filed by companies that have issued loans for the purchase of their own stock in excess of the Federal Reserve Board thresholds) have to be filed within 30 days following June 30? Wouldn’t that always be by July 30? Why couldn’t the Federal Reserve Board just say, “file this form by July 30”? Does the Federal Reserve Board have a different calendar than I do?

How Does the IRS Determine What Constitutes “News”?

Why does the IRS send out an email announcing inflation adjustments for the carbon dioxide (CO2) sequestration credit under §45Q but doesn’t send an email announcing proposed rule changes under Section 83?

How Many EDGAR Passwords Does It Take to Change a Lightbulb?

Why the heck does it take four–count ’em, that’s 4–codes to change my EDGAR password? That’s two more codes than I have to enter to change the password on any of my financial accounts. And it’s useless as a form of security because I can’t remember any of them, so I have them all written down in the same document–if someone manages to get one of them, he/she probably has them all. Heck, I bet most companies have a single document where they store all of these codes for all of their insiders–all in one handy place for anyone who wants to sabotage their insiders’ Section 16 filings. This is a perfect example of why lawyers shouldn’t be allowed to develop computer systems.

What Is a Borker, Anyway?

Does anyone else consistently mistype the word “broker” as “borker”?  It seems so inappropriate but also kind of appropriate at the same time. “Consluting” for “consulting” is another typo I make with some regularity. Thankfully, both errors are caught easily with spellcheck.

Just a few thoughts to ponder and perhaps discuss with your family as you enjoy Thanksgiving dinner.  Enjoy your holiday!

– Barbara

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November 21, 2013

The Mode of Distraction

This week I admit to having holiday brain already. Somehow it’s just hard to think about serious topics when my mind is wandering to the mechanics and food of Thanksgiving Day. So keeping with the lighter side, I’m going to brainstorm a list of things you can do when your own mind goes into distraction mode.

1. Read the highlights of the 2013 Stock Plan Design Survey (co-sponsored by Deloitte Consulting LLP) – hot off the press. Who doesn’t love good survey data to back up practices or shed light on new trends? Take a few minutes to learn about what’s hot and what’s not.

2. Like the survey highlights? Got a pocket of free time? Dig into the full 2013 Stock Plan Design Survey results.

3. Be social. We can’t all park ourselves around the same physical water cooler, but we can meet virtually, via social media. The NASPP continues to evolve socially – with very active LinkedIn, Twitter and Facebook pages. We’ve got lots of content out there, but we also capture the “fun” of being in this industry – our latest posts feature great photos from some recent chapter events. If you find yourself daydreaming, take a minute to follow us or Like us online. This will ensure you don’t miss any hot off the press updates, either.

4. Take some “me” time. Has it been a while since you took stock of yourself, or invested time in building your brand and furthering your career? I recently came across a quote by Warren Buffet that says “Generally speaking, investing in yourself is the best thing you can do. Anything that improves your own talents; nobody can tax it or take it away from you. They can run up huge deficits and the dollar can become worth far less. You can have all kinds of things happen. But if you’ve got talent yourself, and you’ve maximized your talent, you’ve got a tremendous asset that can return ten-fold.” If it’s been a short or long while since you’ve put some of your time into your own growth and development, it’s time to put “you” back on the list. Give yourself the gift of personal growth this holiday season. A great start would be to explore our NASPP Career Center. It has its own blog, Career Corner, guest authored by Andrea Best of Stock & Option Solutions. It’s a great way to spend some quality down time minutes.

5. Keeping with the theme of #4 above (“me” time), consider updating your LinkedIn profile. Even if you aren’t looking for a job, it’s becoming “standard” practice to put lots of detail in your profile and post regular updates.

Hopefully you’ve gained a couple of ideas on how to spend your holiday distraction time. I wish everyone a very happy Thanksgiving holiday.


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November 20, 2013

NASPP To Do List

LA and San Fernando Valley Nov 2013Kathleen Cleary, the NASPP’s Education Director, and I presented at the joint LA and San Fernando Valley chapter meeting last week.   See pictures from the meeting on the NASPP’s Facebook page.

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

– Barbara


November 19, 2013

SF Chapter Kicks Off the Holiday Season

The San Francisco NASPP chapter kicked off the holiday season with a “double meeting” and a cocktail party. Here are a few pictures (click the thumbnails to see larger, more in-focus pictures):

One Market

The meeting was held at One Market restaurant in San Francisco.  One Market is consistently rated one of the top 100 restaurants in the bay area by the SF Chronicle and has traditionally been the venue for the chapter’s holiday party, making it an event that members look forward to every year.

Josh and AaronJosh McGinn of AST,
the chapter’s program director, with Aaron Boyd of Equilar. Aaron and Barbara Klementz of Baker & McKenzie presented on clawbacks.

between presentations

The meeting featured two presentations of about 45 minutes each–I loved the fast-paced format.  In this picture, chapter board members mingle with meeting attendees during the break between presentations. Congrats to chapter president Mark Clem of Equity Methods and the rest of the chapter board for hosting a fantastic event.

Daryl and Jon

Daryl Walke of Applied Materials with Jon Burg of Radford. Jon presented with Jeremy Erickson of Orrick on the pay ratio disclosure rules. I learned that statistical sampling is harder than it looks and involves math that I hope I never have to understand.

Cheryl, Max, and Vanessa

Cheryl Claeys of RealNetworks, Max Sternberg of Williams-Sonoma, and Vanessa Iriarte of Clorox chat before the presentations begin.


Attendees enjoy cocktails after the presentation. During the party, everyone had a sticker with a celebrity’s name on their back. Attendees had to try to guess their celebrities by asking questions of their fellow attendees. I was Bob Dylan.

Nandita, David, Sean, and Valerie

Nandita Nandy of Radford, David Howell of Plante Moran, Sean Evans of Radford, and Valerie Diamond of Baker & McKenzie have figured out their celebrities and now discuss the finer points of statistical sampling.


At the end of the evening, all attendees that figured out their celebrities were entered in a raffle for a gift certificate to One Market. Karen Moses of Xoom won the raffle.

See more pictures of the meeting on the NASPP’s Facebook page.

– Barbara


November 18, 2013

NASPP Chapter Meetings

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

New York/New Jersey: UBS and Equity Methods sponsor the presentation “Performance Award Complexities: Tips on Managing Risks in Valuation, HR, and Financial Reporting.” (Wednesday, November 20, 8:30 AM)

Denver: The chapter hosts its 2013 winter member luncheon which will include planning for 2013 and nominations of officers. (Thursday, November 21, noon)

Austin: Jon Doyle of International Law Solutions will lead an interactive discussion on “How to Navigate Problem Countries – Legal and Administrative Nightmares Around the Globe.” (Friday, November 22, 11:30 AM)


November 14, 2013

Tweet Tweet: Trending Now – IPOs

Twitter’s highly anticipated IPO appeared to go off without a hitch last week. No IPO has had as much buzz since Facebook debuted on the NASDAQ 18 months ago. Although Twitter is getting most of the 2013 IPO glory, did you know that this has been the hottest year for IPOs since 2007?

According to Dealogic and the Wall Street Journal, “Twitter is also riding a wave of strong demand for IPOs. October was the busiest month for U.S.-listed IPOs since 2007, and 2013 is on track to be the best year in terms of the number of deals and dollars raised since 2007, according to Dealogic.

Six companies this year have more than doubled on their first day of trading, the highest amount since 2000. The average one-day pop for U.S. listed IPOs this year is 17%, the best performance since 2000.” Twitter certainly has the advantage of strong market conditions to support the IPO. As I write this, the trend seems to continue with yesterday’s IPO of Extended Stay hotels. They, too, performed well on their first day of trading.

Here are some fun/interesting Twitter IPO facts:

  • An estimated 1,600 Twitter employees became millionaires (at least on paper) based on the $40 stock price a day after the IPO (a flagship day for stock compensation, in my humble opinion).
  • For most employees, a 6 month lockup is in effect, meaning the majority of stock plan related shares will be tied up until May 2014.
  • A small percentage of shares will be permitted to be sold in February 2014 in order to raise taxes for the vesting of restricted stock.
  • On IPO day, Twitter’s Company Twitter page recorded just a one word telling tweet: #Ring!
  • Market research analyst PrivCo calculated potential IPO related tax windfalls of $479 million for California and $1.72 Billion for the IRS.
  • With 1,600 potential new millionaires joining the Silicon Valley ranks, it’s bound to be good for the local economy – anything from real estate to potential cash infused into other new start up companies.

Congratulations to Twitter for claiming the title of IPO darling for 2013.


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November 13, 2013

NASPP To Do List

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

– Barbara


November 12, 2013

CA Reduces 409A Penalty Tax

Good news for CA taxpayers involved in violations of Section 409A: the state has reduced its penalty tax for these violations from 20% to 5%. 

CA’s penalty is in addition to the federal penalties of a 20% tax plus interest at 1% higher than the penalty rate. With the combined federal and CA state penalties, an individual that is subject to the maximum federal and CA state marginal income tax rates of 39.6% and 10.3% respectively, could have incurred a cumulative tax liability as a result of a 409A violation that was close to, or possibly even more than, 100% (don’t forget that FICA would also apply to the income).  So now CA taxpayers that end up subject to the 409A penalties are only paying an additional combined federal and state penalty tax of 25% (on top of the standard tax rates that apply to the income) instead of a combined 40% penalty (of course, at the maximum individual tax rates, that’s still potential a tax liability of around 80%). 

The new CA penalty tax is effective retroactively to Jan 1 of this year.  Here are a couple of alerts on the change:  Skadden, Pillsbury, Cooley.

Blog Survey:  409A Compliance Failures
Thinking about how draconian the taxes could be for a 409A compliance failure got me wondering whether anyone (other than that poor guy in Sutardja v. United States, see “409A in the Courts“) is actually paying these penalties .  So I put together a quick survey.

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November 11, 2013

NASPP Chapter Meetings

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

Sacramento: The chapter presents “2013: A Year in Review.” Bring a toy for Toys for Tots and your registration fee is waived! (Tuesday, September 12, 11:00 AM)

Chicago: Edward Graskamp of Frederic W. Cook & Co., Inc. and Dave Sugar or Aon Hewitt/Radford present on the CEO pay ratio proposed rule. (Wednesday, November 13, 7:30 AM)

San Francisco: The chapter kicks of the holiday season with a double meeting followed by a cocktail party. Jeremy Erickson of Orrick and Jon Burg of Radford present on the CEO pay ratio disclosure requirement and Aaron Boyd of Equilar and Barbara Klementz of Baker & McKenzie present on clawbacks. (Wednesday, November 13, 2:30 PM)

Los Angeles and San Fernando Valley: The chapters host a joint meeting; Kathleen Cleary of the NASPP and I present highlights from the 21st Annual NASPP Conference.  I will be bringing homemade jam to give out as prizes–you don’t want to miss it! (Thursday, November 14, 11:30 AM)

I’ll be at the San Francisco chapter meeting as well as presenting at the LA/San Fernando Valley meeting. I hope to see you there! 

– Barbara


November 7, 2013

Senators Levin & McCain: Crashing the Twitter Party

As I write this blog, the buzz is escalating around the imminent IPO of social media site Twitter. I don’t think there’s been this much anticipation for an IPO since Facebook joined the ranks of public companies last year. It’s like the perfect storm of variables – stock compensation, hot IPO, and the prospect of significant wealth. Yet, with every party there are “party poopers”, and the Twitter party is no different. That’s why I wasn’t entirely surprised when Senators Levin and McCain tried to crash the party yesterday with a joint statement pushing once again to eliminate the corporate tax deductions on stock compensation.

What is it this time?

It’s likely the Senators are following the lead of Citizens for Tax Justice (a left-leaning tax activist and research group), who earlier this week released results of an analysis of 11 public companies and Twitter, suggesting that the cumulative corporate tax deductions in the coming years for these 12 companies would be in the billions of dollars. So what is new and different in the latest argument that companies are somehow avoiding paying taxes on stock compensation and that this “loophole” should be avoided? Well, not much. There have been many NASPP Blogs on this topic in the past, so I’ll let you catch up on the nuances of the corporate tax deduction through those. The latest justification the Senators offer for ending this perfectly reasonable deduction appears to be that “…given the deficit and damaging sequester cuts facing this country, this corporate stock option tax deduction is the kind of tax loophole that ought to be closed.” Huh? Now this is the solution to a slew of other fiscal issues?

Another Battle in a Long War…

Senator Levin has been waging this battle for years, so it seems every time there is a new opportunity, he’ll raise the issue again, with a new twist. The reality is, and this is often overlooked in media analysis of the Senators’ calls to action, for every dollar of corporate tax deduction taken for stock compensation transactions, there is a dollar that is taxable income to an employee. Companies are not “avoiding” paying tax – the tax is being paid by the employee. Another tidbit I’ll point out is that starting January 1, 2013, the maximum individual tax rate was increased to 39.6% – higher than the highest corporate rate of 35%. So by taxing the individual rather than corporations on significant stock compensation gains, the IRS actually is likely to fare better. For example, if Mark Zuckerberg of Facebook makes $1 billion in stock compensation gains he would theoretically be taxed at 39.6% on the vast majority of his gains. Facebook would get a corresponding $1 billion tax deduction, reducing the company’s taxable income (which, let’s hypothetically say is taxed at 35%). I’m simplifying this – but you get the gist.

How Does Financial Reporting Factor In?

Another argument the Senators are raising (and not for the first time) is that stock compensation tax deductions should not exceed the amount of accounting expense recorded by the company in its financial statements. To that I say “who cares?”. Accounting and tax are two completely different animals, with completely different intents. It’s reasonable and common for the two to be misaligned.

Moving On…

I’m guessing that this latest effort by the two Senators will be short lived, just as in prior instances. Let’s hope so, or I’ll have to invest in a larger bandwagon and bigger megaphone, because I vehemently disagree with Senators Levin and McCain on this issue. I’m also getting kind of tired of the party crashing. Can’t we just bask in the enjoyment of another successful stock compensation IPO without the grumbling about corporate tax deductions? It’s time to move on.


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