The NASPP Blog

Monthly Archives: December 2013

December 24, 2013

More Holiday Fun

As I’ve mentioned before, one of the things I like about stock compensation is that I get to use a lot of fancy words.  Around this time last year, I posted a blog entry (“Holiday Fun,” December 18, 2012) with suggestions on how to fit some of these words into casual conversation with family and friends over the holiday season.  Today I have a few more examples for you:

  • Purview:  Dishwashing is outside my purview.
  • Mitigate: If we upgrade to LED lights, perhaps that will mitigate the problems we are having with burnt-out bulbs.
  • Implicate: Bad behavior at this point could implicate a negative report to Santa from the Elf-on-the-Shelf.
  • Substantive (AND Perceived Value–a twofer!): The amount of money spent on a gift is not always substantive to the perceived value assigned to the gift by the recipient. 
  • Remuneration: If I were Santa, I think I’d want remuneration in the form of wine and chocolate, rather than milk and cookies.

What are your favorite stock compensation terms?  10 points to anyone who emails me a favorite word with an example of how to use it correctly in a non-work context. 

Holiday Chapter Meetings
Here are a few scenes from NASPP chapter holiday events:


The Seattle chapter held their holiday event at Nordstrom, giving attendees a chance to learn about stock compensation and get their Christmas shopping done at the same time. In this picture, chapter president Scott Sander of and chapter treasurer Aftab Ibrahim of T-Mobile chat with an attendee at the meeting.


Chapters often host appreciation events for their board members around this time of year. Here the Philadelphia chapter board enjoys a holiday lunch.

Orange County

The Orange County chapter hosted a holiday social. In this picture, attendees mingle before dinner.

View more pictures on the NASPP’s Facebook page.  I hope you all have a great holiday!
– Barbara

December 19, 2013

Share Limit Lessons the Hard Way

A little blurb in the Wall Street Journal blog caught my eye this week. As it turned out, daily deal website Groupon had to rescind a portion of a restricted stock unit award to its Chief Operating Officer because the award exceeded a plan limit on share issuances to an individual – by 200,000 shares. I’ll cover the topic and the associated lesson that we need to reconcile, reconcile, reconcile awards and grants against all of the limits established in a plan.

What Happened?

In January 2013, Groupon’s COO was granted 1.2 million shares under a restricted stock unit award. From their own account in an 8-K filed with the SEC, the award exceeded a then-in-place 1 million share calendar year per person limit on awards – meaning the COO’s award exceeded that limit by 200,000 shares. It appears the error was not detected until a deep dive into the plans was done in conjunction with shareholder litigation. As a result of the discovery, Groupon rescinded the portion of the grant that exceeded the limit – 200,000 shares. This occurred just days before a portion of the award was scheduled to vest.

The Good News

The good news is that the error was detected in advance of shares vesting/sold. Had the shares vested and subsequently been sold, this would have made the situation more complicated to rectify. Even if not sold, had taxes been collected and the error gone unnoticed, the correction of the tax withholding could have gotten very complicated. Aside from the fact that the error was caught in advance of the vesting date, I can’t really think of any more “good news” in this situation.

The Bad News

This leaves me wondering how the error – for such a sizable, high profile grant – was not detected earlier. It seems to have gone unnoticed during quarter close and other periods where reconciliation seems to be likely. In fact, it appears that nearly a year went by without a blip on the stock plan radar. In addition, the correction involved public disclosure – another negative in this situation.

What Did We Learn?

Anytime there’s a negative involving errors and public announcements, I think it’s a prime opportunity for us to seek the lesson to be learned. In this case, this is a solid reminder that reconciliations need to extend beyond overall plan balances. It’s not enough to stop your analysis at the overall outstanding plan balance at the end of the quarter (which usually reflects beginning balance, plus any shares returned to the plan and minus any issuances). If your plan has internal limits on share types, maximum shares per award, or overall grants within a period of time, these parameters must be audited regularly. Examples of common limits within stock plans may include:

  • Limit on shares granted per award type: for example, no more than 3 million shares may be granted as restricted stock awards/units.
  • Limit on shares granted per option/award: for example, a grant to any individual cannot exceed 1 million shares.
  • Limit on shares granted within a specific window of time: for example, no more than 2 million shares in a calendar year.

If you have any of these types of share limits within your plans, you’ll want to ensure you are comparing grant and award activity to these limits. Ideally, this should initially be done at grant, and then double checked during the monthly or quarterly reconciliation process that follows. Year-to-date reconciliations should always be performed with each reconciliation process – in addition to the current month or quarter’s activity.

Groupon is probably not thrilled to publicly correct an award. However, the silver lining is the message in this for all of us – that monitoring plan share limits regularly and consistently is important. If you haven’t performed these reconciliations for 2013, you may want to do so now. Correcting errors that cross calendar years can often be tricky – or sometimes impossible, especially if a disposition of the shares is involved.


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December 18, 2013

NASPP To Do List

Holiday Cards
The trend this year in holiday ecards seems to say “happy holidays” in as many different languages as you can manage.  I received ecards from Baker & McKenzie, Hogan Lovells, and Morgan Stanley in this theme.

Maslon Edelman Borman & Brand wins again for the most interactive and innovative holiday card. Check it out. I can’t wait to see what they do next year.

NASPP To Do List
Here is your last NASPP to do list of 2013:

– Barbara


December 17, 2013

Mishandled FICA and RSUs

Today I discuss recent litigation over mishandled FICA taxes on a nonqualified deferred compensation plan that could also have implications for RSUs.

The Lawsuit

The case involved a company that failed to collect FICA taxes on benefits paid under a nonqualified deferred compensation when the taxes were due.  Because of this, and because the applicable statute of limitations during which the company could go back and amend the return for the year in which FICA should have been paid had elapsed, the company was obligated under IRS regulations to collect FICA when the benefits under the plan were paid out.  The payouts occurred after the employees had retired.

The plan provided for payouts to occur in increments over a period of years, and, because the retirees were no longer actively employed, they had no other wages subject to FICA.  As a result, the payouts were subject to Social Security.  If the company had collected FICA when it should have, the payouts might not have been subject to Social Security because 1) the retirees would have still been employed and would have possibly met the wage cap for Social Security in those years; 2) the wage cap would have been lower; and 3) the entire amount would have been subject to Social Security in the same year, rather than in small increments over many years.  A retiree brought suit against the company essentially claiming that because this was the company’s error and the error increased the amount of FICA tax that he has to pay, the company should have to pay his FICA tax for him.

This situation could also come up in the context of RSUs.  Certainly it could apply where RSUs are subject to deferred payout, but more commonly it is likely to be a concern where RSUs provide for accelerated/continued vesting upon retirement and are granted to or held by employees that are eligible to retire. In that circumstance, the RSUs are substantially vested and are subject to FICA before they are paid out. 

I learned a couple of important things from this that are applicable to RSUs.

There Is a Statute of Limitations

Who knew?  If you screw up on FICA withholding for RSUs, you have a limited period of time in which to go back and fix this. That time is approximately three years (although the actual calculation of the statute of limitations is a little more complicated so if this applies to you, talk to your tax advisors).

FICA Taxes Revert Back to Payout

Even more interesting, if you don’t find the error and correct it before the statute of limitations runs out, your only choice is to collect FICA when the awards are paid out.  Again, I say, who knew?

No Need to Panic, Yet

All this is interesting, but, of course, our primary interest is whether companies could be liable to participants for mishandled FICA taxes on RSUs. At this point, it’s hard to tell. Although there has been one decision in favor of the retiree, this case is far from over (that decision just allows the case to proceed), so who knows if the retire will prevail. And even if he does, the situation in this case isn’t fully analogous to RSUs.  For one thing, the retiree is claiming a violation of ERISA, which typically doesn’t apply to RSUs. 

Moreover, RSUs typically pay out at the time of retirement, not over a period of years after retirement. Thus, in the case of RSUs, there wouldn’t be a question of the payments being subject to Social Security when they otherwise wouldn’t have if FICA had been collected on time. The error would only increase FICA taxes through an increase in the stock price (which would mostly apply only to Medicare since Social Security is capped), an increase in the Social Security wage cap, and maybe differences in compensation levels (but only for employees that don’t otherwise normally earn enough to max out on Social Security).  Even where employees are subject to tax at the higher 2.35% Medicare rate, it seems unlikely that any of those things would be worth suing over.

For a more complete summary of the case, see the Towers Watson alert “Case Highlights the Risk of Employer Liability for Mishandling FICA Tax.”  Thanks to Russ Hall at Towers Watson for helping me sort through how this applies to RSUs.

– Barbara

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December 16, 2013

NASPP Chapter Meetings

Just a couple of last NASPP chapter meetings before the holidays:

Ohio: “Year in Review: 2013 Global Equity Updates,” presented by Barbara Klementz of Baker & McKenzie (Monday, December 16, 1:00 PM, webinar only)

Boston: The chapter presents “Compensation Spotlights for 2014,” a discussion of the emerging topics that will affect compensation strategy and administration in the upcoming year. (Friday, December 20, 8:30 AM)


December 12, 2013

Additional Medicare Tax Q&A

As the year draws to a close, now is the time to ensure the tax withholding ducks are all in a row. It’s far more challenging to correct tax withholding mistakes after year-end than before, so if there are any areas that need audit or attention, this is the moment of truth – you may still have a pay period to make those corrections. Along those lines, the IRS recently released additional clarification on procedures related to the additional medicare tax withholding that was implemented this year. In today’s blog I’ll highlight some highlights from the IRS’s Q&A.

A Quick Recap

To recap in a nutshell – we should all be aware by now that beginning January 1, 2013, an “additional” Medicare withholding tax went into effect for high earners. Essentially, employers need to collect an additional 0.9% of Medicare tax on wages in excess of $200,000. Ultimately the threshold for the tax to kick in is $250,000 of income for a married couple and $200,000 for individuals, but employers are not required to gather any information to determine the employee’s true liability. That at least keeps it easy – anything over $200,000 in wages will incur the additional tax from an employer perspective. That recapped, there are some nuances you’ll want to make sure you’ve accurately interpreted this year.

Employees can’t voluntarily increase their medicare withholdings

The IRS’s Q&A clarified that employees can’t request to increase their Medicare withholdings. Why would this be a question? I could see a family where two earners each make $150,000 in wages, but neither exceeds the individual $200,000 income amount that would trigger additional withholding by their employer. Together they make $300,000, so they would owe 0.9% in additional medicare taxes on $50,000 of income. One or both employees may consider approaching their employer close to year end to request additional Medicare taxes be withheld to satisfy the higher obligation they will have on their last $50,000 of combined income. The IRS has nixed the ability to do this. However, there may be a solution – employees can complete a W-4 Form to increase their income tax withholdings. They just can’t specifically request to withhold additional Medicare.

The definition of wages includes non-cash fringe benefits

Ensuring year-to-date income amounts are contemplated in withholding has long been a balancing act. The additional medicare becomes another tax where an income threshold must be monitored and considered. One important piece to remember is that non-cash fringe benefits are also included in the year-to-date wage threshold, so those components need to be included in any year-to-date income calculations. It may be worth checking with Payroll to ensure those fringe benefits have been included in year-to-date figures.

Employees will have to file Form 8959 with the IRS if additional Medicare tax is withheld

Even though employers will be reporting the Additional Medicare Tax on the employee’s Form W-2, employees will still need to file Form 8959 with the IRS to essentially reconcile their Medicare tax liability. This is where they would determine any additional amounts due, or any overpayments made. This is probably news to most employees, who probably haven’t considered that they will need to file any type of form reporting Medicare payments to the IRS.

Employers can’t stop withholding the additional Medicare tax once the $200,000 income threshold has been reached and withholding is required.

Once the additional Medicare tax kicks in, the employer cannot stop withholding that tax for the remainder of the calendar year. A likely scenario would be where an employee’s combined income with their spouse won’t exceed the $250,000 income amount for couples, but the individual employee’s income will exceed $200,000 and withholding of the additional tax is required for the spouse that will exceed $200,000. The employee may present a case that their combined income won’t trigger the tax, but employers will still have to withhold based on the employee’s individual income situation. The employee will need to complete Form 8959 to get a credit back for the additional Medicare withholdings. As far as I can tell, Form 8959 is still in draft form and the final hasn’t been released (please, someone correct me if that’s not the case).

Now is the time to ensure your withholdings are in order before the end of the year. You may also consider including some of the above points and examples in your year-end employee communications.


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December 11, 2013

NASPP To Do List

Make-Up Week
It’s make-up week for the Question of the Week Challenge! This is your only chance to catch up on questions that you missed during the year! All of the questions for the year have been reposted–answer the ones you missed for half credit.

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

– Barbara


December 10, 2013

What Do Investors Say?

To the tune of “What Does the Fox Say“:

CEO says “More!”

Accountant says “Expense!”

Lawyer says “No!”

And stock plan admin says “Sigh…”

But there’s one sound
That no one knows
What do the investors say?

Actually, What Do the Investors Say?

As we are heading into next year’s proxy season (and now that you have that horrible song in your head), I thought it might be a good time to look at what the investor hot buttons are likely to be with respect to executive and stock compensation.  I listened to the recording of the session “Say-on-Pay Shareholder Engagement: The Investors Speak” at the 10th Annual Executive Compensation Conference and found a few recurring themes.  The panelists were Aeisha Mastagni of CalSTRS, Karla Bos of ING, and Donna Anderson of T.Rowe Price; the panel was moderated by Pat McGurn of ISS.

  • The investor panelists take a rather dim view of retention grants. They also don’t like programs that grant the same value of stock to execs every year (so that when the stock price drops, execs get more shares).
  • They weren’t keen on TSR or EPS as performance metrics.  They felt EPS is too easily manipulated and too short-term and they would rather see goals that drive TSR, not TSR goals themselves.  Which is interesting because TSR and EPS are the two most popular performance metrics in our 2013 Domestic Stock Plan Design survey (co-sponsored by Deloitte).
  • They didn’t have a lot of use for supplemental proxy filings but opinions were mixed as to the value of realizable pay disclosures.
  • For next year’s proxy season, the main areas of focus that they generally agreed on were performance awards and metrics, CIC provisions, and employment contracts (e.g., retention bonuses). If you don’t have a good story to tell on those topics, you might want to get cracking.
  • They all thought the CEO pay-ratio disclosure was of dubious value. 

They all also insisted that they were very open-minded about stock and executive compensation and that they don’t blindly follow ISS (it’s just that they happen to agree with ISS on most issues).

Another key takeaway for me was that all of the investors explained that they focus on “the outliers” when reviewing proxy statements.  They have lots of proxies to review and can’t do an in-depth analysis of each one. But if something about your executive pay grabs their attention because it is outside the norm, they will look closer at your company.  So make like a junior high student and try to blend in.

Don’t believe me? For $60, you can listen to the session yourself!

– Barbara

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December 9, 2013

NASPP Chapter Meetings

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

Seattle: Learn about stock compensation and get your holiday shopping done at the same time! Emily Cervino of Fidelity Stock Plan Services, Billy Vitense of Starbucks Coffee Company, and John Wolff of GuideSpark present “Stock Compensation Goes to Hollywood” and the chapter hosts a holiday happy hour at Nordstrom (you’ll pass right by fine jewelry on the way to the elevator). (Tuesday, December 10, 2:30 PM)

Orange County: The chapter hosts its annual holiday social; drinks and dinner at the Balboa Yacht Club. (Wednesday, December 11, 5:30 PM)

Silicon Valley: Sinead Kelly, and Denise Glagau of Baker & McKenzie present “Tips, Traps and Techniques for Dealing with Equity Awards when Employment Status Changes.” (Wednesday, December 11, 11:30 AM)

Carolinas: The chapter hosts meetings in Raleigh (Thursday, December 12, 4:30 PM) and Charlotte (Friday, December 13, 3:30 PM). Both meetings will feature an informal, high level conversation about some administrative actions that have accounting implications. After that, you’ll probably need a drink, so the presentations will be followed by a holiday cocktail reception.

Chicago: Don Nemerov and Eric Myszka of Grant Thornton present “Performance-Based Long-Term Incentive Plans–Are They Better Than Stock Options and Restricted Stock?” (Thursday, December 12, 7:30 AM)

Houston: The chapter hosts its annual holiday event, featuring the presentation “So, What is Everyone Else Doing? Results from the Deloitte Global Share Plan Survey,” followed by a holiday social. (Thursday, December 12, 3:00 PM)

Twin Cities: Michael Melbinger of Winston & Strawn will be speaking on current hot topics. His presentation will be followed by the chapter’s annual holiday social. (Thursday, December 12, 3:30 PM)

I’ll be at the Silicon Valley meeting and Kathleen Cleary, the NASPP’s Education Director, will be at the Orange County meeting. We hope to see you there!

– Barbara


December 5, 2013

Fun, Festivities and Year-End

It’s that time of the year – holidays, festivities and year-end prep. I’ve often wondered how the two can go hand in hand. In today’s blog I’ll combine the two; let’s see how that works out.

Send Your Holiday Selfies

Let’s get the fun out of the way first. Chapter holiday gatherings are already in full swing, and we want to see your photos. Send me your selfies and group photos – we’ll post them to our Facebook page. Some of them might even make it into a holiday oriented future blog post. The pictures are already coming in – see anyone you know from yesterday’s San Diego chapter holiday event? Hint: Raul Fajardo of Qualcomm and James Tozer of E*TRADE.

Year-End Prep Tips

Moving on to the more serious topic of year-end. It seems like it always creeps up on us – one minute we’re celebrating and the next it’s full throttle into year-end reporting, tax and proxy season. To get ahead of the game, I thought of a few things you can do now, in December, to prepare.

    1) Audit non-employees in your recordkeeping system. Non-employees who had stock compensation transactions this year will need a Form 1099-MISC. This is not to be confused with “former” employees, who will still receive a Form W-2. In many organizations preparation of 1099 forms is not handled by Payroll, so you’ll want to make sure you know who your non-employees are (including outside directors) and have that list ready come January for whomever is going to prepare the forms.

    2) Attend our webcast next week (Thursday, 12/12) on Annual Tax Reporting. This will feature essential information on 6039 reporting, special reporting requirements, non-employee reporting and other detailed tax reporting instructions. This is a prime opportunity to get the lay of the land heading into tax season.

    3) Revisit deferred tax withholdings (e.g. FICA on retirement eligible RSUs). If you’ve delayed collection of FICA taxes until year-end, for example (based on the IRS’s Rule of Administrative Convenience, allowing deferral of collection of some taxes until calendar year-end), you’ll want to revisit those scenarios now to determine whether any tax withholding is required before year-end. In relying on the Rule of Administrative Convenience, the idea is that taxes like social security will have reached their annual maximum withholding for many employees by now, eliminating the need to collect any additional social security – meaning none would need to be collected for the award. However, if an employee has not reached the maximum and collection of such taxes were deferred under the rule, then you’ll need to make sure you adequately withhold by 12/31.

Well, there you have it. Festivity and planning tips all in one blog. The holiday season is off to a great start. I’m looking forward to seeing everyone’s photos, and I’m wishing you a smooth sailing process as you kick off year-end as well.


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