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Monthly Archives: October 2014

October 30, 2014

2015 COLAs

Last week the IRS and the Social Security Administration (SSA) announced the cost of living adjustments (“COLAs”) for 2015.

No News is Good News?

Earlier this year, there was a lot of talk about potential far reaching tax reform proposed by the House Ways and Means Committee (see the NASPP podcast interview with Bill Dunn of PwC for a recap). Nothing new seems to be happening in that area, so it looks as if 2014 might go down as a very quiet year on the tax front. As a result, the only news is routine – the annual cost of living adjustments.


The wage cap for Social Security tax purposes will increase to $118,500 for 2015 up from $117,000 in 2014.  The tax rate remains the same at 6.2%, so this increases the maximum Social Security withholding to $7,347 per employee.

Highly-Compensated Employees

The threshold at which an employee is considered highly compensated for purposes of Section 423 will increase to $120,000 for 2014 (an increase of $5,000 from the threshold of $115,000 for 2014).  (Section 423 allows, but does not require, highly compensated employees to be excluded from participation.)

More Information

SSA Press Release

IRS Press Release


October 29, 2014

NASPP To Do List

Time to Renew Your Membership
It’s that time again: renew your NASPP membership for 2015; we have some great programs planned for next year and you don’t want to miss them! (if you aren’t an NASPP member, now is a great time to join; you’ll get membership for 2015 plus the rest of 2014 for free!)

To Do List
Here is your NASPP to do list for this week:

– Barbara


October 28, 2014

Proposed Amendments to ASC 718 – Part I

The Financial Accounting Foundation has completed their post-implementation review of FAS 123(R) (see my August 27, 2013 blog entry, “FAF to Review FAS 123(R)“) and the upshot is that they think the standard (now known as ASC 718) needs to be simplified.  In response the FASB has proposed some very significant amendments to the standard. In addition to the summary I provide here, be sure to listen to our newest Equity Expert podcast, in which Jenn Namazi discusses the proposed amendments with Ken Stoler and Nicole Berman of PwC.

Share Withholding

Currently, ASC 718 provides that withholding for taxes in excess of the statutorily required rate triggers liability treatment.  This has been a problem because of rounding considerations (if companies round the shares withheld up to the nearest whole share, does that constitute withholding in excess of the required rate) and, more significantly in jurisdictions (e.g., US states and other countries) that don’t have a flat withholding rate.  The FASB proposal would change the standard to allow share withholding up to the maximum tax rate in the applicable jurisdiction, regardless of the individual’s actual tax rate.

This is obviously great news and would make share withholding a lot more feasible for non-US employees.  There is still the question of rounding, however.  It also isn’t clear how this would apply in the case of mobile employees.  Finally, don’t forget that, here in the US, the IRS still opposes excess withholding at the federal level (see my January 9, 2013 blog entry “Supplemental Withholding“).

Estimated Forfeitures

Estimating forfeitures is one of the most complicated aspects of ASC 718—I’ve seen multiple presentations of over an hour in length on just this topic.  The FASB has proposed to dispense with this altogether and allow companies to simply recognize the effect of forfeitures as they occur.  Companies would be required to make a policy decision as to how they want to recognize forfeitures that would apply to all awards they grant.  I assume that this would apply only to forfeitures due to service-related vesting conditions, but I don’t know this for certain.

Tax Accounting

Another area of the standard that has provided a wealth of material for NASPP webcasts and Conference sessions is how companies account for the tax deductions resulting from stock awards.  FASB’s proposal would change the standard to require that all tax savings and all shortfalls flow through the income statement. If an award results in a deduction in excess of the expense recognized for it, the excess savings would reduce tax expense (currently, the excess is recorded to APIC).  Likewise, shortfalls would always increase tax expense (currently, shortfalls are deducted from the company’s APIC balance to the extent possible, before reducing tax expense).

With this change, companies would no longer need to track what portion of APIC is attributable to excess tax deductions from stock plan transactions. But this would introduce significant variability into the income statement (which is the reason FASB decided against this approach ten years ago).  This approach gets us closer to convergence with IFRS 2, but is still not completely aligned with that standard (in IFRS 2, all excess deductions run through APIC and all shortfalls run through the P&L).  But this makes me wonder if companies will simply record the windfall/shortfall tax deductions as they occur, or would they have to estimate the potential outcome and adjust tax expense each period until the deduction is finalized (as under IFRS 2)?

Now? Now They Figure This Out?!

All of these changes will eventually make life under ASC 718 a heck of a lot simpler than it is now.  That’s the good news. The bad news is that it’s really too bad the FASB couldn’t have figured this out ten years ago.  Not to say “I told you so” but I’m sure there were comment letters on the exposure draft that warned the FASB that the requirements in at least two of these areas were too complicated (I’m sure of this because I drafted one of them).

If you are already thinking wistfully about how much more productively you could have used all that time you spent learning about estimated forfeitures and tax accounting, imagine how your administrative providers must feel. They’ve spent the last ten years (and a lot of resources) developing functionality to help you comply with these requirements; now they’ll have to develop new functionality to comply with the new simpler requirements.

More Info

I’ll have more thoughts on this and some of the FASB’s other decisions—yes, there’s more!—next week.  For now, check out the PwC and Mercer alerts that we posted to the NASPP website (under “More Information” in our alert, “FASB Proposes Amendments to ASC 718“).  And listen to our Equity Expert podcast on the proposed amendments with Ken Stoler and Nicole Berman of PwC.

– Barbara

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October 23, 2014

3 Things to Have on Your Radar (Before Year-End)

There’s a lot to keep track of in stock compensation, and one of the challenges in working in this industry is figuring out how to stay abreast of new developments. Today I’ll help with that by covering 3 things you should have on your radar as we get ready to close out 2014.

1. CEO Pay-Ratio Rules could (maybe, possibly) be adopted by the SEC before the end of the year. According to’s Broc Romanek, SEC Chair White recently said that it was her “hope and expectation” that the rules would be adopted by the end of the year. Will it happen or not? We don’t know. It’s certainly something that will kick into high gear once it happens. For fun, also has a poll where visitors can weigh in and predict the timing.

2. FASB’s Proposed Amendments to ASC 718. Yep, you read that right. Earlier this month the FASB announced several projects to explore alternatives to some of the more challenging areas of administering ASC 718. I’m going to keep you in suspense for the moment – next week’s Blog will cover this in detail, and we also plan to have additional content on our website to help you figure out the potential impact to your organization. Stay tuned, and plan some time to get up to speed next week. For a sneak peek at the issue, read our new alert on the topic.

3. Cost-basis reporting communication nightmares are near. Beginning with shares acquired on or after January 1, 2014, brokers are no longer 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 now 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. This means, in many cases, that the amount recorded on the 1099-B will be wrong. Since many brokers voluntarily reported the correct cost basis prior to 2014, and since the changes to that approach became mandatory for shares acquired on/after January 1, 2014, this means we are coming up to the first tax reporting period where the likelihood of inaccurate cost-basis on the 1099-B will be widespread. Many experts I’ve spoken to on this topic seem to agree that this is adding up to a participant communication nightmare. Companies need to get ahead of the curve on this one – if you’ve got option and/or ESPP transactions related to shares acquired in 2014, then you need to contemplate a robust communication effort to explain these changes to employees – pronto.

A note to companies who collect cash par value payments on restricted stock units and awards (there are not many of you, but some state laws do require companies to collect par value, and some companies do choose to do this in cash): There is a minute detail in the wording of the cost-basis regulations that may require you to seek input from your advisers as to whether or not cost-basis reporting is required for restricted stock unit/awards for which cash is the means of payment for par value (if you are using “services” to the company to satisfy par value, this does not apply to you). In essence, the cost-basis regulations say that “covered” securities are subject to the cost basis reporting. A “covered” security has been defined as:

“A share of stock in an entity organized as, or treated for Federal tax purposes as, a corporation, either foreign or domestic acquired for cash in an account on or after January 1, 2011.”

Now, this has largely been interpreted to mean that shares not acquired using “cash” as the payment method are excluded from the cost-basis reporting requirements (thus referred to as “not covered” in most memos and educational materials I’ve seen). The “not covered” category would typically include restricted stock and restricted stock units, since, in many cases, there is no cash payment for the shares. However, since “cash” is a defining word in determining the applicability of cost-basis reporting requirements, it would seem that where a company is collecting a cash par value payment for restricted stock units/awards, then technically those awards would be considered covered securities and subject to cost basis reporting.

I have not heard anyone talking about how cash par value payments affect the “covered” vs. “non covered” status of these securities. The vast majority of respondents in the NASPP/Deloitte 2013 Stock Plan Design Survey reported using means other than cash to satisfy par value requirements. However, 5% of respondents did report collecting cash payments to satisfy par value. I don’t have answers – this is likely a tiny nuance not yet explored by many advisers, since there are only a few companies who are collecting a cash par value payment. Nevertheless, I’m putting it out there that if your company is one of those that collect cash for par value, it’s time to ask your advisers to come up with an answer on this one – well before the tax reporting process begins. We want everyone to smooth sail through this season of tax reporting!

For additional information on cost-basis reporting, see our Cost Basis portal.



October 22, 2014

NASPP To Do List

Time to Renew Your Membership
It’s that time again: renew your NASPP membership for 2015 (if you aren’t an NASPP member, join today).

To Do List
Here is your NASPP to do list for this week:


October 21, 2014

ISS Changes Stock Plan Methodology

I had planned to blog about some pretty big and exciting news from the FASB, but on October 15, ISS announced their new methodogy for analysing stock plan proposals. You only have until October 29 to submit commits, so this anouncement trumps the FASB announcement.

We’ve included a more complete summary of the new methodoligy in the NASPP Alert “ISS Proposes Significant Changes to Equity Plan Analysis.” For today’s blog entry, I have a few thoughts on specific aspects of it.

Seriously? Only 14 Days?

My first thought upon reading the ISS announcement was “Seriously? People only have 14 days to read this and comment on it?” I don’t know, it kind of makes me think they don’t care about your comments.

Balanced Scorecard

Historically, ISS has employed a number of mechanisms to evaluate stock plan proposals, including 1) plan cost (e.g.’ the Shareholder Value Transfer test), 2) historical burn rates, and 3) a review of specific plan features. Each of these factors were evaluated as a series of pass/fail tests and a plan had to pass all three to receive a positive recommendation.

The proposed approach will still consider the three areas noted above (with a number of significant changes), but will look at them on a holistic basis, rather than as a series of separate tests. So plans that fail one test may still receive a favorable recommendation if the results of the other analyses are positive enough to outweigh the failure. I also suspect that means that plans that pass all three tests but with a low score on each could end up receiving a negative recommendation.

SVT Test Gets an Update

The SVT test will be performed not just on the shares requested for the plan but instead on 1) shares requested, shares currently available for grant, and shares outstanding, and 2) shares requested and shares currently available for grant.

Bad News for RSUs

Historically, allowing shares withheld for taxes to return to the plan just caused the award to be treated as a full value award in the SVT test. Which meant that it didn’t matter if you allowed this for full value awards becauuse they were already counted as full value awards in the SVT test.

Now “liberal” share counting features (e.g., returning shares withheld for taxes to the plan reserve) will no longer be part of the SVT test but will instead be considered separately as a plan feature. So it could be a problem to do this for both RSUs.

Burn Rate Commitments Are a Defunct

My understanding is that up until now, companies didn’t really worry about the burn rate test because if they failed it, they could fix the failure by simply making a burn rate commitment for the future. But the new methodology eliminates the ability to correct burn rate failures by committing to a burn rate cap.

Now, if you fail the burn rate test, you’ll have to hope that the plan cost is low enough and you have enough positive plan features (e.g., clawbacks, ownership guidelines) to outweigh the failure.

Be sure to tune in next week for my big FASB announcement (see the alert on the NASPP home page for a preview).

– Barbara

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October 16, 2014

Mobility Trends

The tracking and taxation of mobile employees continues to be one of the most complex challenges in stock administration. Equity awards are being issued on a broader basis, which means more participants to monitor. Increased focus and scrutiny from tax authorities across the globe translates to a greater need to be vigilant with tax calculations and collections. One question we tend to hear over and over again: How are other companies handling this? In today’s blog, I’m able to provide some answers.

Thanks to data collected in a recent Morgan Stanley/NASPP Mobility Survey, we’ve got some insights into current mobility practices. First, the survey demographics:

  • 289 respondents
  • All respondents verified that they represent an issuer firm and are involved in stock plan administration
  • Data was collected between July 15-25, 2014


Now, let’s dive into the details. Among the highlights:

  • Nearly three-quarters of respondents said they rely on a third party to assist with taxation of their mobile employees
  • 42% of firms surveyed provide education to affected “mobile” employees
  • 3 out of 10 companies believe their mobile workers are confused about how their movements can affect their global and domestic tax obligations
  • Nearly 40% of respondents reported a budget of $25,000 or less allocated to mobility efforts
  • Less than 4 out of 10 companies rate their mobility efforts as excellent or above average
  • Business travelers receive relatively low monitoring – only 14% of global and 15% of firms reported tracking business travelers


Practices around mobility continue to evolve. The results from this survey seem to suggest that there is room for improvement in some areas – including employee education, scope of tracking and overall administration. In my opinion, the category of business travelers continues to be an under-tracked component of mobile populations. Companies may be wise to increase their efforts in the business traveler category before tax authorities increase their compliance enforcement in this area. Additionally, it seems that the majority of companies are aware that mobile employees may be under educated about the taxation of their equity awards. This seems to be a prime area for a portion of the communication budget.

For more information, access the article “Workforce on the Move“, which includes analysis of survey results.


October 15, 2014

NASPP To Do List

2014 Domestic Stock Plan Administration Survey Results
Tune in tomorrow, October 16 for our webcast “Trends & Analysis from the 2014 Domestic Stock Plan Administration Survey” and hear the latest findings from the industry’s most comprehensive survey on stock plan administration practices.  The webcast will report on trends in the following areas:

  • Stock plan administration and communication
  • ESPP design and operation
  • Insider trading compliance
  • Stock ownership guidelines
  • Outside director plans

The survey is co-sponsored by the NASPP and Deloitte Consulting LLP.

To Do List
Here is your NASPP to do list for this week:


October 14, 2014

Rule 701: Time for an Update?

The House Financial Services Committee has recently been engaged in efforts to help start-up companies raise capital, including a bill (H.R. 4571) that directs the SEC to increase the threshold (from $5 million to $20 million) at which companies are required to provide additional disclosures to employees under Rule 701.


Privately held companies typically rely on Rule 701 to issue stock through compensatory awards granted to employees. Where a company has relied on Rule 701 for the issuance of more than $5 million worth of stock in a 12-month period, the company is required to provide additional disclosures to employees, including the financial statements of the company prepared in accordance with US GAAP, risks associated with purchasing the company’s stock, and a summary of the material terms of the plan.

Proposed Change

The legislation passed by the House Financial Services Committee directs the SEC to increase the $5 million threshold to $20 million and further requires that this amount be indexed to inflation on a five-year basis. The bill makes no other changes to Rule 701.

The $5 million threshold has been in place since Rule 701 was adopted in 1988. Originally, Rule 701 actually capped issuances at $5 million; in 1999 the Rule was amended to merely require additional disclosures when this threshold is exceeded.

This threshold is frequently a concern for private companies, especially technology start-ups and others that grant equity broadly throughout their employee population. Anyone who has tried to buy real estate recently in California knows that $5 million in today’s economy isn’t what it was in 1988. According to the inflation calculator on the Bureau of Labor Statistics website, $5 million in 1988 had the buying power of a little over $10 million today; half the amount of the increase proposed by the House Finance Committee. We guess if the House Finance Committee is going to go for something, they might as well go for broke (or perhaps the bill sponsors felt they needed a little room for negotiation).

Next Steps

This legislation still needs to be voted on by the full House, then by the Senate, and then signed into law by the President. (where you can sign up to receive email, Twitter, or Facebook updates on the bill) gives the bill only a 31% chance of passing. And after the bill is signed into law, the SEC has to draft a proposed rule, solicit comments, review the comments and issue a final rule before the change will take effect.

But, what is particularly interesting here is that—unlike some other limits I’d like to see adjusted for inflation (the ESPP $25,000 limit and the ISO $100,000 limit come to mind)—Congressional action isn’t necessary for Rule 701 to change. This is a rule promulgated by the SEC; as such, it could be modified by the SEC with or without direction from Congress. The SEC revamped Rule 144 in 2007; it’s been a lot longer than that since Rule 701 was updated. Perhaps this legislation will put this issue on the SEC’s radar.

For more information, see the NASPP alert “Proposed Changes to Rule 701.”

– Barbara

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October 13, 2014

NASPP Chapter Meetings

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

Michigan: The chapter presents “Executive Compensation Trends.” (Tuesday, October 14, 11:30 AM)

Dallas:  Two chapter meetings in one day!  Lori Oliphant of Winstead presents “Preparing for the 2015 Proxy Season” with Steven Stark of Zale and C. Don Hager of DeBee Gilchrist at 7:30 AM at the JC Penney corporate office in Plano at 7:30 AM. Then Lori does it again at 3:00 PM at Winstead’s offices in Dallas, this time with Barbara Ashworth at AT&T and C. Don Hager of DeBee Gilchrist.  (Thursday, October 16)

DC/MD/VA Bill Dunn of PwC presents “What you need to know about Cost Basis changes and Regulatory Developments.”  A cocktail reception will follow the meeting. (Thursday, October 16, 3:30 PM)

San Fernando Valley: Equity Methods presents “Ten Things You Want Your Comp Committee to Know BEFORE Performance Grants are Issued.” (Thursday, October 16, 11:30 AM)

NY/NJ: Joseph Blasi of Rutgers University presents “The Citizen’s Share: Notes From the Lab About What We Learn About Shares From Scientific Studies.” (Friday, October 17, 8:30 AM)