The NASPP Blog

Monthly Archives: May 2016

May 31, 2016

NASPP Chapter Meetings

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

Orange County: The chapter is hosting a summer social to promote the NASPP and the Orange County Chapter. This is an open event where members and non-members can come out and network and learn more about the NASPP. There will be surprises and raffles prizes. I’ll be there and I hope to see you there. (Thursday, June 2, 6:00 PM)

Portland: Dan Walter of Performensation presents “Performance Awards for Private and Smaller Public Companies.” (Thursday, June 2, noon)

– Barbara


May 26, 2016

What Does “Commence” Mean?

Do your award agreements include the phrase “vesting commencement date” or a similar phrase? A recent lawsuit against Tesla hinges on what it means for vesting to “commence.”

The Lawsuit Against Tesla

A group of former Tesla employees have brought a lawsuit against Tesla, claiming that they should have been able to exercise their options at the time of their termination of employment, even though they had not yet fulfilled the one year of service required for the grants to begin vesting.  At the heart of the lawsuit is the language in Tesla’s employment agreement, which states that vesting commences on the first day of employment.  The employees have interpreted this to mean that the options were immediately vested at grant.

What Part of “One Year After” Don’t You Understand?

The whole claim seems rather disingenuous to me.  As explained in The Recorder (“Trial Opens Over Tesla Options,” March 1, 2016):

The entire dispute turns on a single sentence in Tesla’s employment agreement letter, stating that employee stock options “will vest commencing upon your first day of employment.” But parenthetically added in the employment agreement is the following: “1/4th of the shares vest one year after the vesting commencement date, and 1/48th of the shares vest monthly thereafter over the next three years.”

Given the parenthetical, it seems hard to believe that anyone was really confused about when the options vested.

Key Takeaways

The problem with a lawsuit like this, however, is that no matter how disingenuous it might seem, it won’t go away by itself. Responding to a lawsuit often involves a lot of time, resources, and legal fees.  It’s worthwhile to take some precautions to mitigate the company’s risk:

  1. Make sure the language in your employment and grant agreements is clear. Avoid terms that are ambiguous, if possible.  If you can’t avoid them, make sure they are clearly defined.
  2. Take off your equity compensation hat once in a while.  While a term like “vesting commencement date” might seem obvious to you, it might not be so clear to someone who doesn’t have a background in equity compensation. Plaintiffs’ attorneys are great at exploiting ambiguities.
  3. Keep a record of all information communicated to employees about their awards.  In a case like this, educational materials that further clarify how awards vest, possibly with examples, can help bolster the company’s defense.

For more tips, check out the Top Ten List, “From an Expert Witness: Ten Things I’ve Learned From Stock Plan Litigation,” guest authored by Fred Whittlesey of Compensation Venture Group  in the November-December 2013 issue of The NASPP Advisor.

– Barbara

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May 24, 2016

The Muddled Waters of Insider Trading

This week’s news that Phil Mickelson, a professional golfer, was caught up in an insider trading crackdown and had to disgorge nearly $1M in profits from stock sales (but was not prosecuted by the SEC) gave me pause. I wasn’t actually surprised by this seeming paradox – and maybe it’s because I’ve been sporadically blogging about insider trading for a while now. The question of how you can be obligated to return profits obtained from trading stock on inside information, without actually being prosecuted is a good one, and I’m guessing the muddled answer may elude some. An article in the New York Times this week summed up the matter of Mickelson’s insider trading quite handily: “How to Get Away with Insider Trading.” In today’s blog I’m not going to focus on how to get away with insider trading, but rather on how muddled the definition of insider trading has become in recent years.

The Short Story

You may have caught wind of this story already, so I’ll keep my summary of it short. The former chairman of Dean Foods admitted to passing on inside information to a well-known professional sports bettor in Las Vegas. According to the NY Times, “The sports bettor made an estimated $43 million over five years from this information, according to federal prosecutors. A second beneficiary of stock tips was the professional golfer Phil Mickelson, who had gambling debts of his own.” Mickelson received the tip to sell stock, sold stock and paid off his gambling debts. So why was Mickelson not charged if he did indeed trade on inside information? Well, he was not named a “defendant” in the civil lawsuit, but rather a “relief defendant.” What is a relief defendant? A Fortune article on the topic described the term as “someone who is not accused of wrongdoing but has received ill-gotten gains as a result of others’ illegal acts.”  The key here is that Mickelson may not have been aware that the tip he got, though inside information, was obtained illegally. Mickelson did agree to disgorge $931,000 in profits from the sale and pay $105,000 in prejudgment interest.

Did you follow all that? I had to sort through it myself. So just how do we define what is considered legal or illegal when trading on non-public information? I’ve decided to create a short quiz to help sort through the matter.

Test Your Insider Trading Know-All

I’ve come up with a few questions to help test your know-how, and also sort through the answers. Fun and educational all in one.

  1. True or False? Federal law defines “insider trading” as any trade that is made on the basis of material, non-public information.
  2. True or False? One is not likely to be charged with insider trading if they trade on a stock tip but remained unaware of any benefit the provider of the tip obtained for that information (e.g. friend says “buy this stock” with no further details as to how they got the information.)
  3. True or False? In order to be required to disgorge trading profits to the SEC, you must be found guilty of charges of civil or criminal wrongdoing related to insider trading.


The Answers

Okay, so the quiz doesn’t come with a prize. Otherwise I’d have to work harder to hide the answers a little farther away from the questions. But at least you can learn something from our Q&A game.

True or False? Federal law defines “insider trading” as any trade that is made on the basis of material, non-public information: False. There is no federal law that defines insider trading. This is particularly problematic in prosecuting insider trading cases. The New York Times reported that “First, neither Congress nor the S.E.C. has ever defined “insider trading” in a comprehensive way. So our laws are largely made by judges who, bound by precedent, rarely update law to fit new circumstances.” In a previous NASPP Blog titled “Insider Trading Isn’t Illegal?) (April 2, 2015), I explained that “…although the SEC has been successful in pursuing these cases, they have had to use loopholes to do so – relying on general antitrust laws and decades of case law (and, I’m not a lawyer, but I’m told that case law is subject to interpretation by individual judges, so the application of that could vary widely). The bottom line is there isn’t a statute that specifically addresses insider trading, which leads to potential ambiguity and inconsistencies in the courts.”

True or False? One is not likely to be charged with insider trading if they trade on a stock tip but remained unaware of any benefit the provider of the tip obtained for that information (e.g. friend says “buy this stock” with no further details as to how they got the information.): True (likely). The answer to question 3 is a bit muddled, but thanks to the appeals court case of United States v. Newman, which overturned the convictions of two hedge fund managers for insider trading because the government failed to prove they had known about any benefit provided to the sources of the information, it’s not likely the SEC will be bringing formal charges against those innocents embroiled in insider trading cases who lacked understanding of the benefit the tipper may have received for that information (which is seemingly how things played out in the Mickelson case.) The Supreme Court has agreed to hear the appeal of the securities fraud conviction in Salman v. United States. According to the New York Times, “The court will consider what evidence the government must introduce to prove a benefit passed between a source of confidential information and the recipient who trades on it, called the ‘tippee.'” That won’t happen until 2017. For more details, view the full New York Times article “The Rocky Road of Insider Trading Law.” (April 2016)

True or False? In order to be required to disgorge trading profits to the SEC, you must be found guilty of charges of civil or criminal wrongdoing related to insider trading: False. As we have seen with the Mickelson case, the SEC has means to prompt those involved in insider trading (even if they did not engage in wrongdoing themselves) to return the profits they obtained from the related trades. In the Mickelson case, naming him as a relief defendant in the civil case allowed the SEC to pursue disgorgement of the profits.

Clearly a lot still needs to be settled when it comes to clearly defining insider trading. What seems clear is that those involved in trading stock should do their absolute best to ensure the trade is not based on any material, non-public information. Even if prosecution isn’t imminent, profits would still likely need to be repaid in an SEC investigation that finds insider trading somewhere in the chain of events. As stock plan professionals we’re likely well aware of insider trading policies and practices designed to prevent trading on inside information. Education of our employees in this area should address the recent publicity around insider trading that has likely created more questions than provided answers. At minimum, employees should be taught to scrutinize information they receive about trading stocks, and be very careful about sharing their own company’s information with others. That’s pretty consistent age old advice that still applies in modern times, even with all the ambiguity around what really is truly illegal when it comes to trading on inside information.


May 23, 2016

NASPP Chapter Meetings

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

Chicago: Thomas Haines, Lanaye Dworak, and Theodore Simmons of  Frederic W. Cook & Co. present “FASB Developments in Stock Compensation and Latest Market Research on Executive Severance and Change-in-Control Practices.” (Wednesday, May 25, 7:30 AM)

DC/VA/MD: Steve Antuna of Guidespark presents “Enhancing Employee Communications and Compensation Program Effectiveness—New Mobile and Video Tools for Communicating Equity Awards to Employees.” The meeting will be followed by a social hour with drinks and appetizers. (Wednesday, May 25, 3:00 PM)

Houston: Join the Houston NASPP Chapter for an evening at Minute Maid Park to watch the Houston Astros take on the Baltimore Orioles. (Wednesday, May 25, 5:30 PM)

Philadelphia: The chapter hosts a panel from Korn Ferry Hay Group and Morgan Lewis for an insider’s look back at CEO pay in 2015 and a preview of the challenges ahead. (Wednesday, May 25, 8:30 AM)

Austin and Sacramento: The chapters host a joint webcast featuring Ken Stoler of PricewaterhouseCoopers and Raul Fajardo of Certent presenting “Simple But Complex: ASC Topic 718 Updates.” (Thursday, May 26. 11:30 AM Pacific Time) Sacramento chapter members can also attend the presentation in person. The live meeting will start half an hour before the webinar.



May 19, 2016

Millennials and Your Stock Plan

Those of you who are regular blog readers likely know by now that one of my favorite topics in stock plans is that of participant communications. I enjoy the dynamics of communication, and exploring the many modes, practices and mediums available. One thing that has long been a consideration in any communications strategy is the art of understanding the audience, including generational differences, and crafting a message that will resonate – both in its delivery method and content.

Multiple resources widely report that the Millennial generation now is the largest living generation in the United States, outnumbering baby boomers. It’s then not hard to fathom the reality that, in many companies, the Millennial component of the workforce may be larger than any other group. In today’s blog, using a recent blog published by (“Millennials and Stock Compensation: How to Tailor Stock Plan Eduacation For the Instagram Generation“) as a reference, we’ll explore the communication needs of this large generation of Millennials relative to your stock plan.

Who Are Millennials?

I have to admit, sometimes it’s hard to keep track of all the generational nicknames out there. I actually had to do some Googling myself to sort through some of them. So who are Millennials? While dates of generations are not exact, most resources believe the Millennial (also known as Gen Y) population includes those born in the early 1980s until the late 1990s to 2000 time frame.

A Key Question

The blog reports that up to 50% of workforce employees may fall into the Millennial generation category. With such a sizeable population coming from a single generation, it warrants more understanding of the needs and nuances of these folks in the workplace, and of course, relevant to our industry, their stock plans. poses a key question:

“As we all know, stock plans work well to attract and retain talent only if participants understand their grants, making education and communications essential. Given the differences between the Millennial mindset and that of the Baby Boomers and Generation Xers who entered the workforce before them, how should stock plan education adjust to ensure that Millennials are getting its messages?”

We Have Answers

In their blog, explored tactics used by three companies as case study examples, with interesting findings: Akamai, AppDynamics, and Google. Not surprisingly, all three companies have workforces comprised of close to 50% Millennials (54% for Akamai and Google, 47% for AppDynamics). Here are some of the tips cited by one or more of the companies to implement when crafting communications for this generation:

  • Avoid information overload. Use timely, concise emails with information in the subject line that helps identify action required – such as “Action Required” or “Informational Purposes Only.”
  • Brevity wins engagement. Participants won’t be motivated by complexity.
  • Develop relevant content that engages your employees. For one of the companies, this means conducting equity surveys, creating newsletters, asking a question in each educational session or webcast, and even prize raffles.
  • One company cites great results in having “one-day, all-day educational sessions for employees a month after they start. These have been popular: the company says each live session has had ‘standing room only.'”
  • For more tips visit the “Millennials and Stock Compensation: How to Tailor Stock Plan Education For the Instagram Generation” blog on


Additionally, editor-in-chief, Bruce Brumberg, shared some additional tips, including:

  • For a young employee population that is continually busy and multi-tasking, timing education to occur during “teachable moments.” These moments may include hire, tax season, the year-end period (especially if your company’s stock price has increased), vesting, and ESPP enrollment.
  • Interactive content is key, and it is important to have graphics, not just text.
  • Engaging content may include quizzes and videos—and, of course, everything needs to be accessible by mobile phones.
  • At the same time, it’s time to debunk the common assumption that Millennials are unwilling to read. As Bruce explained, “myStockOptions has found that when a topic really interests them, Millennials can be hungry for knowledge and in-depth information.” While messages for Millennials must be tailored to accommodate their busy, frequently online lives, these communications should not be so short that valuable details are lost.


Certainly there is much to consider in crafting communications to a multi-generational workforce. With many baby boomers still in the workforce, Gen X’ers sandwiched in the middle, and Millennials continuing to increase in workforce population demographics, this makes for a workplace filled with different needs, approaches, and strategies. It’s time to ensure your participant communications address the unique needs of all workforce generations.


May 18, 2016

NASPP To Do List

NASPP Conference Early-Bird Expires This Friday!
The early-bird rate for the 24th Annual NASPP Conference expires this Friday, May 20! Don’t miss your chance to save—register today!

Quick Survey on ASC 718 Update
We’ve posted the results of our quick survey on the update to ASC 718.  If you missed it be sure to check out the nifty infographic illustrating the results that I included in yesterday’s blog entry.

NASPP To Do List
Here’s your NASPP To Do List for the week:

– Barbara


May 17, 2016

Update to ASC 718: Survey Says

For today’s blog entry, I have the results of the NASPP’s Quick Survey on ASC 718, presented in a nifty interactive infographic (place your cursor over a section of each chart to see its label). (Click here if you don’t see the graphic below.)

Create your own infographics

BTW—if you are one of the 83% of respondents that haven’t yet figured out the impact of the tax accounting changes to your earnings per share, see my blog entry “Run Your Own Numbers,” for easy-peasy instructions on how most companies can figure this out in just 5 minutes. It’s a great opportunity to demonstrate your knowledge and value to your accounting/finance team.

– Barbara

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May 16, 2016

NASPP Chapter Meetings

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

Florida:  I am presenting on “Today’s Hottest Topics in Stock Compensation.”  It’s going to hot! I hope to see you there. (Monday, May 16, 9:00 AM)

Phoenix: Boxian Kolb and Josh Schaeffer of Equity Methods present “What’s On Tap at the FASB and SEC in Equity Compensation.” (Wednesday, May 18, 11:30 AM)

San Fernando Valley: Alexa Kierzkowski of Frederic W. Cook & Co. presents “Trends in Executive Compensation.” (Wednesday, May 18, 11:30 AM)

Carolinas: Jim Jensen of Compensation Premier and Gregg Passin of Mercer present “Navigating from Emerging Growth Company to Emerged Growth Company – Premier’s Journey.” (Thursday, May 19, 11:30 AM)

Chicago: Donald Delves of Willis Towers Watson presents “Private Company Compensation.” (Thursday, May 19, 7:30 AM)

Denver: Cynthia Nisley of Georgeson Securities Corporation presents “Unclaimed Property: How It’s Affecting You and Your Shareholders”

San Francisco: Carine Schneider of Equity Solutions presents “Understanding the Psychological Principles of Decision Making and Motivation when Designing your Equity Plan” and Barbara Klementz of Baker & McKenzie presents “Key International Updates: The 411 on the Tax and Legal Changes You Need to Know Now for Global Equity Grants.” (Thursday, May 19, 11:30 AM)

NY/NJ: The chapter hosts a presentation on “Executive Reward Programs that Reinforce the Right Behaviors in a Sea of Competing Priorities.” (Friday, May 20, 8:30 AM)


May 12, 2016

ISS Updates FAQs on Stock Plans

In late March, ISS issued an updated Equity Compensation Plans FAQ. This development was largely eclipsed by the FASB’s issuance of ASU 2016-09, so I haven’t had a chance to get around to it until now.  Here is a quick summary of the most significant updates:

Plan Amendments

FAQ 2 has been updated and a new FAQ 28 has been added to clarify that plan amendments may be evaluated under the Equity Plan Scorecard (EPSC), if the amendment could increase the potential cost of the plan. (By “cost,” ISS means dilution or shareholder value transfer; ISS is less concerned with the actual P&L expense.)

In other cases, i.e., amendments that don’t increase cost to shareholders, ISS evaluates the amendment based on whether it is favorable to shareholder interests, but without going through the whole EPSC.

Plans submitted for shareholder approval solely for Section 162(m) purposes fall into a separate category and ISS hasn’t changed or clarified anything with respect to these proposals.

Share Withholding

ISS suggests requesting new shares or extending the term of a plan as examples of the types of amendments that would trigger a new EPSC evaluation, but my guess is that this would also include amendments to allow share withholding for taxes up to the maximum tax rate when the shares withheld will be returned to the plan (my blog from last week explains why these amendments are necessary).

It’s possible that the timing of the release of these updated FAQs is not coincidental.  It’s also possible I’m paranoid; hard to say.  But then again, just because I’m paranoid, doesn’t mean ISS won’t apply the EPSC to your share withholding amendment. This issue is definitely a hot button for ISS. If your plan allows shares withheld for taxes to be returned to your plan, it’s a good idea to discuss this with whoever advises you on ISS concerns before you amend your plan.

Performance Awards

Previously, the FAQ provided that ISS would consider performance awards as being subject to accelerated vesting upon a CIC, unless the amount paid was tied to the performance achieved as of the CIC and was pro rated based on the amount of the performance period that was completed.

The new FAQ states that:

If a plan would permit accelerated vesting of performance awards upon a change in control (either automatically, at the board’s discretion, or only if they are not assumed), ISS will consider whether the amount of the performance award that would be payable/vested is (a) at target level, (b) above target level, (c) based on actual performance as of the CIC date and/or pro rated based on the time elapsed in the performance period as of the CIC date, or (d) based on board discretion.

I’m not sure this changes much, but it does seem to be a more nuanced position.

– Barbara

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May 11, 2016

NASPP To Do List

Just Over a Week Left!
The early-bird rate for the 24th Annual NASPP Conference expires next Friday, May 20! Don’t miss your chance to save—register today!

NASPP To Do List
Here’s your NASPP To Do List for the week:

– Barbara