The NASPP Blog

Monthly Archives: December 2016

December 28, 2016

Memory Lane (AKA My Filing Cabinets Are a Fire Hazard)

Since it is a holiday week, my blog entry for today is on the lighter side.  I recently acquired a new file cabinet, which gave me occasion to reorganize some of my files. While going through some of them, I came across some old documents which I found interesting. I thought some of my readers might find them interesting as well.

20161227_135519_resizedA page from a 1994 ShareData newsletter; the entire issue is focused on fighting FAS 123. It includes information on the Coalition for American Equity Expansion, formed to oppose the standard; discussion of the Equity Expansion Act, which would have required the SEC to maintain the then-current accounting treatment of options (including lists of companies and representatives supporting the Act); point-by-point rejection of the FASB’s proposal; and an FAQ on something called “performance stock options,” which were a type of qualified stock option included in Equity Expansion Act. Ah, those were the days.

20161227_153816_resizedFor years, we worried that ISO and ESPP disqualifying dispositions were subject to withholding (and that purchases in these plans were subject to FICA). Here are two articles on this topic that appeared in the The Tax Journal, published in 1990 and 1995. The matter wasn’t resolved until passage of the American Jobs Creation Act in 2005 (in case you aren’t sure, withholding isn’t required).

20161123_135741_resizedI have been looking for this form for at least ten years. It is a form companies can ask employees to complete to attest that they included income on their tax return. It can be used to potentially mitigate the penalties the company would otherwise be subject to for failing to withhold taxes. I couldn’t remember the name or number of the form, so I couldn’t find it on the IRS website; I should have known to check my own files because I save everything. I had ten copies of it at the back of my “Taxation – General” file (as opposed to the 12 other tax-related files that I have).

20161123_135803_resizedThe Taxpayer Relief Act of 1997 was a big deal when it was enacted–who remembers what it did? While we’re at it, who remembers PaineWebber and whatever happened to it?

Answer:  The Taxpayer Relief Act of 1997 reduced the long-term capital gains rate from 28% to 20%. PaineWebber was acquired by UBS in 2000. My files are filled with articles from companies that no longer exist.

20161227_153253_resizedRemember when all companies were going to adopt transferable stock option programs? I do. In fact, I have a whole, albeit relatively thin, file folder on it. So if it ever happens, I’m ready (did I mention that I save everything, forever).

20161123_141335_resizedKaylee the Cat helped me sort through my to-be-filed pile. Here she reviews handouts from recent presentations to determine what category they should be filed under. I guess the thought of mobility compliance has made her a bit wistful.

I hope you all are enjoying the holiday season and that you have a fabulous new year! May all your files be well-organized and your file cabinet drawers open with ease.

– Barbara

December 20, 2016

Top Ten Trends in Stock Plan Design

The full results from the 2016 Domestic Stock Plan Design Survey, which the NASPP co-sponsors with Deloitte Consulting LLP, are now available.  Companies that participated in the survey (and service providers who weren’t eligible to participate) have access to the full results. And all NASPP members can hear highlights from the survey results by listening to the archive of the webcast “Top Trends in Equity Plan Design,” which we presented in early November.

For today’s blog entry, I highlight ten data points from the survey results that I think are worth noting:

  1. Full Value Awards Still Rising. This survey saw yet another increase in the usage of full value awards at all employee levels. Overall, companies granting time-based restricted stock or units increased to 89% of respondents in 2016 (up from 81% in 2013). Most full value awards are now in the form of units; use of restricted stock has been declining over the past several survey cycles.
  2. Performance Awards Are for Execs. We are continuing to see a lot of growth in the usage of performance awards for high-ranking employees. Companies granting performance awards to CEOs and NEOs increased to 80% in 2016 (up from 70% in 2013) and companies granting to other senior management increased to 69% (from 58% in 2013). But for middle management and below, use of performance award largely stagnated.
  3. Stock Options Are Still in Decline. Usage of stock options dropped slightly at all employee levels and overall to 51% of respondents (down from 54% in 2013).
  4. TSR Is Hot. As a performance metric, TSR has been on an upwards trajectory for the last several survey cycles. In 2016, 52% of respondents report using this metric (up from 43% in 2013). This is first time in the history of the NASPP’s survey that a single performance metric has been used by more than half of the respondents.
  5. The Typical TSR Award. Most companies that grant TSR awards, use relative performance (92% of respondents that grant TSR awards), pay out the awards even when TSR is negative if the company outperformed its peers (81%), and cap the payout (69%).
  6. Clawbacks on the Rise.  Not surprisingly, implementation of clawback provisions is also increasing, with 68% of respondents indicating that their grants are subject to one (up from 60% in 2013). Enforcement of clawbacks remains spotty, however: 5% of respondents haven’t enforced their clawback for any violations, 8% have enforced it for only some violations, and only 3% of respondents have enforced their clawback for all violations (84% of respondents haven’t had a violation occur).
  7. Dividend Trends. Payment of dividend equivalents in RSUs is increasing: 78% of respondents in 2016, up from 71% in 2013, 64% in 2010, and 61% in 2007.  Payment of dividends on restricted stock increased slightly (75% of respondents, up from 73% in 2013) but the overall trend over the past four surveys (going back to 2007) appears to be a slight decline. For both restricted stock and RSUs, companies are moving away from paying dividends/equivalents on a current basis and are instead paying them out with the underlying award.
  8. Payouts to Retirees Are Common. Around two-thirds of companies provide some type of automated accelerated or continued vesting upon retirement (60% of respondents for stock grants/awards; 68% for performance awards, and 60% for stock options). This is up slightly in all cases from 2013.
  9. Post-Vesting Holding Periods are Still Catching On.  This was the first year that we asked about post-vesting holding periods: usage is relatively low, with only 18% of companies implementing them for stock grants/awards and only 13% for performance awards.
  10. ISOs, Your Days May be Numbered.  Of the respondents that grant stock options, only 18% grant ISOs. This works out to about 10% of the total survey respondents, down from 62% back in 2000.  In fact, to further demonstrate the amount by which option usage has declined, let me point out that the percentage of respondents granting stock options in 2016 (51%) is less than the percentage of respondents granting ISOs in 2000 (and 100% of respondents granted options in 2000—an achievement no other award has accomplished).

Next year, we will conduct the Domestic Stock Plan Administration Survey, which covers administration and communication of stock plans, ESPPs, insider trading compliance, stock ownership guidelines, and outside director plans. Look for the survey announcement in March and make sure you participate to have access to the full results!

– Barbara

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December 15, 2016

CEO Pay Ratio: Unexpected Side Effects?

While the future of several of the Dodd-Frank provisions appears uncertain as our nation changes leadership in the coming year, there are some interesting side affects currently surfacing as public companies are still on a trajectory to disclose their CEO pay ratio (relative to that of the median employee) in 2018 (reporting on 2017 fiscal year compensation).

In a blog by Ning Chiu of Davis Polk titled “Pay Ratio Rule Leads to Local Tax Increases,” (also quoted in the blog this week), Chiu describes recent city and state level legislation (and proposed legislation) that tax businesses in their jurisdictions based on the CEO pay ratio. For example, the city of Portland, OR recently adopted a surtax based on the CEO pay ratio disclosure—the larger the gap between CEO and median employee pay, the higher the tax. As Chiu describes:

“…the city of Portland, Oregon, recently passed an ordinance authorizing a surtax to the city’s business license tax for public companies doing business in Portland based on their pay ratio disclosure.

In addition to the current 2.2% business license tax, a surtax of 10% of base tax liability will be imposed once the disclosure is effective if a company reports a pay ratio of at least 100:1 but less than 250:1. Companies with pay ratios exceeding 250:1 will face a surtax of 25%.

There are currently at least 545 publicly traded companies subject to this tax in Portland, with collective revenue of $17.9 million. The new surtax is projected to bring in annual tax revenue of between $2.5 to $3.5 million, and will be used to partly fund a city office devoted to homeless services.”

It has also been reported that attempts to explore or implement new taxes tied to CEO pay ratio, or conversely to provide incentives to companies with lower pay ratios, have also been proposed or considered in states such as California, Rhode Island and Massachusetts. It appears the CEO pay ratio disclosure is on the local radars (state and city jurisdiction level) and it could be only a matter of time before more of them follow the path of Portland in implementing surtaxes tied to the disclosure.

As companies continue their conversations around these disclosures, it may be prudent to include some of the peripheral and unexpected side affects that could result from a higher than desired pay ratio. In the past we’ve discussed concerns around the optics of the ratio to shareholders and internal employees, but now it looks like the tax offices are watching this matter closely as well. What other peripheral effects will be tied to the pay ratio disclosure? Will it be repealed entirely? These are all questions that will begin to take shape in the coming months. Don’t forget to renew your NASPP membership so that you stay current on these developments and more in the New Year.


December 14, 2016

Correction: Other ISS Policy Amendments

In my blog entry this week titled “Other ISS Policy Amendments,” I said that ISS no longer permits the 5% carve-out with respect to minimum vesting requirements. This statement was not correct.  ISS will still permit up to 5% of shares granted under a stock plan to vest quicker than required under the plan’s minimum vesting requirements. I apologize for my error and any confusion it created; I have corrected my original entry.

– Barbara

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December 13, 2016

Other ISS Policy Amendments

On November 29, I discussed ISS’s amendments related to dividends paid on awards (ISS Targets Dividends on Unvested Awards), but that’s not the only amendment to their 2017 Proxy Voting Guidelines that impacts stock compensation programs.  For today’s blog entry, I discuss the other amendments.

Minimum Vesting Requirements

The plan must specify a minimum vesting period of one year for all awards to receive full points for this test under the Equity Plan Scorecard.  In addition, no points will be earned if the plan allows individual award agreements to reduce or eliminate this vesting requirement (note, however, that ISS still permits an exception for up to 5% of shares awarded).

Anyone who listened to my podcast “Five Things Barbara Baksa Learned About the ISS Equity Plan Scorecard” knows that I’m not a fan of this test in the EPSC because I’m convinced it is just a compliance disaster waiting to happen.  And now that the plan can’t allow any exceptions to it all, I like it even less.

Plan Amendments

Although ISS didn’t deem this change significant enough to include it in the Executive Summary, the policy with respect to how plan amendments are evaluated has also been updated. For most types of substantive amendments (i.e., amendments that aren’t purely administrative or that aren’t solely for purposes of Section 162(m)), the plan will be reevaluated under the EPSC and ISS will assess the amendments on a qualitative basis.

It isn’t clear to me why the EPSC isn’t enough by itself (since it would be enough for a new plan).  Apparently ISS just doesn’t like some stuff that companies do with their equity plans and they want to be able to recommend that shareholders vote against amendments that would add those features to your plan, even if they would be allowed under the EPSC.

Where private companies are submitting a plan to shareholders for the first time, the plan will have to pass the EPSC even if no new shares are being requested (e.g., if the plan is submitted solely for Section 162(m) purposes) and ISS will make a qualitative assessment of any amendments.

– Barbara

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December 12, 2016

NASPP Chapter Meetings

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

KS/MO:  The chapter hosts a holiday luncheon, featuring highlights from the 2016 NASPP Conference, planning for chapter meetings in 2017, and discussion of current hot topics. (Tuesday, December 13, 11:30 AM)

Connecticut: Daniel Kapinos and Kate Hall of Aon Hewitt present “Are you Feeling Crazy Yet? The Ever Changing Environment Thanks to Regulatory Updates.” (Thursday, December 15, 10:00 AM)

NY/NJ: The chapter presents a recap of two sessions from the 2016 NASPP Conference: “Our Company Is in Play: What to Do Before and After the Transaction” and “What the Board Giveth, the Clawback May Taketh Away.”  (Thursday, December 15, 8:30 AM)

San Fernando Valley: Paul Gladman of Deloitte Tax presents “A Global Perspective On Contingent Workers.” (Thursday, December 15, 11:30 AM)


December 8, 2016

The Supreme Court Weighs in on Insider Trading

After nearly two decades of silence on insider trading matters, the Supreme Court ruled on a case this week (Salman v. United States) that has restored the government with some of the power in prosecuting insider trading that had been curtailed by lower court rulings over the past couple of years.

Getting Back to the Way it Was

Two years ago, government prosecutors – riding a successful wave of recent insider trading prosecutions – were stopped in their tracks when the Second U.S. Circuit Court of Appeals, in the case U.S. v. Newman, overturned two “key” insider trading convictions, dealing a blow to the Justice Department and the SEC. At the time, the Wall Street Journal summarized the situation as follows: “…a federal appeals court overturned two insider-trading convictions and ruled it isn’t always illegal to buy or sell stocks using inside information.” The ruling raised the bar for prosecutors on a crime that is already hard to prove, and ended up limiting the types of insider trading cases the government could pursue. I covered this in two prior blog posts: “The Supreme Court and Insider Trading” (August 6, 2015) and “Insider Trading Isn’t Illegal?” (April 2, 2015).

The aftermath of the Newman decision included confusion around what really constitutes insider trading. Federal prosecutors were forced to drop several high profile cases literally mid-stream. Ever since, it seems the government’s aggressive approach to prosecuting insider trading cases has somewhat waned – probably due in part to having their hands tied.

Fast forward to today, and the government has regained some, but not all, power in the quest to enforce consequences for insider trading. In a Wall Street Journal article on the topic, “The Supreme Court Hardens Stance on Insider Trading” (December 7, 2016), authors Aruna Viswanatha and Brent Kendall report that while the ruling appears to have avoided some of the issues around insider trading (such as tips to acquaintances), it has clarified the question of whether tipping a relative about inside information is considered insider trading when no benefit is received by the tipster.

“…the ruling gives prosecutors more ammunition to file charges even in cases where they can’t show that the tipster received something of value for passing the information.”

A significant part of the high court’s ruling is the justices’ conclusion that showing a tipster and trader to be related are all that is needed to bring an insider trading case.

In the WSJ article, Viswanatha and Kendall summarize the case that brought about the Supreme Court’s opinion as follows:

“The opinion Tuesday written by Justice Samuel Alito upheld the prosecution of a Chicago man convicted of trading on inside tips from a relative, with the justices concluding that proving a tipster and trader were related was enough to bring a case.

In that case, defendant Bassam Salman admitted he had traded on information obtained from his brother-in-law who worked as an investment banker at Citigroup Inc. Mr. Salman was convicted in 2013 and sentenced to three years in prison.

Prosecutors said Mr. Salman and an associate generated more than $1.5 million in profits by trading on tips about coming acquisitions of biomedical companies involving Citigroup clients. Mr. Salman had contended that because there was no compensation or other personal benefit exchanged for the tip, he couldn’t be prosecuted.

Part of Mr. Salman’s defense rested on the 2014 case, known as U.S. v. Newman, issued by a New York-based federal appeals court, which declared the government needed to show that the tipster received a benefit. The Supreme Court declined to consider an appeal.

In upholding Mr. Salman’s conviction, Justice Alito’s ruling narrowed a portion of the Newman case. “Giving a gift of trading information to a trading relative is the same thing as trading by the tipper followed by a gift of the proceeds,” Justice Alito wrote.”

With this latest development in the legalities of insider trading, it’s time to review your insider trading policy language and further educate employees. Tipping shouldn’t be occurring in the first place, but over the years we’ve seen it happen. There have been several cases involving relatives (see The NASPP Blog “Husbands and Wives Insider Trading,” (April 4, 2013)), and it’s important for employees to know that even if they don’t intend to receive any benefit from passing along the tip to a relative, the action of doing so is considered insider trading.


December 6, 2016

Shareholder Challenging 16(b) Status of Share Withholding

Just when you thought it was safe to withhold shares to cover taxes, a shareholder has started issuing demand letters to companies claiming that share withholding is a nonexempt sale for purposes of Section 16b.


Yep, I say “shareholder” because apparently it’s just one guy and he’s representing himself, he’s not even engaging the services of the plaintiffs’ bar.

What the Heck?

But wait, you say, that’s ridiculous.  Share withholding is exempt from Section 16(b) pursuant to Rule 16b-3(e), which covers dispositions back to the issuer that are approved in advance by the board or compensation committee (and approval of the grant agreement allowing said disposition counts as approval of the disposition).

You are correct, but the shareholder is claiming that Rule 16b-3(e) applies only if shares are withheld automatically. His claim is that if the insider could pay the taxes in some other way (e.g., cash), the transaction isn’t exempt.

Is My Company Going to Hear from this Guy?

Only if the share withholding transaction can be matched against a nonexempt purchase that occurs within six months before or after it. A nonexempt sale by itself is nothing to be alarmed about; the sale has to be matched against a nonexempt purchase to trigger profits recovery.

Also, since the shareholder’s argument hinges on the share withholding transaction being at the election of the insider, if you don’t allow insiders a choice in how to pay their taxes (and the shareholder can figure this out), you may not hear from him.

What Does Alan Dye Say?

I’m not sure lawyers ever use the term “ridiculous” but Alan doesn’t believe the shareholder’s position has merit. From his blog “Shareholder Challenging Availability of Rule 16b-3(e) to Exempt Elective Exercise of Tax Withholding Right” (August 23, 2016):

“For what it’s worth, Peter Romeo and I disagree strongly with the shareholder’s position, as do the attorneys I’ve spoken with who are responding to similar demand letters.”

Alan also notes that the shareholder has just issued demand letters, he hasn’t filed any complaints yet. But Alan says that he has been litigious in other Section 16(b) contexts.

What Should We Do?

If you allow insiders to use share withholding to cover their taxes on either awards or stock options, you should make sure your in-house legal team is aware of this, so they can decide how to proceed.

In addition, at the time shares are withheld to cover taxes, it is a good idea to check (or have whoever is responsible for Section 16 filings check) for nonexempt purchases by insiders in the past six months. Even though you might still allow the insiders to go ahead with the share withholding, it will be helpful to know ahead of time that the transaction might attract a demand letter, so your legal team can be prepared for it.

– Barbara

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December 5, 2016

NASPP Chapter Meetings

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

AustinThe chapter hosts its Holiday Happy Hour, featuring cocktails and nibbles at The Dogwood at Rock Rose. (Tuesday, December 6, 3:30 PM)

Chicago: Don Nemerov of FGMK presents “Are Private Equity Practices the Next Step for Public Company Executive Compensation?” (Tuesday, December 6, 7:30 AM)

San Diego: The chapter hosts is annual holiday social and networking event at Rough Draft Brewing Company. (Tuesday, December 6, 3:00 PM)

Boston: Emily Cervino of Fidelity presents “Turning Up the Heat with Hot Topics in Equity Compensation.” (Wednesday, December 7, 8:30 AM)

Philadelphia: The chapter hosts a presentation titled “Legal Hot Topics in Equity Compensation for 2017.” (Wednesday, December 7, 3:30 PM)

Silicon Valley: Robert Purser of PwC and Jillian Forusz of Adobe Systems present “FASB Simplification of Stock Compensation and Early Adopters Insight.” (Wednesday, December 7, 11:00 AM)

Phoenix: The chapter hosts its annual holiday reception and networking event at Tapas Papa Frita. (Thursday, December 8, 4:00 PM)


December 1, 2016

A (Not So) Secret Recipe for Catchy Communications

It’s hard to believe December is already upon us. Aside from being a time of the year that is filled with holidays and way too much dessert, it’s also the season when we begin to prepare the communications we’ll be sending to our stock plan participants about year-end things like tax withholding and reporting. In today’s blog, I offer up 5 things you can implement now to make this year’s communications stand out.


  1. Simplify. That one word alone is probably all I need to say. It’s like wading through a cluttered home or office. When there is too much clutter in communications (clutter = non-essential information), the participant may not know which details deserve their focus. Once you’ve got your communication drafted, review it again and again. I challenge you to see if you can reduce the size by at least 25%.
  2. Use a catchy title. You may have created the best message in the world, but if the title or email subject is a snooze, then it may not even make it onto the participant’s radar. A great communication deserves a great title. This one you can do in just a few minutes – look at all those communications you’re refreshing and see if the title/subject deserves a refresh, too.
  3. Go mobile friendly. If you aren’t already preparing communications that are mobile friendly and quickly digestible, consider doing so. See if your company already invests in an email service that you may be able to use for sending emails using mobile friendly templates. Millennials make up over a third of the workplace these days, and if you’ve got them in your demographic you’ll need to ensure your communications are accessible from a smartphone and able to be quickly consumed. And, let’s face it – millennials aren’t the only ones with smartphones – the need for information to be accessed while mobile extends across multiple workforce generations.
  4. White space is your friend. It used to be that white space on a page looked b-o-r-i-n-g. There was a tendency to fill up that space with all sorts of information – even if it wasn’t critical information. Avoid the urge to drown out the core message by overuse of graphics, words, or colors. Think of your communication as the masterpiece and your background as the frame. Review your communications to see if you’ve been guilty of overdoing graphics, call outs or colors. These elements all have their places – but if they are overdone they will simply clutter the page and overshadow the important points of the message.
  5. Use stories or creative elements to give life to a concept. It’s really tempting to copy and paste plan language into our communications. While that sometimes may be necessary, and certainly sharing plan terms may be an integral part of a communication, it’s also important to elevate the tone of the communication to one that is not so heavy in nature. If the scope of the message involves explaining a concept that has lots of fine details (e.g. the mechanics of tax reporting), see if you can bring it to life using case scenarios or stories. Some of the most popular presentations I’ve seen have been ones that promise to deliver a “case study” approach. Participants seem to resonate much more with a message or set of instructions when they can connect to a scenario.


The bottom line is that communications don’t have to plain, boring, or feel like an old routine. Additionally, if you are a person who has a creative gene, crafting the message and its delivery process can serve as an outlet for innovation. As always, I’d love to see your communications that have incorporated some of these ideas.