The NASPP Blog

Monthly Archives: February 2017

February 28, 2017

Progress Towards T+2

In early February, the SEC approved of rule changes by the NYSE and Nasdaq that are necessary to shorten the settlement cycle to T+2. The approved rule changes relate to the calculation of ex-dividend dates and several other administrative procedures that I don’t understand. The exact rules that were changed aren’t particularly important; what is important however is that yet another task on the T+2 to-do list has been checked off.

I recently listened to the recording of the session “Be Prepared For T+2” from last year’s NASPP Conference. (This was a great panel, by the way. So great that we’ve asked the panelists to give a repeat performance for our April webcast. Be sure to check it out.) Here are a few things I learned from the panel.

Why T+2? It’s All About Risk

The move to T+2 is industry driven, rather than a push from regulators, with the goal being to reduce risk in the settlement process.  Currently trades are settled through a central counter-party, which you know as the DTCC (Depository Trust & Clearing Corporation).  One of the DTCC’s roles is to guarantee delivery of shares to the buyer and cash to the seller.  If, over the three-day settlement period, either one of these parties flakes out, the DTCC steps in to make the non-flaking party whole.

This requires cash. With securities worth $8.72 billion changing hands every day on the US markets, it requires a lot of cash. The panelists described it as a big suitcase of cash held by the DTCC that can’t be used for anything else. But the DTCC isn’t your rich uncle; this cash is provided by various market participants (such as brokerage firms).

If we can shorten the settlement cycle, the inherent risk is reduced, and less cash is needed to guarantee settlement. This frees up cash that market participants can use for other, presumably better and more profitable, purposes.

Remember Y2K?

The process of changing to T+2 is not dissimilar to what we all went through back when we were preparing for the new millennium. It’s not terribly complex, but there are a lot of rules and processes that have to be reviewed, updated, and tested.

The Securities Industry and Financial Markets Association (SIFMA) and the Investment Company Institute (ICI) have formed an Industry Steering Committee to define the path to T+2. (They even have their own website and a nifty logo, because any self-respecting industry-wide initiative needs a logo.) The steering committee commissioned Deloitte & Touche to prepare a T+2 Playbook detailing all of the changes that have to take place to shorten the settlement period by a day. Europe moved to T+2 in 2014 and apparently there were some lessons learned during that process.

What About T+1? Or T+0?

The consensus of the panel is that T+1 is a long ways off.  Moving to T+2 merely requires that the current processes speed up.  Moving to T+1 would require real-time clearance; that’s a fundamental change to the entire settlement process. You can rest assured that you’ll have plenty of time to get use to T+2 before having to worry about T+1.

Wait, There’s More!

Stay tuned! On Thursday I’ll discuss the steps you should be taking to prepare for T+2. Also, don’t miss our April webcast, “Be Prepared for T+2.”

– Barbara

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February 24, 2017

Validation of Web Based Grant Acceptance

In the NASPP’s 2014 Domestic Stock Plan Administration Survey (co-sponsored by Deloitte), 92% of respondents said they use at least one electronic form to distribute individual grant notices and/or agreements to US employees. In the same survey, 76% of respondents said that a separate form of acceptance of a grant is required. That translates into a majority of responding companies using electronic delivery methods for at least some of their US grant material, with a majority also requiring proactive acceptance of the terms. This combination of practices was recently tested in litigation. Keep reading to find out the outcome.

If you’re a company that distributes grant documents and requires acceptance of award terms electronically, a recent court case may help validate the processes you have in place for those practices. In a recent blog titled “Stock Award Web Process Works: Non-compete Enforced” (February 7, 2017), author Mike Poerio describes a recent court case (ADP, LLC v. Lynch & Halpin – New Jersey) that “upheld the granting of a preliminary injunction against two former employees who had joined a competitor in violation of restrictive covenants set forth in their stock awards.”

At the core of the former employees’ argument was that the web-based acceptance system for their stock grants did not adequately inform them of the full consequences for accepting the terms of their awards (which included references to a non-compete agreement). As Poerio describes, “the former employee lost their case because because ADP’s check-the-box award system involved the following key steps that led the court to bind them to the stock award agreements and the associated non-competes.”

Poerio analyzes ADP’s step-by-step award acceptance process and provides his commentary on how each step played into the outcome of the award case. Here’s a great chance to compare your own electronic grant acceptance steps to the process that ultimately helped ADP prevail. Perhaps there are areas where covenants can be strengthened or the acceptance process improved.

According to the same 2014 NASPP/Deloitte survey mentioned at the beginning of this blog, 12% of respondents do not require acceptance of grant terms, and another 10% (combined) presume acceptance if no reply is received, or, upon vesting/exercise of the award. It may be worth reviewing these practices, as the outcome of the ADP case suggests that putting time and attention into ensuring that employees do have access to and proactively accept the terms of their grants can make all the difference. Of equal importance is establishing web based processes that are clear and can provide evidence of the acceptance and associated process steps.  The bottom line is that web based grant acceptance can and does hold up in litigation when the right practices and documents are in place to evidence the steps the employee took to accept their award.


February 22, 2017

Stock Plan Administration Rated One of Top Jobs for Business Majors

It’s not often that the job of stock plan administrator shows up in a list of top jobs; this is no reflection of the quality of the job but more because few people outside of the stock plan community know this job exists. I have commiserated with many stock plan administrators about the difficulties of trying to communicate what they do to the uninitiated. It is not dissimilar to trying to explain my own job (sometimes it feels like no one has ever heard of the concept of a membership association).

So imagine my surprise when Andrew Schwartz of Computershare forwarded me an article from ThinkAdvisor that ranks stock plan administrator as #6 on a list of best paying jobs for business majors (“15 Best Paying Jobs for College Business Majors: 2016.”

The list was compiled using data from, including their list of most popular jobs for business graduates and their College Salary Report (which considers a sample of 1.4 million college graduates). According to the article, the salary listed is comprised of base annual salary or hourly wage, bonuses, profit sharing, commissions, and other forms of cash earnings (ironically, equity compensation isn’t included). It’s also not a starting salary; it’s for someone who is mid-career (about 44 years old with 15 years of experience).

The article reports that the median mid-career pay for business administration majors working as stock plan administrators is $120,000. Some of the jobs that stock plan administrator came in ahead of include tax compliance manager; treasurer; and payroll, accounting, finance, and budget directors.

As an English Lit major, however, I take issue with the article’s suggestion that humanities majors need to change majors. I know plenty of liberal arts majors who have ended up in stock plan administration.  So if you know any soon-to-be college graduates (business or humanities majors), you might want to suggest they follow in your footsteps.

– Barbara

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February 16, 2017

Happy Stock Plan Participants

Am I the only one out there that can use a break from the news? I’m generally not averse to change, but with much uncertainty looming in so many areas (think the proposed repeal of Dodd-Frank provisions, tax reform, and other changes) sometimes the doldrums can set in. With that frame of mind, it was a nice breath of fresh air to read a recent article by Bruce Brumberg of titled “10 Ways Stock Compensation Can Make You Happier.

If your participants are feeling similar news blues and looking for a pick-me-up, this is the article for them. Or, if you are simply looking for a way to articulate the more intangible benefits of stock compensation, this will be a great resource. Brumberg steps beyond the mechanics of stock compensation to explore the thrill and peace of mind one can get from learning about stock compensation, monitoring and tracking awards, and realizing the true benefits of wealth creation. Among my favorites is the concept of linking mindfulness and meaningfulness to one’s workplace effort and intentions, which thereby can affect the company’s stock price and, in a full circle moment, incite feelings of optimism and happiness. “When your honest hard work elevates your company’s stock price, equity compensation rewards you. That can heighten your feelings of engagement, optimism, and happiness.


February 14, 2017

More on Updating EDGAR Passwords

During the Section 16 Q&A webcast in January, Alan Dye discussed the new procedures for resetting an EDGAR passphrase. The passphrase is used if you need to generate new EDGAR codes (CCC, password, and PMAC) for you or your insiders in the event that you’ve forgotten the password or it has expired.

Linda Epstein from Hewlett Packard Enterprise emailed to tell us that there is an easier way to update an insider’s expired password, assuming the following:

  • You know the insider’s EDGAR codes (CIK, CCC, expired password, and PMAC—you don’t need the passphrase for this), and
  • Have your own access to EDGAR.

The Easier Way

Rather than logging into the insider’s account, you can simply log into the main EDGAR website (or the EDGAR Online Forms Management website) under your account and select the Retrieve/Edit Data function. EDGAR will ask you to enter the CIK and CCC for the account you want to edit. Turns out, you can enter any account here (so long as you have the access codes for that account)—it doesn’t have to be your own account.

Once you enter the CIK and CCC code, you then have the ability to change the password for the account, provided you know the old password and the Password Modification Authorization Code (PMAC). This is easier than generating all new EDGAR codes, especially if the individual is an insider at more than one company (which would require you to notify all the other companies of his/her new CCC).

Update Contact Info Too

You can also use the Retrieve/Edit Data function to update an insider’s contact info, including email address, and you don’t need the insider’s password or PMAC to do this.

Given the ability to do this, I’m not sure you’d even need to update the insider’s password (you can still submit filings for an insider whose password has expired). But if you did need to do so, without the insider’s password or PMAC, you’d be stuck generating new EDGAR codes. Here again, this feature could be handy. Because, let’s face it, if you don’t know those two things, you also probably don’t know the insider’s passphrase and you’re going to have to generate a new passphrase. This feature would at least allow you to ensure that the insider’s email is correct (or change it to an email address that you can access), since, under the new passphrase procedures, you have to provide the “electronic security token” that is emailed to the insider when the new passphrase is requested.

It also means that instead of the nightmare I went through to update my passphrase, I could have had one of my friends who does Section 16 filings update my expired password for me (ironically, I knew my old password and PMAC, I just didn’t know my passphrase). I’m sure one of you would have come through for me. Good to know for the future (not that I am ever going to forget my passphrase or let my password expire again).

This Explains a Lot

Well, maybe not a lot, but it does at least explain why you have to enter your CIK and CCC to change your password after logging into EDGAR, something that, until now, seemed like a useless extra step to me.  I’m not sure it explains the need for the PMAC, however (if you already know the insider’s old password, how much more authorization do you need).

If anyone else has any handy EDGAR tips, I’m all ears.

– Barbara

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February 9, 2017

More Challenges to Dodd-Frank

As I mentioned in my blog on Tuesday, we are starting to see some movement towards repeal or revision of at least parts of the Dodd-Frank Act.  The Administration’s executive order isn’t the only action that has been taken; here are a couple of other developments:

CEO Pay Ratio—The SEC Weighs In

On Monday, February 6, Acting SEC Chair Michael Piwowar issued a statement on the CEO pay ratio disclosure. Piwowar requests comments on “unexpected challenges that issuers have experienced as they prepare for compliance with the rule and whether relief is needed,” and encourages detailed comments to be submitted within 45 days. Piwowar also notes that he has directed the SEC staff to “reconsider the implementation of the rule based on any comments submitted and to determine as promptly as possible whether additional guidance or relief may be appropriate.”

While that’s pretty vague, is does indicate that, in addition to the Secretary of the Treasury and the Financial Stability Oversight Council, the SEC is also looking at the CEO pay ratio rule. Even so, it’s hard to say what this means. As we all know, and as an article in the Wall Street Journal notes (“GOP-Led SEC Considers Easing Pay-Gap Disclosure Rule of Dodd-Frank“), it is difficult for the SEC to move quickly on matters like this:

Republicans on the SEC could be stymied by the commission’s own procedures on the pay-ratio rule because undoing a regulation is handled by an often lengthy process that is similar to creating one. It also is difficult for the SEC to delay it outright, because of the commission’s depleted ranks. There are just two sitting commissioners—Mr. Piwowar and Kara Stein, a Democrat—meaning the SEC is politically deadlocked on most matters. Ms. Stein on Monday signaled opposition to efforts to ease the pay rule. “It’s problematic for a chair to create uncertainty about which laws will be enforced,” she said.

And Then There’s Congress

An article in Bloomberg/BNA reports that the Financial Choice Act is likely to be reintroduced into Congress this year (“Dodd-Frank Rollback Bill Expected in February, Duffy Says“). Originally introduced last year, this bill would repeal or restrict major parts of the Dodd-Frank Act, including reducing the frequency of Say-on-Pay votes, limiting application of the clawback provisions, and repealing the CEO pay ratio and hedging disclosures. Jenn Namazi blogged on the Act last year (see “Post Election: Things to Watch – Part I” and “Part 2“).

The Financial Choice Act is bigger than Dodd-Frank. The bill would also require a joint resolution of Congress before any “major” rulemaking by the SEC and a number of other agencies could go into effect. Mark Borges notes in his blog on (“Acting SEC Chair Weighs in on CEO Pay Ratio Rule“) that the bill is expected to require the major proxy advisory firms to register with the SEC and, among other things, disclose potential conflicts of interest.

Poll: What Are You Doing?

It’s hard to know what to do in response to all this. Preparing for the CEO pay ratio disclosure requires a lot of time and resources, which most on the corporate side would view as wasted if the disclosure is eliminated. But if the disclosure isn’t eliminated, stalling preparations now could result in an implementation time crunch.

In his blog on (“As Predicted—Hitting the Pause Button on the CEO Pay Ratio Rule“), Mike Melbinger says: “Postponement and revision of the rule seems likely. Now might be a good time to stop spending time and money on this calculation.” Take our poll to tell us what your company is doing (click here if the poll doesn’t display below).

– Barbara

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February 7, 2017

Dodd-Frank Under Scrutiny

Since last Friday, there’s been a lot of talk from regulators relating to Dodd-Frank. There’s been no definitive action yet on the law, but we’re officially on notice that things are likely to change in the future. Here’s a quick run-down of what happened.

Review of Dodd-Frank

Last Friday, February 3, the Administration issued an executive order that purportedly calls for a review of the Dodd-Frank Act, albeit without mentioning Dodd-Frank by name. The order establishes the following “Core Principles”:

(a) empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;

(b) prevent taxpayer-funded bailouts;

(c) foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;

(d) enable American companies to be competitive with foreign firms in domestic and foreign markets;

(e) advance American interests in international financial regulatory negotiations and meetings;

(g) restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.

The order then gives the Secretary of the Treasury and the Financial Stability Oversight Council 120 days to report on the extent to which “existing laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies” adhere to these principles and to identify any of said laws, treaties, et. al., that inhibit regulation in a manner consistent with the Core Principles.

That sounds bigger than Dodd-Frank and perhaps it is. According to an article by Bloomberg (“Trump to Order Dodd-Frank Review, Halt Obama Fiduciary Rule,” the order is intended to target the Fiduciary Rule (which requires advisors on retirement accounts to act in the best interest of the clients), as well as Dodd-Frank.

Here are Mark Borges’ comments on the order, from his blog (“Rethinking Dodd-Frank—Is the Process About to Begin?“) on

It’s all very general in nature, but within the next four months (presumably sometime around the end of May) the Treasury Department will be delivering its report and (again presumably) it will address whether (and to what extent) the Dodd-Frank Act promotes or does not promote the Core Principles. I expect that this report will cover the various executive compensation-related provisions of the Act, including the CEO pay ratio disclosure requirement. While it’s still too early to know what this all means – or how it will play out, the Order clearly signals the start of the long-promised re-working of the law. This will likely include the repeal of some provisions, the modification and amendment of others, and, possibly, the survival of some provisions intact.

Stay tuned—more to come on Thursday.

– Barbara

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February 3, 2017

Trends in 10b5-1 Plans

Last week I blogged about yet another SEC enforcement action in the area of insider trading. For those looking for ways to further prevent insider trading by company employees, Rule 10b5-1 trading plans continue to be an attractive avenue toward this ambition.

A few months ago, in the November 11, 2016 edition of its newsletter Compensation & Benefits Digest, the Ayco Company examined and reported on Rule 10b5-1 best practices (“Update on Insider Trading and the Use of 10b5-1 Plans”). The firm is “seeing more companies tighten corporate compliance programs” in response to the SEC’s “significantly greater interest” in insider-trading enforcement (In my blog “White Collar (Stock) Crimes” of January 26, 2017, I suggested that insider trading is a low hanging enforcement fruit for the SEC, with advances in technology making it easier than ever before to identify suspect insider trades.) As part of this, Ayco has seen more companies develop policies on the use and design of 10b5-1 plans. Ayco also reported that of the 2,000 Section 16 insiders, including nearly 350 CEOs, for whom it provides financial-planning services, about 24% of the CEOs and 21% of other insiders (including directors) have had 10b5-1 plans in the past two years. The article also explains common and best practices for these plans in areas where there are no formal SEC rules, including:

  • Waiting period before first trade: Most model plans suggest a 60-90 period.
  • Time limits: Plans typically cover a period of three to six months and rarely longer than a year.
  • Number of plans: Companies often require or request that executives have only one plan at a time.
  • Transactions in and outside window period: Most companies permit trades under a plan even outside of a window period, although some companies may request the plans only be adopted during an open window.
  • Trades outside of plan: During the plan term, other company stock transactions are restricted.
  • Modification, termination, or suspension of plan: most companies take no position on whether a plan can be modified or cancelled, although some companies only allow this when the individual does not know material nonpublic information.

If your company policies and insiders haven’t fully embraced the concept of implementing Rule 10b5-1 plans, now may be a good time to reconsider.


February 1, 2017

Clawbacks, Discretion, and Grant Dates

It is common for boards and compensation committees to have discretion over clawback provisions, either over determining whether the clawback provision has been triggered or, once triggered, whether it should be enforced.  While this discretionary authority is useful from a design and implementation standpoint, it can sometimes be problematic from an accounting perspective.


Under ASC 718, expense associated with an equity award is determined on the grant date, which cannot occur before an employee and employer reach a mutual understanding of the key terms and conditions of the award. Where a key term is subject to discretion, a mutual understanding of the key terms and conditions of the award may not exist until the point at which this discretion can no longer be exercised.

In the case of clawback provisions, if the circumstances under which the board/compensation committee might exercise their discretion are not clear, this could lead to the conclusion that the service or performance necessary to earn the award is not fully defined.  This, in turn, prohibits a mutual understanding of the terms and conditions of the award and delays the grant date. This delay would most likely result in liability treatment of the award.

Recent Comments from SEC Accounting Fellow

Sean May, a professional accounting fellow in the SEC’s Office of the Chief Accountant, discussed this concern in a speech at the 2016 AICPA Conference on Current SEC and PCAOB Developments, held in Washington, DC. May distinguished objectively applied clawback policies from policies that “may allow those with the authority over compensation arrangements to apply discretion.” In addition, he made the following comments:

If an award includes a key term or condition that is subject to discretion, which may include some types of clawback provisions, then a registrant should carefully consider whether a mutual understanding has been reached and a grant date has been established. When making that determination, a registrant should also assess the past practices exercised by those with authority over compensation arrangements and how those practices may have evolved over time. To that end, registrants should consider whether they have the appropriate internal control over financial reporting to monitor those practices in order to support the judgment needed to determine whether a grant date has been established.

Clawbacks and Discretion are Common

68% of respondents to the NASPP’s 2016 Domestic Stock Plan Design Survey (co-sponsored by Deloitte Consulting) indicate that their equity awards are subject to clawback provisions.  83% of those respondents, indicate that the board or compensation committee has some level of discretion over enforcement of the provisions.

If you are among those 83%, it might be a good idea to review the comments May made at the AICPA conference with your accounting advisers to make sure your equity awards receive the accounting treatment you expect.

– Barbara


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