The NASPP Blog

Monthly Archives: July 2017

July 27, 2017

Best Practices for Insider Trading Policies

Our popular “Meet the Speaker” series, featuring interviews with speakers at the 25th Annual NASPP Conference, is a great way to get to know our many distinguished speakers and find out a little more about their sessions in advance of the Conference.

For today’s “Meet the Speaker” interview, we feature an interview with Keyoor Mankad of My Equity Comp, who will lead the session “Best Practices for Insider Trading Policies.”  Here is what Keyoor had to say:

NASPP: What are some of the things companies need to think about when it comes to insider trading compliance?

Keyoor:  Insider trading compliance is very critical to every company, from new IPOs to established companies. There have always been questions and debates about who should be designated as insiders, what transactions are subject to insider reporting, and who is responsible for filing these reporting requirements. Brokers are a critical component in this process and there is always confusion around preclearance requirements. Dealing with insiders can be a challenge. How can all of us, from stock plan administrator to legal counsel and brokers, work as a team to successfully report all transactions accurately? My panel has combined experience of over 50 years and consists of an issuer, a broker, a lawyer and a consultant.

NASPP: What is one best practice companies should implement?

Keyoor:  The most important part of this whole process is clearly documenting procedures. Ideally, a clear copy of each and every step involved in the process should be handy to all of the parties involved.

NASPP: What is the worst horror story you can tell on your topic?

Keyoor: We do have a horror story involving a senior level executive, but you will have to attend our session to witness all the details.

NASPP: What is your favorite memory from a past NASPP Conference?

Keyoor:  Watching Huey Lewis and The News at Mandalay Bay Las Vegas.

Don’t miss Keyoor’s session, “Best Practices for Insider Trading Policies,” at the NASPP Conference!

About the NASPP Conference

The 25th Annual NASPP Conference will be held from October 17-20 in Washington, DC. This year’s program features close to 100 sessions on today’s most timely topics in stock and executive compensation; check out the full agenda and register today!

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July 25, 2017

Ways to Count Performance Awards

Counting the shares underlying time-based awards is usually straightforward: one share granted equals one share issued. Performance awards, on the other hand, usually provide for a spectrum of possible payouts: one share granted might mean two shares issued, or .5 shares issued, or no shares issued. Given the many possible payout levels, how many shares should be considered granted for the various administrative and reporting purposes that are relevant to performance awards?

The last two issues of The Corporate Executive (January-February and May-June) took a look at this question and came up with 16 different purposes for which shares under performance awards are counted. In almost all cases the shares are counted differently. I thought it would be interesting to take a look a few of these purposes in the NASPP Blog. Now, 16 purposes is far too many to go through in one blog entry, so I’ll start with just one purpose and I’ll look at more in future entries.  For today’s entry, we’ll look at counting the number of shares available in the plan.

Counting Performance Awards Against the Shares Available for Future Grants

There are no legal requirements that govern how performance awards must be counted against a plan’s reserve (other than those contained within the plan itself). Thus, for purposes of reducing the number of shares available in the plan as a result of performance awards, companies can make a policy decision as to whether to count the threshold, target, or maximum shares against the reserve.

Survey Says …

According to the NASPP’s Domestic Stock Plan Design Survey (cosponsored by Deloitte Consulting), practices in this area are split:

  • 48% of respondents tracking awards against the plan reserve at the maximum payout
  • 43% tracking them at the target payout
  • 7% track awards at the expected payout
  • 1% use some other approach

Best Practice (IMHO)

I feel pretty strongly that the best practice is to count performance awards against the plan reserve at the maximum possible payout. Where awards are counted at the target payout (or, worse, at the threshold payout), there is a risk that the company will not be able to meet its obligations should a higher level of performance be achieved. Once the performance period has closed, failing to have sufficient shares in the plan to cover the payout is problematic. At a minimum, allocating additional shares to the plan would require shareholder approval, which is not accomplished at the drop of a hat. There are likely to be accounting and securities law implications, as well.


But this approach has its drawbacks. As evidenced by the NASPP survey, many companies are reluctant to earmark shares for a payout that isn’t expected (in some cases, not even remotely) to be achieved. In the current environment, where share usage by public companies is heavily scrutinized and restricted by proxy advisors and institutional investors, reducing the plan reserve by the maximum possible payout could prevent the company from making subsequent grants at the desired level or force the company to request shareholder approval for additional allocations to the plan earlier than would otherwise be necessary.

– Barbara

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July 20, 2017

Take This Job and Love It!

We are pleased to bring back our popular “Meet the Speaker” series, featuring interviews with speakers at the 25th Annual NASPP Conference.  These interviews are a great way to get to know our many distinguished speakers and find out a little more about their sessions in advance of the Conference.

For our first “Meet the Speaker” interview, we feature Kim Arnold of UnitedHealth Group, who will lead one of our new Power Sessions, “Take This Job and Love It!” Here is what Kim had to say:

NASPP: It seems like you are pretty excited about your job as a stock plan administrator. How come?

Kim Arnold, UnitedHealth Group: I have never met a kid who says “When I grow up I want to be a stock plan administrator!” I think most of us fall into the role, and not always by choice. But as a person with over 20 years of stock plan administration experience, I want people to be aware of and excited about the opportunities associated with a career in stock plan administration. I want to help people be successful in the role!

NASPP: What is a common mistake companies make with the stock plan administration role?

Kim: Companies sometimes fail to fully utilize the skills and experience of stock plan administrators. Good stock plan administrators are worth their weight in gold (or stock, as the case may be!). Keeping up on regulatory developments and plan design trends can be invaluable to companies looking to attract, reward and retain talent.

NASPP: What is the silver lining to stock plan administration?

Kim: The silver lining is that even for those who have been thrust into the world of stock plan administration, the outlook for a career in the field is awesome! It’s a job with so much variety no two days are the same. From compliance to employee education (and everything in-between), I believe there is something for everyone. It’s a role that allows a person to try on many hats!

NASPP: The NASPP Conference is in DC this year—do you have a favorite tourist attraction in the area?

Kim: There are too many awesome tourist attractions in DC to choose only one favorite, but I do love the National Gallery of Art. Spending a day there feeds the inner art history geek in me.

Don’t miss Kim’s session, “Take This Job and Love It!,” at the NASPP Conference!

About the NASPP Conference

The 25th Annual NASPP Conference will be held from October 17-20 in Washington, DC. This year’s program features close to 100 sessions on today’s most timely topics in stock and executive compensation; check out the full agenda and register today!

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July 18, 2017

Update on Share Withholding Litigation

Back in December I reported on a shareholder who was sending demand letters to companies alleging that share withholding transactions aren’t exempt from Section 16(b) unless the transaction is automatic, i.e., insiders have no choice in how to pay their taxes (“Shareholder Challenging 16(b) Status of Share Withholding“). I have a few updates on this development.

The Bad News

Back in December, it was just one shareholder but now there at least two more shareholders that are issuing demand letters like this. Also, we’ve now progressed beyond demand letters, with several companies now in litigation over this.

Both Good and Bad News

As noted in the March 2017 issue of Section 16 Updates, the shareholders have submitted demand letters to around 70 companies. One bit of good news is that in most cases, the amount of the alleged short-swing profits has been small, so payments to the shareholders have also been small.

But this is also bad news because it means that most companies would prefer to settle rather than pursuing costly litigation, which is necessary to get clarification on this matter from the courts.  As noted in Section 16 Updates:

A clear ruling on the issue is much needed, given the chilling effect that the shareholders’ demand letters have had on the grant and exercise of elective stock withholding rights and the burden that re-approvals have imposed on compensation committees.

The Good News

On May 8, there was a ruling in favor of the defendant in one of the cases that has been litigated (Jordan v. Flexton), which Alan Dye describes in his blog on (“Court Holds that Discretionary Tax Withholding Exempted by Rule 16b-3“). Here is Alan’s summary of the decision:

The court dismissed the complaint for failure to state a claim, holding in a one-page order that “the transactions in question are compensation related and are designed to be exempt under” Rule 16b-3(e). While a lengthier discussion of the issue might have been more helpful in resolving other pending cases, the court’s holding is nevertheless important because it clearly rejects the plaintiff’s argument that Rule 16b-3 exempts withholding transactions only if they are “automatic.” Moreover, the court allowed reliance on the exemption even where the decision to withhold shares was made by the issuer (i.e., employees) rather than the insider or the compensation committee. The case therefore provides reason to believe that courts will reach a similar result regarding all forms of stock withholding so long as withholding was authorized by the compensation committee as part of the initial equity award.

I’m sure this is a topic that Alan will be discussing in his session “Section 16 & Insider Considerations in Today’s Market” at the 25th Annual NASPP Conference—don’t miss it!

– Barbara

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July 17, 2017

Don’t Miss Jenn Namazi at the East-Coast CEP Symposium

The NASPP is proud to be an educational partner for the CEP’s East Coast Symposium, the newest one-day event in equity compensation.  If you are located in the Northeast, this is a great opportunity to catch up on current developments in stock compensation, meet other equity professionals, and pick up a few continuing education credits.

Our own Jenn Namazi will participate in two panel discussions:

  • Tweet, Like, or Post: What Social Media Taught Us About Stock Plan Education
  • Career Grounded? Lift Off with These Career Catalyzing Strategies

The Symposium will be held on August 1 (with an opening reception on July 31) at The Heldrich in New Brunswick, NJ. The cost to attend is $350. Register today!

July 13, 2017

Early CEO Pay Ratio Disclosures – Part 2

As I promised on Tuesday, for today’s blog entry I have highlights from a few more CEO pay ratio disclosures (for the first installment in this series, see “Early CEO Pay Ratio Disclosures – Part 1“).

I’ve linked each company’s name to its relevant proxy statement; you can find the disclosures easily by searching on the phrase “pay ratio” in the proxies.

Northwestern Corporation

Northwestern Corp’s CEO pay ratio is 22 to 1, which they acknowledge is up from 19 to 1 the year before. Northwestern has been voluntarily disclosing their CEO pay ratio since 2010 (i.e., since Dodd-Frank was adopted), stating that they are committed to internal pay equity. Over that time period, the CEO’s pay has ranged from 18 to 24 times the median employee pay. Although they calculated the ratio in compliance with the SEC requirements this year, at least for the first few years that they made the disclosure their methodology for calculating the ratio probably varied from the SEC’s requirements, since the SEC’s proposed rules weren’t issued until 2013.

Northwestern provides electricity and natural gas in Montana, South Dakota and Nebraska and has a little over 1,500 employees. The disclosure includes a tabular presentation comparing the CEO’s pay to the median employee’s pay by component of pay (base salary, equity awards, non-equity incentive compensation, change in pension value and NQDC earnings, and all other compensation).  The CEO’s total compensation was approximately $2.8 million and the median employee’s compensation was just over $124,000.

Northwestern’s disclosure notes that they used total cash compensation to identify the median employee. They further note that they believe this is appropriate because they don’t grant equity broadly and only 7% of their employees receive annual equity awards (how disappointing). Interestingly, they did not annualize compensation paid to employees who worked only part of the year.

Range Resources

Range Resources has the highest ratio (77 to 1) and the shortest disclosure of the four that I’ve highlighted in this series of blog entries.  Their disclosure is so short I can reproduce it for you in full:

As a result of the recently adopted rules under the Dodd-Frank Act, beginning with our 2018 proxy statement, the SEC will require disclosure of the CEO to median employee pay ratio.

Mr. Ventura had 2016 annual total compensation of $9,862,925 as reflected in the Summary Compensation Table included in this Proxy Statement. Our median employee’s annual total compensation for 2016 was $127,938. As a result, we estimate that Mr. Ventura’s 2016 annual total compensation was approximately 77 times that of our median employee.

Although I suspect that 77:1 is lower than many of the ratios we’ll see once all public companies are making this disclosure, but perhaps given its steepness, they felt that no good could come of belaboring the point. Best to be quick about it and move on.

Range Resources is a natural gas, gas liquids, and oil company and they have close to 800 employees.

Annotated Sample CEO Pay Ratio Disclosures

If you are involved with calculating your company’s CEO pay ratio, don’t miss the Pay Ratio & Proxy Disclosure Conference, which will be held on October 17 in advance of the NASPP Conference.  Everyone who registers for this program can also attend three pre-event webcasts on preparing for the disclosure and will receive annotated sample disclosures in PDF and Word. Don’t wait to register—the first webcast is scheduled for July 20 and the early-bird rate is only available through July 28.

– Barbara

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July 12, 2017

Looking for a Few Good Volunteers

The NASPP is looking for members to help test the new NASPP website. You’ll have a chance to see the new website before anyone else, provide feedback, set up your profile and dashboard, and help the NASPP ensure a smooth launch for the website!

If you would like to help out with this project, please complete our short application. We expect to begin testing in a few weeks.


July 11, 2017

Early CEO Pay Ratio Disclosures – Part 1

There aren’t a lot of companies rushing to disclose their CEO pay ratio before they have to, but in his blog on, Mark Borges of Compensia highlights a few that he has found (“More CEO Pay Ratio Disclosures“).

Not surprisingly, none of the disclosed ratios are excessive; for all but one, the CEO’s pay is less than 20 times the median employee’s pay. Companies with excessive ratios probably aren’t keen on making the disclosure early. This week (today and Thursday), I have a few highlights from the disclosures, starting with the companies with the two lowest ratios. (I’ve linked each company’s name to its relevant proxy statement; you can find the disclosures easily by searching on the phrase “pay ratio” in the proxies.)

Adams Resources & Energy

Adam Resources & Energy’s ratio is impressively low at 5.7 to 1. Their median employee pay was about $70K but their CEO made only $400K, hence the low ratio (they do not appear to issue equity to their executives). They note in the disclosure that they have 654 employees, most of whom are truck drivers (they are in the oil and gas industry and transport liquid chemicals). They also note that they annualized pay for employees who only worked part of the year and they excluded employees on leave.

The proxy further notes that they excluded their 401(k) and medical benefits from the ratio—and with a ratio of 5.7:1, why not? Including those benefits will increase the pay disclosed for the median employee and employees comparing themselves to the median probably won’t think to include those components in their own compensation. But for companies that don’t have the luxury of such a low ratio, including those components might help bring down their ratio since the 401(k) and medical benefits are likely to be higher percentage of the median employee’s pay than the CEO’s pay.


NovaGold is in gold mining and has only 13 employees, including their CEO, which must make it pretty easy to find their median employee. Because they have an even number of employees, they note that they averaged the compensation for the sixth and seventh employees to come up with the median compensation (this also handily allows them to avoid disclosing the actual compensation of any one of their employees—potentially a concern with there being only 12 of them).

Their ratio is 13.5 to 1 and their median employee’s pay is around $400K, making them a company of fairly well-paid employees (well, at least half of the employees). Their disclosure includes a list of pay components that were included in the calculation. Besides the obvious (salary, bonuses, equity), they also included 401(k) match, ESPP match, life insurance premiums, auto allowance, and reimbursement of executive physicals.

Stay tuned: on Thursday I’ll look at two more early disclosures.

– Barbara

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July 6, 2017

Tax Revenue Down Due to Delayed Transactions

Have you noticed that your employees have been a little quiet lately? Have stock option exercises been down? Fewer sales to report on Form 4 for Section 16 insiders? It could be that employees and executives are delaying their stock plan transactions in the hopes of a tax cut.

Recent articles in Reuters (“U.S. Tax Cut Hopes Sent State Collections Down in April,” May 20) and The Washington Times (“Treasury Revenue Falls as Taxpayers Anticipate Republican Rate Cuts, Shift Income to Next Year,” June 18) report that taxpayers may be delaying income in the hopes of a GOP tax cut.

Stock Plan Transactions May Be Delayed

And where your employees are looking to delay income, stock plan transactions are a prime candidate. It’s hard to delay salary and most other forms of cash compensation; even if your company offers a salary or bonus deferral program, under Section 409A, elections to defer have to be made well in advance. But employees can easily choose to delay option exercises and sales of stock.

Impact to the Company

In the short term, the impact may be that you are a little less busy, with fewer exercises to process and Section 16 insider sales to report. But, come the end of the year, this could reduce the company’s tax deduction. Fewer option exercises and fewer disqualifying dispositions will likely mean a smaller tax deduction for your company.

– Barbara