The NASPP Blog

Monthly Archives: January 2018

January 18, 2018

Tax Reform Fueled Stock Boom?

Tax reform has been a hot topic of late, with new changes effective January 1 of this year (and still being phased in). With the changes now officially the “law,” corporate america seems to be celebrating – in the form of bonuses back to employees.

Hiding Under a Rock?

If you’re asking yourself “what tax reform?” see Barbara’s blogs on the topic:

Tax Reform: The Final Scorecard (December 19, 2017)

Tax Withholding in 2018 (December 21, 2017)

IRS Announces 2018 Withholding Rates (January 11, 2018)

Celebration Bonuses

Since the beginning of the year, several companies (Wal-Mart, JetBlue, AT&T, Bank of America and others) have announced that they would be giving cash bonuses to employees in celebration of the new tax landscape. This week Apple joined those ranks – but with a different twist. The company confirmed that most employees would be receiving an award of $2,500 worth of RSUs in the coming months. A memo to employees, described by Bloomberg, indicated that the awards would be given to both full-time and part-time employees across all departments (up through senior manager level).

Is this the beginning of a stock boom trend? Will other companies use their projected tax savings to fund employee stock awards? It will be interesting to see if Apple is just a stand-alone on this, or whether there will be a mini-boom of stock awards conceived by the new tax reality.


January 17, 2018

SEC Offers Relief on Tax Expense Adjustments

As I noted back in May (“An Expensive Tax Cut“), companies will have to adjust the deferred tax assets recorded for stock compensation as a result of the new corporate tax rate. Because the tax reform bill was enacted in late December, companies don’t have as much time to record these adjustments as we might have originally expected, so the SEC has issued Staff Accounting Bulletin No. 118 to provide some relief.

What Adjustments?

The DTAs you’ve recorded for stock awards represent a future tax savings that the company expects to realize when the awards are eventually settled. When you recorded the expected savings, you based it on a 35% corporate tax rate. Now that the corporate tax rate has been reduced to 21%, the expected savings is a lot less (40% less, to be exact).

For example, say you recorded a DTA of $3,500 for an award worth $10,000 (the DTA was 35% of the $10,000 fair value of the award). Assuming that no portion of the award has been settled, you now need to adjust that DTA down to $2,100 ($10,000 multiplied by the new 21% corporate tax rate). You make the adjustment by recording tax expense for the difference between the new DTA and the original DTA. In my example, you would record tax expense of $1,400 ($3,500 less $2,100).

When Do Companies Record the Adjustments?

The adjustments have to be recorded in the period that the change in the corporate tax rates is enacted, not when it goes into effect. Once you know the tax rate is going to change, there’s no point in continuing to report based on the old rate; you immediately adjust your expectations. Since the bill was signed into law on December 22 and most companies have a fiscal period that ended on December 31, most companies will record the adjustments in that period. That doesn’t give companies much time to calculate the adjustments.

SAB 118

My example was very simple; things are a lot more complex in the real world, so it might not be quite that easy for companies to figure out the total adjustment they need to record for their DTAs. In addition, in some cases, it may not be clear what the adjustment should be. For example, the tax reform bill also makes changes to Section 162(m) (see “Tax Reform Targets 162(m)” and grandfathers some compensation arrangements from those changes (see “Tax Reform: The Final Scorecard“). There are currently some questions about which arrangements qualify for the grandfather; for arrangements that don’t qualify, the DTA may have to be reduced to $0. Companies may not be able to determine the adjustments they need to make to their DTAs until the IRS provides guidance.

Which brings us to SAB 118. The SEC issued SAB 118 to provide guidance to companies who are unable to determine all of the tax expense adjustments necessary in time to issue their financials. The SAB allows companies to make adjustments based on reasonable estimates if they cannot determine the exact amount of the adjustment. Where companies cannot even make a reasonable estimate, they can continue to report based on the laws that were in effect in 2017.

The SAB also provides guidance on the disclosures companies must make with respect to the above choices and provides guidance on how companies should report the correct amounts, once they are known.

– Barbara

P.S.—For more information about how the tax reform bill impacts DTAs and SAB 118, don’t miss today’s webcast “Tax Reform: What’s the Final Word?

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January 11, 2018

IRS Announces 2018 Withholding Rates

Earlier today, the IRS issued Notice 1036, which updates the tax tables and withholding rates for 2018 to reflect the new marginal income tax rates implemented under the Tax Cuts and Jobs Act.

The flat rates that apply to supplemental payments are updated as follows:

  • For employees who have received $1 million or less in supplemental payments during the calendar year, the flat rate is 22% (the third lowest income tax rate).
  • For employees who have received more than $1 million in supplemental payments during the calendar year, the flat rate is 37% (the maximum individual tax rate).

As under prior rules, for employees who have received $1 million or less in supplemental payments, the company can choose to withhold at either the flat rate or the W-4 rate (which also changes as a result of Notice 1036). Where employees have received more than $1 million in supplemental payments, this choice is not available; the company must withhold at the specified flat rate (now 37%).

While companies have until February 15 to implement the new rate tables, the IRS encourages companies to implement them as soon as possible and I expect that many companies will switch to the new flat rates immediately. Where shares are being withheld to cover taxes, withholding at greater than 37% could now trigger liability accounting.

– Barbara

P.S. Thanks to Andrew Schwartz of Computershare for alerting me to the IRS’s announcement.

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January 11, 2018

Should You Keep or Implement an ESPP?

The presence of employee stock purchase plans (ESPPs) in the equity mix has been long and fairly consistent. Mostly drama free, for the past several years ESPPs seem to often live under the radar. If you have an ESPP, you may be wondering how it stacks up compared to those of your peers. If you don’t have an ESPP, your company might be entertaining the idea of implementing one. In today’s blog, we’ll look at some ESPP trends from the NASPP/Deloitte’s 2017 Domestic Stock Plan Administration Survey in an attempt to answer the question: Should you keep or implement an ESPP?

ESPP Prevalence

52% of survey respondents reported having an ESPP, which is basically consistent with our survey data from 2011 until now. This suggests somewhat of a leveling off of ESPP implementations (but not a decline since that time). Back in 2004, 64% of respondents said they had an ESPP – and that number declined until 2011 (likely due to changes in accounting rules).

The silver lining is that in the 2017 survey, 1 in 5 respondents who don’t have an ESPP report that they are considering implementing one. So perhaps this figure is primed to finally begin an upward trend.

Participation Rates

When it comes to employee participation in the plan, a key metric in determining whether a plan is competitive, 62 percent of respondents with a qualified plan cite an employee participation rate of less than 40 percent. For non-qualified plans, participation is even lower, with almost 90 percent of respondents reporting participation of less than 40 percent. Exactly half report participation of less than 20 percent.

With a known positive correlation between the discount offered in the plan and participation rate (= the greater the discount, the greater the participation rate), the lower participation rates in non-qualified plans could suggest that non-qualified plans can be less generous.  On the flip side, we’ve seen companies implement very generous terms and find themselves with 80% or more in participation. Obviously, this achievement includes more than just lucrative plan terms – communication and education matter in upping participation rates as well.

Plan Terms

The following are a few highlights among trends in plan terms and practices:

  • 15% is the most prevalent discount offered in ESPPs across the board (both qualified and non-qualified).
  • The lower of the offering date or purchase date price is the most common way to set the purchase price for both qualified (63% of respondents) and non qualified (54% of respondents) plans.
  • Two-thirds of companies say their participants hold shares purchased under a Section 423 plan for at least one year.
  • 94% of companies offer no quick sale for purchased shares.
  • 6 months is the length of the offering period used by the majority companies, followed by 3 months and 1 month. Longer duration offering periods are on the decline.


To learn more about the data from the Survey, including 6 factors that correlate to higher ESPP participation rates (shared by Joseph Rapanotti of Deloitte), NASPP members can view our webcast “Survey Says: Dos and Don’ts of Stock Plan Administration” (November 8, 2017).

Additionally, I’ll be presenting on “Considerations in Offering an ESPP” (with co-presenters Shyam Raghavan of Pearson plc, and Landy Tam of Computershare) at the Computershare/NJ/NY Center for Employee Ownership’s ESPP Day on February 8, 2018 in New York and hope to continue the conversation about ESPP trends.


January 9, 2018

ISS Policy Updates for 2018

It used to be that ISS would make only a few changes per year to its voting policies that affected stock compensation. Some years the changes didn’t even warrant a blog entry. But now ISS has the Equity Plan Scorecard and a scorecard requires constant tweaking. As a result, we now have a lengthy list of changes to review every year. Today’s blog entry is a summary of the ones I think are most significant.

It’s Harder for S&P 500 Companies to Earn a Passing Score

Big news for S&P 500 companies: your stock plans now have to earn an extra two points (a total of 55 pts) to receive a favorable recommendation. Everyone else’s plans still pass with only 53 pts.

The Burn Rate Test Gets a Little Easier for Acquirers

More big news: all companies can now request that ISS exclude restricted shares granted in consideration for an acquisition from their burn rate.  Companies that want to request this must include a tabular disclosure reporting the number of restricted shares granted in this context for their most recent three fiscal years.

Partial Credit Eliminated for Some Factors

No more partial credit for CIC provisions, holding requirements, and CEO vesting requirements, and in some cases, the requirements to receive full credit have been relaxed.

To earn full credit for CIC provisions, the provisions must meet both of the following conditions (unless the company doesn’t grant time-based awards, in which case only the condition related to performance awards matters):

  • Performance awards can allow the following: (i) pay out based on actual performance, (ii) pro rata pay out of the target level (or a combination of i and ii), or (iii) forfeiture of awards.
  • Time based awards cannot provide for automatic single-trigger or discretionary acceleration of vesting.

To receive full points for the holding period requirement, shares must be required to be held for 12 months (down from 36 months in past years) or until the end of employment. No points for requiring shares to be held until ownership guidelines are satisfied.

To receive full points for the CEO vesting requirements, awards granted to the CEO in the past three years cannot vest in under three years (down from four years in the past). Still no points if no performance awards have been granted to the CEO in the past three years, but grants of time-based awards are no longer required to earn full credit.

– Barbara

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January 4, 2018

Another Year, Another Winner

Happy New Year! It’s that time of the (new) year again where we offer up congrats for our annual Question of the Week contest. 

Question of the Week Winner!

The winner is of our 2017 Question of the Week contest is (drum roll!): Sunny Days (who, by the way, tied for 2nd in our 2016 contest). For those of you who are asking “What’s the Question of the Week Contest?“, it’s a weekly quiz challenge designed for stock plan professionals to test their know-how in a variety of areas, while competing against their peers. Hone your equity compensation knowledge while having fun at the same time! There’s a new question each week, and a correct answer earns points.

And the Winners Are…

The screen names of the top 5 scorers for the 2017 contest are:

  • 1st – Sunny Days 390 ( points)
  • 2nd – DMekwunye (380 points – tie with IheartESPP; this contestant was also the winner of the prior year’s contest)
  • 2nd – IheartESPP (380 points – tie with DMekwunye)
  • 4th – edodge (370 points – tie with Will Give It A Go)
  • 4th – Will Give It A Go (370 points – tie with edodge)


Congratulations to our top scorers!

What’s in a Name?

In our current game, your play is tracked by your screen name – so you can be as anonymous or transparent in your game playing as you like. It’s become an annual tradition for me to highlight some of the fun, intriguing and perplexing screen names each year. In 2017, once again the contestants expressed great variety in selecting their game names – with  “equity” oriented and technical names (Equity Guy, Stock Plan Warrior, Bifurcation) to the mythical (War Eagle (is that considered mythical?)) to the humble (Humble Pie, Lucky13) to the optimistic (Its_a_new_year!) and those who are new to the game or industry (new at equity, giveitatry, Equity Newbie). Finally there were a few that would probably require a happy hour and some time to explain (coco13bongo, The Shadow Knows, RU Crazy, BlackSwan, Building Chops).

Work Hard, Play Hard

We’ve just reset scores and this week’s challenge starts a whole new contest, so this is the perfect time for NASPP members to sign up, create your screen alias and jump into the Question of the Week Contest. We leave all of January’s questions active for the entire month, so you have plenty of time to complete the first quizzes of the new game.

I wish you all a fantastic year!


January 3, 2018

Be Suspicious

What would you do if you got an email from your CEO, asking you to provide a report of taxable income, including employee IDs—stat? A) Respond with the requested information as quickly as possible or B) be very suspicious?

As it turns out, you should be very suspicious.

Phishing Scheme Targets Payroll and HR

Most phishing schemes have little to do with stock compensation, but a scheme that the IRS has issued an alert on in the past hits a little close to home.  This scheme targets payroll and HR personnel. The scammer sends an email that purports to be from the company’s CEO or other executives and requests that the recipient provide employee data, including personal and W-2 information.

If successful in acquiring this information, the scammer then submits false tax returns (possibly with both state and federal tax authorities) and collects on any refunds due to employees.

According to the IRS, the email may include the following (or similar) requests:

  • Kindly send me the individual 2017 W-2 (PDF) and earnings summary of all W-2 of our company staff for a quick review
  • Can you send me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, Salary) as at 2/2/2017.
  • I want you to send me the list of W-2 copy of employees wage and tax statement for 2017, I need them in PDF file type, you can send it as an attachment. Kindly prepare the lists and email them to me asap.


It seems to me that the big giveaway here is the use of the word “kindly” in the above requests. What executive ever used that word when asking for a report ASAP?

Let’s Be Careful Out There

Payroll and HR aren’t that far removed from stock plan administration. Some of you probably wear both hats.  It’s always a good idea to verify any unusual requests from executives and to make sure that any personal data for employees, including compensation data, is transmitted in a secure manner, especially if that data includes employee identifiers, such as names and ID numbers.

You also might want to make sure your colleagues in payroll and HR are on alert for this scam. It’s more widespread than you think and it’s a mess to resolve; you don’t want it to happen to you or your fellow employees.

– Barbara

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