The NASPP Blog

Category Archives: Controls

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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March 22, 2016

Tax Phishing Scheme Targets Payroll, HR

What would you do if you got an email from your CEO, asking you to provide a report of taxable stock plan transactions, including employee IDs—stat? A) Respond with the requested information as quickly as possible or B) forward the email to your IT department for investigation?

As it turns out, B might be the correct answer.

Phishing Scheme Targets Payroll and HR

If you are on the IRS’s mailing list, you know that it’s once again that time of year when the IRS sends out alert after alert about tax phishing schemes.  Most have nothing to do with stock compensation, but a recent alert hits a little close to home.  A new tax phishing scheme targets payroll and HR personnel.  In a phishing scheme, a scammer masquerades as a representative of a legitimate business to trick people into giving out personal information that the scammer can use for illicit purposes.

This phishing scheme involves 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.

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

  • Kindly send me the individual 2015 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 2/2/2016.
  • I want you to send me the list of W-2 copy of employees wage and tax statement for 2015, 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

While the schemes don’t yet seem to involve stock compensation, payroll and HR aren’t that far removed from stock plan administration. Some of my readers 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.

– Barbara

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December 15, 2015

5 Things About Global Stock Plans and Technology

This past summer, the NASPP and Solium co-sponsored a quick survey on global stock plan administration. We asked companies about the technological challenges they experience when it comes to administering global stock plans, focusing on 12 primary challenges related to tax compliance, financial reporting, and other administrative matters. Close to 70% of respondents indicated that they struggle with four or more of the challenges identified and several noted that they struggle with nine or more of the challenges.

For today’s blog entry, I highlight five things I learned from the survey:

1. There are still a lot of manual processes out there.

Two-thirds of respondents say they spend too much time on manual processes.  This is a high-risk proposition: it is difficult to implement adequate controls over processes and calculations performed in a spreadsheet. This seems especially concerning given that the SEC is in the process of adopting rules requiring recovery of compensation for all material misstatements, even if due to inadvertent error (see “SEC Proposes Clawback Rules,” July 7, 2015). One incorrect calculation discovered too late could result in recoupment of bonuses and other incentive compensation paid to executive officers.

2. Tax compliance is a top concern for companies.

This really isn’t a surprise—let’s face it, tax laws outside the United States are a hot mess.  Every country does something different. Some countries change their laws every few years (I’m looking at you, Australia and France) and grandfather in old awards.  Some countries have different rules for social insurance taxes vs. income taxes. Add in mobile employees and, well, you have a lot of work for tax lawyers.

3. Regulatory compliance is also a challenge.

56% of respondents cite keeping up with regulatory changes as a top challenge and 45% cite regulatory requirements in other countries.  Regulatory compliance goes beyond tax laws to include things like securities laws, data privacy (a hot topic these days, see “Data Privacy Upheaval,” December 3, 2015), labor laws, currency restrictions and a host of other issues. It’s hard to stay on top of it all.

4. It’s the participants that suffer.

Ultimately, in the struggle to administer a global stock plan, something has to give and that something is usually the participant.  Only 50% of respondents offer a qualified plan in countries where they could; the hurdle of regulatory compliance gets in the way. And 75% of respondents said that they would focus more on employee education if they could just spend less time on basic administration.

5. Expectations are low.

When we asked companies what is on their wish list for their administrative system, I was surprised at how low some items ranked (it was a “check all that apply” question, I thought everyone would want just about everything).  For example, despite the fact that 71% of respondents reported tax-compliance for mobile employees as a top challenge, only 64% wanted a system that could calculate tax liabilities for mobile participants.  It left us wondering if companies need to dream bigger for their administrative platforms.

Check out the White Paper and Survey

If you haven’t had a chance to read it yet, check out the white paper on the survey results and download the full results from the Solium website.

– Barbara


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September 22, 2015

Top Trends in Global Stock Plans

We recently posted the executive summary to the NASPP and PwC 2015 Global Equity Incentives Survey and, later today, we will be presenting highlights of the results in our webcast, “Top Trends in Equity Plans for International Employees.”  For today’s blog entry, I highlight five findings that I think are significant:

Globalization Continues:  Back when we did the 2012 survey, 20% of respondents said they expected to increase global participation in their stock plan and this trend held steady in 2015, with 19% again expecting to increase participation.  In addition 77% of respondents said they expect global participation to remain the same.  That leaves only a very small percentage of companies that expect to pull back their global stock plans.

Compliance Reviews Are More Routine:  The percentage of respondents who said they conduct annual compliance reviews of their global stock plans increased to 43%, up from 34% in 2012.  At the same time, respondents conducting only sporadic reviews dropped to 40%, down from 45%.  It can be risky to wait until you hear about a regulatory change to conduct a compliance review; annual reviews help ensure that you know when the laws impacting your global stock plan have changed.

UK Takes the Lead in Challenging Tax Compliance:  We asked respondents to indicate which countries they found to be challenging in terms of tax compliance. The UK was first, with 46% of the votes, up from 36%  (third place) in 2012.  China, however, is hanging in there at second place with 42% of the votes (China was in first place in 2012). France dropped to third place, with 26% of the votes (down from second place and 38% of the votes in 2012).

Mobility Compliance Up:  The percentage of respondents tracking mobile employees continues to increase:  87% of respondents track formal assignees (up from 80% in 2012), 62% of respondents track mobile employees who aren’t part of an assignee program (up from 60% in 2012), and a surprising 27% track business travelers (up from 18% in 2012). But the tools for tracking mobile employees still leave something to be desired: 36% of respondents track this in an Excel spreadsheet, up from 29% in 2012.  About another third (32%) outsource tracking to a consultant or TPA. The final third use a hodge podge of methods.

Participant Understanding Looks Like a Mountain Rather Than a Bell Curve: Only 34% of respondents felt that their global participants understand a good deal or completely understand their stock plan benefits. That leaves a two-thirds majority for whom participant understanding is at best, somewhat or partial. Global stock plans are a very expensive employee benefit, both in terms of the P&L and administrative cost.  It seems a little crazy to invest resources like this in a plan and not also invest in the education to make sure participants understand it.

Be sure to tune in to the webcast later today to learn more highlights from the survey.

– Barbara

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July 28, 2015

Delaware Law Gets an Update

Delaware recently amended its general corporation law to allow boards to delegate authority to approve restricted stock grants to officers (or other people) who aren’t directors.  Just to clarify: it isn’t that the restricted stock is being granted to people who aren’t directors, it’s that non-directors can now approve restricted stock grants.


For well over a decade (ten points if you remember when this law changed), Delaware has permitted boards to delegate authority for approving stock option grants and other rights (generally interpreted to include RSUs) to officers, even if those officers are not board members.  Now the law has been amended to also allow this for restricted stock.

Hold On—Don’t Go Crazy Now

The resolution delegating approval authority must include the following restrictions:

  • The maximum number of shares that can be issued
  • The time period over which the shares can be issued
  • The minimum consideration that must be received for the shares (if the shares are subject to par value, this minimum cannot be less than that amount)

Just as for stock options and other rights, the delegation of authority is solely for determining who receives the awards and the number of shares issued to each person. Vesting requirements and other terms and provisions still must be determined by the board.

Plan Must Allow Delegation

Also, before your board delegates authority to approve restricted stock grants to anyone other than a board member (or committee thereof), the plan must allow this.  Maybe your plan anticipated Delaware eventually changing their laws and already allows this, but there’s probably a pretty good chance it doesn’t.  Luckily, plans can always be amended, oftentimes without shareholder approval.  Amending the plan to allow this delegation of authority should be something that can be accomplished by board action alone.  Thus the board could amend the plan to allow this delegation of authority and then delegate authority under the amended plan at the same meeting; but to safe, make sure they do it in that order.

See the NASPP alert “Delaware Allows Non-Directors to Approve Restricted Stock Grants” for more information.

– Barbara


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January 15, 2015

Share Limit Lessons the Hard Way – Part II

In December 2013, I blogged about a mistake that garnered public attention when daily deal website Groupon exceeded their plan’s limit for shares granted in a calendar year with an RSU award to their Chief Operating Officer (“Share Limit Lessons the Hard Way“, December 19, 2013). Just when I started to think it couldn’t happen twice, nearly a year to the day of my first blog another oops! occurred. This time it involved technology company Advanced Micro Devices (“AMD”).

In an 8-K filed with the SEC on December 29, 2014, AMD disclosed that they’d exceeded their equity plan’s limit on shares granted to an individual in a calendar year when issuing a series of awards to their new Chief Executive Officer. As a result of the technical error, the chipmaker decided to void and rescind most of the CEO’s newly issued awards. In their evaluation of the situation, AMD’s board of directors affirmed that the value of the CEO’s compensation package that included the awards was appropriate and in line with shareholder interests. Given that some of the awards were negotiated as part of an employment contract with the CEO, I wonder how the company now will deal with the fact that they can’t issue the grants that were contractually promised to the CEO. I’m no lawyer, so I’ll throw the question out there with no intention of trying to answer it myself. AMD did mention in their filing that they intend to “return Dr. Su’s equity compensation to the level it should have been prior to the action to void and rescind the equity awards described above at or near the earliest practicable opportunity available to the Company, subject to law and the terms of the 2004 Plan.”

How Does This Happen?

There’s been no information on “how” the oversight occurred, and I wouldn’t expect that we’d be privy to the specifics. The fact is that it happened. What stands out to me in this case is that, just like the Groupon case, the violation of the plan limit appeared unnoticed until AMD’s own shareholders filed a lawsuit over it. I’m thinking about all the checks and balances in a grant approval process, and wondering how it was left to shareholders in both cases to catch the mistakes.

While plan share limits seem on the surface to be a simple concept to embrace, there seems to be a trend, or at least a pattern in oversights of these limits. I’m guessing there are more situations like this that are caught before shareholder lawsuits occur. A common trigger for awards that exceed the limits outlined in the plan appears to large grants (or a series of grants) to executives or key employees.


We hear more and more about shareholders looking for prime litigation opportunities. As a group, they definitely have become more assertive in monitoring disclosures and finding opportunities to litigate perceived wrongs. With that in mind, I turn the focus to what we can learn from these high profile, public mistakes. I put myself in the position of asking “If I worked for this company, what would I do to avoid this in the future?” A few ideas come to mind:

  • Use these examples (AMD and Groupon) as the basis to have a training session or discussion with your internal Human Resources (HR) executives. Since the HR executives are typically the ones involved in discussing CEO and other executive compensation with the board, go right to those executives and educate them on any share limits (and other parameters) within the plan that may be triggers for violations of plan terms. If external compensation consultants are also in a position to have discussions with the Board on executive compensation decisions, it’s a good idea to make them aware of the plan limits as well.
  • Audit, audit, audit. Even if an oversight occurs at the HR/board level, the next stop should be the plan administrator. Anytime new grants come through, it’s best to have a check and balance in place that compares those grants to plan limits. Keep a running total of grants to date (whether it’s year to date or some other measurement outlined in the plan). Remember there are varied types of plan limits. Common limits include the number of shares that can be granted to an individual in a calendar year, the number of shares that can be cumulatively granted from the plan in a calendar year, and limits on the number of shares related to certain types of awards that can be made within a period of time (for example, a cap on the number of shares that can be issued as full value awards in a calendar year).
  • Advocate for contact with the board of directors. While it’s a good step to educate those who are in contact with the board (HR executives and compensation consultants), why not see if you can gain your own opportunity to educate the board? Whether it’s in person or via a  communication that is presented to the board, this may be an opportunity to go straight to the decision makers. Even if it’s not the full board, the Compensation Committee of the board is an ideal target for these communications.

Nobody wants their mistakes made public. And, while there may not be a sole person responsible for the oversights at Groupon and AMD, these certainly were preventable mistakes. I hope this will be my last blog on this topic and companies will take to heart the importance of monitoring any and every aspect of the terms of their equity plans. Let’s not leave it to shareholders to discover the next mistake.