Equity compensation professionals know that technology provides the foundation for a successful administration infrastructure. A stock plan recordkeeping system is essential for tracking various plan terms, participant activities, demographic information (e.g., ID numbers, addresses and hire dates), grants and awards, and other related data. The system also houses information about transactions, such as option exercises, restricted stock releases and acquisitions from share purchase programs. Reports from the system are necessary for accurate financial reporting and accounting, and the company can also use the platform to track share-pool balances and behavioral trends.

Whether you’re evaluating software for a new equity compensation program or contemplating a switch, take our software assessment. We’ve identified the main questions you ought to consider as you determine the best software for your needs.

• Does the system have the functionality required to support your equity plans?
  Most available programs will support standard equity types, typical transactions and basic reports. If your plan has unique terms, such as market-based performance vesting, or if you want the flexibility to generate fully customized, real-time reports you might need a more specialized application. If you can't find a system to handle these requirements, you will need to look for a gap solution or build a manual workaround.
• How does the software interact with other systems involved in the workflow?
  If you want to connect the stock plan software to your HR system, the broker's trading platform, a participant web portal or your payroll provider, think about what data needs to be exchanged and how this will be accomplished. Integrating multiple technology platforms enables data integrity and efficient data movement while minimizing risk associated with human error.
• Do you want to be responsible for maintaining the system?
  If you like having full control of the database, including all data entry, then storing the system at your site may be advantageous. If you want to avoid licensing issues and software upgrades and simply want to run reports from the system, a third-party outsourcer may be optimal.
• How much time will the proposed technology save you?
  Look at how the system can automate some tasks that you would otherwise perform manually. Make sure to consider not just the core recordkeeping platform, but connected interfaces (e.g., a participant web portal) that could save a great deal of your time.
• Will the system grow with my company?
  As your company matures and your employee base changes, your equity plan will evolve. The system should be adequately flexible and robust to support this expansion. Ideally, you should be able to move from in-house administration to outsourcing on the same system.

Your answers to these questions may help you narrow down the wealth of choices in the recordkeeping market. Some systems are available as part of a software-only, in-house administration solution while others are only offered in an outsourcing relationship with that particular provider. Once you know how you want to manage your technology platform, you are one step closer to finding the right administration structure for your company.

This article was adapted from a recent white paper by Solium,
To Insource or Outsource? Four steps to Gauge Your Equity Plan Needs. Read the full white paper.

Back to top

The new vice chairman of the IASB, Ian Mackintosh, recently suggested in a webcast that the IASB would not begin new joint projects with the U.S. unless the SEC endorses IFRS, the Global Financial Strategy News reported August 3.

During an official visit to China, the new chairman of the IASB, Hans Hoogervorst, commented that it is in the best interests of the United States to adopt IFRS. “Difficult as the decision may be, it is hard to imagine the possibility of the United States not taking a positive decision. I am convinced that the United States will want to maintain its position of leadership in international financial reporting.”

The IASB and FASB continue to work on their areas of disagreement, including IFRS 9, which covers the classification and measurement of financial assets and includes a methodology for impairment and hedge accounting. In a major decision from the IASB in July, the board proposed the IFRS 9 project be delayed by two years – to January 1, 2015.

The SEC is expected to decide whether it will eventually incorporate IFRS into the U.S. financial reporting system by the end of the year.

Back to top

Democratic Senator Carl Levin of Michigan is reintroducing – for the fifth time – a bill that would eliminate the federal tax breaks associated with stock option compensation.

“Current stock option accounting and tax rules are out of kilter, lead to corporations reporting inconsistent stock option expenses on their tax returns versus their financial books, and often produce huge tax windfalls for corporations that pay their executives with large stock option grants,” said Levin. “This windfall produces excess corporate tax deductions totaling as much as $60 billion in a single year, which costs the U.S. treasury billions of dollars a year in lost tax revenue. In effect, it’s a taxpayer subsidy for the pay of corporate executives. It’s a tax break we can no longer afford and ought to end,” said Levin.

Levin’s bill proposes that the amount corporations deduct for stock options cannot exceed the amount in their accounting books. The legislation is also backed by Democratic Senator Sherrod Brown, and comes at a time when policymakers are seeking to rein in spending. According to Levin’s website, the Joint Committee on Taxation estimates that the measures outlined in the Levin-Brown bill would raise $24.6 billion in corporate tax revenues over 10 years.

The federal government isn’t alone in looking for additional revenue. CFO magazine reports that state governments are assessing potential income tax liabilities relating to executive compensation. States are looking at taxing nonresidents who receive an equity award for working in their own borders. As a first step, some states have enacted legislation to clarify the tax rules for nonresidents who receive equity compensation awards. There are no federal laws that prescribe states' rights to tax these awards.

Back to top

In an effort to provide investors with better information on the key risks, governance matters and compensation practices of publicly listed companies, the Canadian Securities Administrators (CSA) is implementing amendments to Form 51-102F6 Statement of Executive Compensation.

Issuers will be asked to disclose whether their boards of directors adequately considered the risks associated with the company’s compensation policies and practices. The new requirements will apply to the preparation of management proxy circulars for issuers with financial years ending on or after October 31, 2011.

Highlights

• The CSA believes the disclosure of executive performance goals based on corporate-wide financial performance metrics will not seriously prejudice any issuer, so exemption from disclosure of performance goals is not available on that basis
• Regardless of whether there are any differences between the valuation of equity-based awards disclosed in the Summary Compensation Table and the accounting fair value of such awards, issuers are required to disclose the methodology used to calculate grant-date fair values of such awards  
• The disclosure of the process used by the issuer to grant option-based awards is extended to all share-based awards
• New disclosure of the market value of vested share-based awards in the Outstanding Awards Incentive Plan Awards table is required

Back to top