THE NASPP AT 19 The Evolution of the Stock Plan Industry

Transcription

1 Leading the Evolution of Global Stock Plan Management THE NASPP AT 19 The Evolution of the Stock Plan Industry

2 THE NASPP AT 19: THE EVOLUTION OF THE STOCK PLAN INDUSTRY Just a few years before the NASPP was formed, stockbased compensation was so simple that it was possible to administer a plan using a calculator, WordPerfect and some Wite-Out. At 6:00 p.m. (PT) on November 1, 2011, the National Association of Stock Plan Professionals (NASPP) kicked off its 19th annual conference in San Francisco, California. The list of breakout sessions planned for the two-and-a-half day program is comprehensive and a little dizzying. An attendee could walk away knowing how to track down transaction proceeds, perform disclosures under ASC 718, tackle cost-basis reporting, avoid and correct 409A problems, master ESPP and RSU withholding outside the United States, and simplify plan administration with new this year s conference represents a whole new world. It s testament to an industry compensation plans. In this white paper, Solium looks back over the last two decades at the state of stock compensation when the NASPP was formed, and the major developments that have made this industry what it is today. A nascent profession and community The NASPP was founded in 1992, primarily to bring together people involved in all aspects of stock compensation, from design to delivery. Stock plan professionals needed a community where they could network, exchange ideas and information, engage in constant learning, and keep abreast of regulatory developments and best practices. The NASPP helped to give the administrative community a voice, and it began centralizing the substantive knowledge required to successfully administer a stock plan. At the time, software designed for stock plan administration was in its infancy, and regulators focused on disclosures and stock plan transactions by In fact, just a few years before the NASPP was formed, stock-based compensation was so simple that it was possible to administer a plan using a calculator, WordPerfect and some Wite-Out. It wasn t until the late 1980s that developers began creating timely. Stock options had begun an ascent in popularity in the late 1980s, particularly among technology companies that were on the verge of the dot.com boom, but also among well-known companies, such as Pepsi, Wendy s, Bank of America and Citigroup. Broad-based stock option grants became more prevalent and the need for better, more scalable in-house administrative tools followed. New technologies and players software provided the foundation for the stock-plan administration outsourcing business. Prior to a 1988 amendment to the U.S. Federal Reserve in the United States were prohibited from providing loans to employees to exercise stock options. But after the change in legislation, brokers jumped on the outsourcing bandwagon to capitalize on a new way of exercising stock options that became 2

3 The NASPP at 19 known as the cashless exercise. Initially, many brokers licensed software from early providers and worked with corporate clients to enable co-sourced cashless exercises. In this model, the company would share its stock plan data with a broker who used the same recordkeeping platform. As cashless exercises became more popular, the co-sourced approach served to reduce some of the administrative burden for issuers and allowed them to maintain control over their data. The concept of full outsourcing followed, as industry players developed increasingly changes followed suit. To successfully administer a stock plan, you suddenly needed better knowledge and tools requirements that fueled the growth of stock plan service providers. Suddenly, stock plan administration became a highly visible function with a level of regulatory oversight previously unheard of. Stock compensation s zenith The regulatory front was relatively quiet during the 1990s. Section 16 rule 1992, the Financial Accounting Standards Board (FASB) had begun to consider whether to impose an earnings charge for stock options. But its Statement of a compromise that gave companies a choice to either footnote disclosure of their stock-option expenses or to actually take an earnings charge using a fair-value approach based on grant date. (Companies that chose the footnote approach at-market stock options to be an expense; not so for discounted stock options, restricted stock, stock appreciation rights and other types of stock compensation.) By the late 1990s, stock compensation had become more burdensome for companies that took a broad-based and global approach, due to the sheer size and scope of their stock programs. The impact of the technology sector at this time can t be overemphasized. The talent-hungry industry used broad-based stock option programs as a recruitment and retention tool at a time when generous accounting rules made compensatory equity virtually free to give away. Yet by 2000, the stock market had begun to wane, and stock options and employee stock purchase plans fell out of favor. The high-tech bubble had burst. In the wake of scandals such as Enron, Tyco and WorldCom, the Sarbanes-Oxley Act was passed in Section 404 of the act required issuers to disclose the scope and adequacy of a highly visible function with a level of regulatory oversight previously unheard of. Regulatory ripples of choice because of their favorable accounting treatment (i.e., no expense), but the amendment allowed companies to consider other types of stock awards that might be more effective in attracting and retaining talent. Soon, restricted stock units, which before had typically been reserved for higher levels of management, were being granted to all levels of employees around the world. Stock-settled 3

4 The NASPP at 19 stock appreciation rights became a popular way to deliver the same value as stock options by using fewer plan shares. The new accounting rules also challenged third-party providers and triggered the development of even more complex equity plans more closely and became more creative. The resulting diversity in equity types made stock plan administration much more challenging. New oversight and accounting rules meant that stock compensation had become the focus of regulatory action, not only in the United States but abroad as well. As stock compensation grew in popularity around the globe, tax authorities began to revisit related tax policy and legislation. Tax laws and rules were adopted where before there had been none; some countries, such as France, and the UK, Employees who moved from one country to another became the targets of increased scrutiny by national tax authorities looking to receive their share. Beyond the United States, securities laws and currency exchange also evolved as stock compensation became more prevalent. The complexities of stock plan administration and, now, global compliance kept growing. Web-based recordkeeping platforms have become the norm, and companies are now exploring social media tools such as Facebook and Twitter for stock plan communications. A frenetic future And it shows no signs of stopping, as the 19th Annual NASPP Conference agenda illustrates. Tax rules alone continue to evolve everywhere. FASB and the International Accounting Standards Board are still are working together toward the convergence of IFRS and U.S. GAAP. Web-based recordkeeping platforms have become the norm, and companies are now exploring social media tools such as Facebook and Twitter for stock plan communications. Over the past two decades, we ve seen incredible changes in stock compensation, and the function of administering equity compensation has grown from a clerical position to a true profession. Though stock compensation will no doubt remain an integral way of attracting, motivating and retaining talent, it s sure to continue evolving at a rapid pace. As stock plan professionals, keeping up with the ever-changing landscape is no easy feat. But the resources and continuous learning opportunities offered by NASPP and other organizations can help us stay one step ahead. Historical snapshot 1980s Stock options rise in popularity 1992 The NASPP is founded 1993 First NASPP conference Enron scandal 2002 Sarbanes-Oxley Act is passed th NASPP Annual Canference? U.S. GAAP and IFRS convergence 4

5 ABOUT SOLIUM Solium is a leading global provider of web-based stock plan administration technology and services. Shareworks reporting capabilities, helping companies automate and manage their stock option and purchase plans. Since our inception in 1999, we have been known as industry pioneers, always striving to change the status quo and challenge conventional methods. We take great pride in being leaders of change and delivering the most innovative stock professionals, plan administrators and participants. Solium has Contact Solium solutions@solium.comum solium.com 2011 Solium Capital Inc. All rights reserved. The Solium logo is a trademark of Solium Capital in the U.S. and/or other countries.