Presentation on theme: "Roundtable Discussion: Working Together to Find Solutions to Challenges Tuesday, August 9, 2011 Moderators: Pam Ellis, CEP and Sara Shoaf, CEP – Solium."— Presentation transcript:
Roundtable Discussion: Working Together to Find Solutions to Challenges Tuesday, August 9, 2011 Moderators: Pam Ellis, CEP and Sara Shoaf, CEP – Solium Capital
Discussion #1 - Scenario Company ABC is a privately held firm that has been granting ISOs for the last ten years. Many early grants to key long-term employees are coming up on expiration and have not been exercised, even though they are in the money. The company has no immediate plans to go public or be acquired by a public company. The CEO has asked you to propose a way to motivate employees to exercise these options or provide a method to compensate them for the value on the table.
Discussion #1 - Brainstorm Should the company “force” these employees to exercise or compensate them for the value? Why or why not? Why are employees not exercising? Is there a way to change their perceptions (and therefore behavior) without forcing an exercise? What are potential solutions for the company to offer to employees and the implications of each proposal? Should the company consider other ways to compensate employees that provide better reward?
Discussion #1 - Proposal No obligation to force or compensate Purely a company decision Could set a precedent Potential solutions Auto-exercise Loan program Replacement grant with immediately vested shares Cash bonus for walkaway value Company repurchase program Employee education
Discussion #2 - Scenario In February, you discover by chance that the federal and state tax rates in your stock plan database have been inaccurate since last year, resulting in a large number of transactions with incorrect tax withholding. In all cases, both taxes were underwithheld for option exercises and RSA/RSU releases. Cashless and sell-to-cover exercises allowed Sell-to-cover taxes for releases allowed The error was due to a manual entry on your part. What should you do?
Discussion #2 - Brainstorm Should you raise the issue? Why or why not? If yes, how do you raise it and with whom? Should the transactions be corrected? If so, how? What is the impact to the company? To the employee? Tax reporting and withholding, penalties SOX compliance Employee relations How should this situation be avoided in the future? Preventative and detective measures
Discussion #2 - Proposal Yes, this issue should be raised! Solutions Assessment of potential impact Correct original transactions or deal with resulting consequences Employee notification Avoid this situation in the future Source of tax rates, entry of rates in stock system Audits
Discussion #3 - Scenario Currently Company XYZ grants options on a limited basis in five different countries; however, these plan participants have a high degree of mobility between countries due to the company’s type of business. The company does not track mobility for equity purposes and uses the residence location at time of exercise for tax calculations. The company has (fortunately) not been audited from a global tax perspective yet. The company is fully committed to equity as a form of compensation for their global workforce. The CFO has asked you to evaluate the costs of compliance to support this global mobile population versus the risk exposure.
Discussion #3 - Brainstorm How would you conduct this assessment? What is an acceptable level of risk in this area? Whose risk is it – the company’s? the employee’s? If the employee is at risk, what is the company’s obligation to educate the employee on the risks or minimize it? Are there better alternatives to meet the company’s objectives while minimizing risk?
Discussion #3 - Proposal Risk assessment Tax reporting and withholding requirements for mobile employees by country Administrative costs to track, tax advisors/resources Employee impact Solutions Tax advisors/preparers Assistance with tax payments Cash bonus plans with criteria based on company or stock performance
So What Did We Learn? Collaborative approach with multiple perspectives to solve real-world challenges Leverage your peers, co-workers and industry experts No need to reinvent the wheel Don’t be afraid to ask for help Sometimes there are no clear and easy answers Can be difficult balancing what you SHOULD do versus what you CAN do Have to make an informed decision regardless – do your homework and know what you’re getting into