The myStockOptions Blog

Stock Comp Bootcamp For Financial Advisors Will Get Their Knowledge In Tip-Top Shape

What do you call a bootcamp about stock compensation? A "Bootcomp"? Maybe. Whatever the case, myStockOptions is holding a bootcamp on stock comp in a special webinar on October 21, presented by myStockOptions editor-in-chief Bruce Brumberg, Esq.

While nobody will actually have to drop and give us twenty pushups (though they are welcome to do so if they want), our bootcamp is a great opportunity for financial advisors, lawyers, CFAs, and tax professionals to learn all they need to know about stock comp or sharpen their existing knowledge in just 100 lively minutes. This webinar is yet another educational offering from myStockOptions in addition to the self-study courses and exams in the website's Learning Center, which offers a multitude of continuing education credits for CFP, CEP, CPWA, and CIMA professionals.

Bootcamp details are below and at the webinar registration page.

For financial advisors in particular, stock compensation is a complex planning niche they must understand when their clients have grants of stock options, restricted stock, restricted stock units, or employee stock purchase plans. Command of the core topics is required to better serve clients, build wealth, and prevent costly mistakes.

"You will understand the fundamentals of stock comp with our bootcamp webinar," guarantees Bruce, a respected expert on equity comp with over 20 years of experience in stock comp education, communications, and training. "We are very confident in the power of this educational event. If you don't feel you're in top stock comp shape after our webinar, as part of our bootcamp guarantee I will provide you with a private tutoring session myself."

All the essential topics below will be presented in just 100 minutes by Bruce Brumberg, the editor-in-chief and co-founder of myStockOptions.

• Stock options: 8 core features
• Exercise methods
• 4 key features of nonqualified stock options (NQSOs)
• NQSO taxation: 5 core rules
• 3 special features of incentive stock options (ISOs)
• ISO taxes: 5 key points
• ISOs compared to NQSOs and what’s better for your clients
• Stock options compared to restricted stock/RSUs: what’s better for your clients
• Restricted stock & RSUs: 7 key features
• 10 tax rules for restricted stock/RSUs
• How restricted stock & RSUs differ
• 6 features of employee stock purchase plans (ESPPs)
• 10 ESPP terms to know
• Types of ESPPs and their special benefits
• 5 tax rules for ESPPs
• Key decisions to make with restricted stock/RSUs, stock options, and ESPPs
• Difference between private and public company stock grants, including taxes
• Checklist of questions to ask clients with stock comp and info to gather

The webinar will offer 2.0 CE credit hours for:

• Certified Financial Planners (CFPs)
• Certified Equity Professionals (CEPs)
• CPWA and CIMA certifications from the Investments and Wealth Institute

Registration for this special webinar is now open.

No Conferences, No Problem: Online CE Courses Expanded At myStockOptions

While states are finally starting to reopen after the pandemic shutdowns, the return of traditional conferences, seminars, and chapter meetings for equity comp pros and financial advisors are still a long way off. If you need continuing education (CE) credits for your professional certifications, online courses and events are the way to go for the foreseeable future.

myStockOptions.com is there for you. We have expanded the valuable offerings in our Learning Center, which offers CE credits for:

• Certified Equity Professionals (CEPs)
• Certified Financial Planners (CFPs)
• Certified Private Wealth Advisors (CPWAs)
• Certified Investment Management Analysts (CIMAs)

A new course and exam on taxation and tax reporting for equity compensation builds on the previously established programs about financial planning, stock options, restricted stock/RSUs, employee stock purchase plans, and SEC law.

CEPs Can Get All Of Their CE Credits, CFPs Most Of Them

The programs in the myStockOptions Learning Center now offer:

• 35 continuing education credits for CEPs (over 100% of the total requirement)

• 18 continuing education credits for CFPs (60% of the total requirement)

• 18 continuing education credits for CPWAs and CIMAs (45% of the total requirement)

The Learning Center offers engaging online self-study programs that busy professionals can take at their convenience to obtain necessary CE credits. Each course features podcasts, articles, FAQs, and videos from myStockOptions.com. They are woven into a dynamic, interactive learning tool that teaches the topics in a memorable way. The answer key for each exam also links to relevant content on the site for further reading and learning.

The Learning Center now has seven separate online self-study courses and exams:

• Taxation & Tax Reporting: Course of Study and Exam

• Financial Planning with Stock Compensation: Course of Study and Exam

• Restricted Stock, RSUs, and Performance Shares: Course of Study and Exam

• Nonqualified Stock Options: Course of Study and Exam

• Employee Stock Purchase Plans: Course of Study and Exam

• Basics of SEC Law: Course of Study and Exam

• Incentive Stock Options: Course of Study and Exam (not available for CFP credit)

Our CE courses add a lot of value to the content at myStockOptions.com, which has a big following among financial advisors, stock comp professionals, and stock plan participants. The value of our CE courses as efficient educational tools has also led some major financial institutions to use our Learning Center for internal training and their in-house certification programs.

CPE For Certified Public Accountants (CPAs)

Many states have a process for CPAs to self-determine whether a program qualifies as acceptable continuing education. For example, Massachusetts, which does not have a registration requirement for CPE programs, allows CPAs to self-determine and self-report their continuing education activities. CPAs are encouraged to take our courses and exams and determine whether they comply with their states' rules for CPE credits. (myStockOptions.com is not registered with NASBA or any state boards of accountancy.)

CE For CFA Charterholders

Chartered Financial Analysts (CFAs) are encouraged to take our courses and exams and include them when they self-document their continuing professional development in the online CE tracker on the CFA Institute website.

More CE At myNQDC.com

A sibling website of myStockOptions.com, myNQDC.com is the leading online resource of educational content on nonqualified deferred compensation (NQDC) for both NQDC professionals and NQDC plan participants. The continuing education programs in the website's Learning Center focus on two areas of nonqualified deferred compensation: Basics & Taxes and Enrollment & Distribution. Each program offers a comprehensive course of educational content and a rigorous 30-question exam. To take the exam, professionals must certify that they have read the content. They can earn credits only by achieving a passing score in the exam.

The courses and exams at myNQDC.com offer:

• 6 Professional Achievement in Continuing Education (PACE) credit hours for Chartered Life Underwriters and for Chartered Financial Consultants

• 12 Continuing Professional Education (CPE) hours for credentialed members of The American Society of Pension Professionals & Actuaries
• 6 CE credits for CFPs

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Alert: If you haven't yet seen the popular Forbes blog of our editor-in-chief Bruce Brumberg, you can catch up at the link and see what we've been up to during the pandemic vacation.

Private Company Grants Of Stock Options & RSUs: IRS Guidance Provides Limited Support

Equity compensation in privately held companies is tricky for both employers and employees because the companies’ stock is not publicly traded and is therefore illiquid. Introduced by a complex provision of the Tax Cuts & Jobs Act (“tax reform”), which took effect this year, a new section of the tax code, Section 83(i), seeks to make equity comp more appealing to private companies. It lets them make grants of nonqualified stock options (NQSOs) or restricted stock units (RSUs) in which the recipient can defer income taxes for up to five years from NQSO exercise or RSU vesting as long as the grants meet certain conditions. These are called “qualified equity grants.”

However, the initial reaction by private companies to this new opportunity has been cautious and cool. Before plunging in, many have awaited clarification and guidance from the IRS on the many technical requirements and details of the new grant type. In Notice 2018-97, the IRS finally issued guidance for companies on qualified equity grants, with more to come, but it may do little to enhance the appeal of these grants for smaller startups.

The Tax Problem Congress Wanted To Solve But Only Made More Complicated

While stock options and restricted stock units are popular at startups and other pre-IPO companies, employees cannot sell stock at exercise or vesting, even to pay the taxes owed on the income. The IRS confirmed in regulations issued during 2014 that the tax measurement date (at exercise for options and at vesting for restricted stock) is not delayed by any lack of liquidity or securities law restrictions on resales of stock.

The fact that the tax treatment for stock grants at pre-IPO and large publicly traded companies is identical seems oddly unfair when you consider the vastly differing liquidity situations of private and public company employees. While private companies want to use equity grants to motivate, retain, and create employee-shareholders, they do not want to obligate their employees to pay taxes on shares they cannot sell. Seeking to ease this conundrum, Congress first considered the Empowering Employees Through Stock Ownership Act. That bill eventually transformed into part of the Tax Cuts & Jobs Act. To provide for qualified equity awards, it added Section 83(i) to the Internal Revenue Code.

Qualified Equity Grants: Outline Of New Tax Deferral

Instead of automatically delaying when taxation occurs after employees receive illiquid private company stock as compensation, Section 83(i) imposes elaborate rules on what types of grants qualify, what types of employees qualify for these grants, employee deferral elections, and procedures companies must follow. The table below summarizes some of the main features of the new Section 83(i).

Key Facts For Tax Deferral Of Private Company Stock Grants

Eligible types of stock compensation	NQSOs and RSUs
Tax deferred	Federal income tax
Deferral period	Five years, unless triggered earlier
Election required	83(i) election within 30 days of exercise or vesting
Company requirements	Numerous, including grants to 80% of employees

For more details on this tax code provision, see our related article: Private Company Stock Options And RSUs: 10 Facts To Know About The New Tax-Deferral Opportunity.

Three Topics IRS Guidance Addresses

In Notice 2018-97, the IRS clarifies and creates rules in three areas that are evidently the most pressing for companies.

1. Time requirement for the 80% rule. To make qualified equity grants, the company must issue grants to at least 80% of employees in a single calendar year. The law does not provide for a cumulative basis that considers grants from prior years. Apparently, the IRS felt it had to go with the statutory language.

Potential impact: This makes it more difficult for early-stage startups, as they primarily make new-hire grants, not annual grants that can more easily fit into a calendar year. For example, imagine a 10-employee startup in which everyone gets meaningful grants at hire. Next year, the company hires two more employees, who also get meaningful grants. Although 100% of employees have equity awards, the company made grants to only 20% in that year, and therefore those grants cannot be tax-qualified. Don’t blame the IRS for this outcome until Congress amends the law.

Big private companies, such as the Unicorns (e.g. Uber, Airbnb), along with other large late-stage pre-IPO companies that make broad-based grants, will find it easier to meet the 80% rule. Their grant practices have probably evolved to become more regular, with annual and bonus grants.

2. Tax withholding. Companies must set up a procedure to escrow the deferred shares employees receive at exercise with options or vesting with RSUs. They then use some of the shares to pay the withholding tax that is eventually due after five years or a liquidity event. Employees must agree to this arrangement at the time of their deferral election.

Potential impact: This new requirement, not stated in the new law, addresses company and IRS concerns about how the taxes will be paid. This becomes a big issue if no liquidity event occurs or when ex-employees cannot be located. The approach does add more costs, procedures, and communications to what companies are obligated to implement.

The requirement makes qualified equity grants more appealing to well-established private companies that are likely to go public or get acquired. They have the resources to set up this type of arrangement. Their employees also assume less risk and thus more potential benefit with the deferral, as they are acquiring stock that has demonstrated value and the potential for liquidity within the five-year deferral period.

3. An opt-out: Companies can designate grants that are ineligible for the employee deferral election. They do this by not setting up the share escrow arrangement or not following other conditions for qualified equity grants.

Potential impact: Companies were concerned that they could unintentionally meet the conditions allowing employees to make a deferral election, potentially causing the company to be penalized for not following the new law’s requirements for employee notices and communications. While the IRS guidance clarifies how companies can opt out of the provision, the pressing need for IRS guidance on how to opt out suggests companies are not eager to make these type of stock grants. Early-exercise stock options or vesting conditions that require an IPO or acquisition will probably remain more popular ways to specially structure stock grants at private companies.

For more information about the taxation of stock options and restricted stock/RSUs, see the Tax Center at myStockOptions.com. The website’s section on pre-IPO companies covers topics related to stock grants at private companies.

Pay For Performance: Do Performance Share Grants Really Rock It Out?

Performance share grants have become popular awards for senior executives that companies make to improve alignment of executive pay, company performance, and shareholder value. While the theory behind them is sound, there has never been total agreement about how effectively these grants actually achieve their objectives.

The question of whether performance shares really result in pay for performance is at the heart of evaluating the effectiveness of these awards and their design. While it is hard to guarantee that these grants, or any other grant types, will truly drive better executive actions and decisionmaking, companies at least want some correlation between higher payouts and higher corporate performance. We have considered this question in other commentaries at the myStockOptions.com Blog: Do Performance Shares Actually Perform? and As Performance Share Awards Gain Widespread Popularity, Some Question Whether They Truly Improve Corporate Performance.

Three Truths And A Lie: New Research On Performance Share Grants

In a white paper on performance awards (Performance Awards: 3 Truths And A Lie?), Fidelity Stock Plan Services and ClearBridge Compensation Group apply survey results in an attempt to assess the alignment between performance award payouts and company performance. The title of the paper plays off of the popular party icebreaker game called "2 truths and a lie." The "three truths" show some interesting correlations:

1. Payouts and company performance awards are directionally aligned, but not perfect. About two thirds of the awards line up with performance (i.e. the higher the company performance, the higher the pay, and vice versa), measured by either total shareholder return (TSR) or earnings per share (EPS). The pay-for-performance alignment was 68% for TSR and 62% for EPS. In addition, payouts at high-performing companies were more aligned with performance than those at low-performing ones were. The study notes that, given those results, these awards are not a "silver bullet" way to achieve pay for performance.

2. Metrics matter. Companies often use multiple metrics, which occur at 42% of the surveyed companies. TSR at 68% had the strongest relationship between payouts and performance, while revenue performance had the weakest (51%).

3. The LTI grant mix can be related to company performance results. 73% of the surveyed companies grant restricted stock or options along with performance shares. High-performing companies tend to include performance awards and/or stock options in the mix more often than low-performing companies do (92% versus 81%).

Stock Options Still Rock

The "lie" was a surprise to the researchers: the idea that stock options do not function as a "performance" grant is inaccurate. In fact, the study found the opposite. Options continue to be an "enduring choice," providing direct alignment with shareholder value creation, making them "worth another look," as the authors recommend.

Survey: Gap Between Equity Comp Aspiration And Action Shows Need For Employee Education And Financial Advice

Knowledge is power. Most importantly, it reduces the fear of the unknown. In the context of stock plans, this is illustrated in the results of an interesting recent national survey of 1,000 stock plan participants by Schwab Stock Plan Services. The survey found that while half understand the long-term value of their equity compensation, many are hesitant about exercising stock options or selling shares because of anxiety that they will make a costly mistake. The survey suggests that improved education and guidance would reduce this fear factor.

The survey revealed that 76% of the participants consider equity compensation to be part of their long-term financial plan. Over a third of the participants (36%) report that stock comp was one of the reasons why they took their current job. Most also said equity compensation helps to keep them at their company, a great example of stock comp's employee-retention value.

Below we present selected results of the survey, including a few graphs from the published survey results.

Most Participants Do Not Act On Equity Comp

Astoundingly, only 24% of the plan participants that Schwab surveyed have actually exercised employee stock options or sold shares acquired from equity comp. Among the rest, 34% admit to being worried about selling in adverse market conditions, and another 34% say they fear the tax consequences of making an uninformed or bad decision. Almost half (48%) are afraid of making a mistake when exercising or selling.

Personal Importance Of Stock Compensation

Many participants view equity compensation as part of their overall financial strategies. These include:

• getting needed cash (35%)
• making a big purchase (28%)
• planning for retirement (11%)

Most say their equity compensation helps them feel

• less stressed about finances (76%)
• more prepared for retirement (63%)

Boomers (84%) and GenXers (81%) tend to see equity compensation as a long-term deal; by contrast, 31% of Millennials expect to use their stock comp in the short term.

Financial Confidence Is A Major Issue

Nevertheless, only half of the respondents say they are confident in their ability to make the right decisions about their stock comp on their own. Among the majority who have never exercised options or sold shares, the following reasons for their inaction were prevalent:

Confidence levels vary among the major demographic groups:

• Millennials, 58%
• GenXers, 44%
• Boomers, 39%

More Stock Plan Education And Financial Advice Would Improve Equity Comp Outcomes

By revealing this gap between aspiration and action, Schwab's survey suggests that many stock plan participants would benefit both from better stock plan education, to reduce their fear of the unknown, and from seeking the assistance of financial advisors to help them navigate investment and tax details. About 80% of the respondents say they would be much more confident about their stock comp with the help of a financial advisor.

Many participants said they would like advice on:

• tax consequences (50%)
• retirement planning (44%)
• the right timing for exercise/sale decisions (35%)

Stock Plan Education Resources

At myStockOptions.com, our extensive and engaging educational content on all aspects of equity compensation is licensed by stock plan providers and companies for their plan participants. The content includes not just easy-to-understand articles and FAQs but also videos, podcasts, modeling tools, and fun quizzes on many different topics (for example, try your hand at our quiz on RSUs). When they are ready, participants can seek an advisor with equity comp experience in our AdvisorFind directory.

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Register For Our Financial-Planning Conference

We are preparing to hold our first-ever conference, a one-day event: Financial Planning for Public Company Executives & Directors (Monday, June 18, 2018). Taking place in the Boston area, this is a must-attend national conference for financial, tax, and legal advisors working with or wanting to counsel executives, directors, and high-net-worth employees. We have a wonderful group of expert speakers and a comprehensive agenda of sessions on various stock-related and financial-planning topics:

• trends of importance to advisors
• tax, estate, and SEC-related planning challenges
• methods for attracting and advising high-net-worth clients
• case studies and other examples of successful planning strategies

Continuing education offerings, including CFP® CE credits, will be available. Register at the conference website or contact us for more information (617-734-1979, editors@mystockoptions.com).

Back To School: Convenient Equity Comp CE For Financial Advisors & Stock Plan Professionals

We bear good news for those of you who need continuing education (CE) credits but don't have time to attend costly live CE programs. At myStockOptions, the editorial team has expanded the offerings for continuing professional education in our Learning Center. In addition to continuing education credits for Certified Financial Planners (CFPs) and Certified Equity Professionals (CEPs), the Learning Center now also offers CE credits for Certified Private Wealth Advisors (CPWAs) and Certified Investment Management Analysts (CIMAs), whose certifications are designated by the Investment Management Consultants Association (IMCA).

The programs in the myStockOptions Learning Center now offer:

• 30 continuing education credits for CEPs (100% of the total requirement)
• 15 continuing education credits for CFPs (50% of the total requirement)
• 15 continuing education credits for CPWAs and CIMAs (37.5% of the total requirement)

The continuing education programs in the Learning Center consist of six separate online self-study courses and exams:

• Nonqualified Stock Options 
• Restricted Stock, RSUs, and Performance Shares
• Employee Stock Purchase Plans 
• Basics of SEC Law
• Financial Planning with Stock Compensation
• Incentive Stock Options (not available for CFP credit)

These are engaging online self-study programs that busy professionals can take at their convenience to obtain necessary CE credits. Each course features podcasts, articles, FAQs, and videos from myStockOptions. They are woven into a dynamic, interactive learning tool that teaches the topics in a memorable way. The answer key for each exam also links to relevant content on the site for further reading and learning.

More CE At myNQDC.com

A sibling website of myStockOptions.com, myNQDC.com is the leading online resource of educational content on nonqualified deferred compensation (NQDC) for both NQDC professionals and NQDC plan participants. The continuing education programs in the website's Learning Center focus on two areas of nonqualified deferred compensation: Basics & Taxes and Enrollment & Distribution. Each program offers a comprehensive course of educational content and a rigorous 30-question exam. The courses and exams at myNQDC.com offer:

• 6 Professional Achievement in Continuing Education (PACE) credit hours for Chartered Life Underwriters and for Chartered Financial Consultants
• 12 Continuing Professional Education (CPE) hours for credentialed members of The American Society of Pension Professionals & Actuaries
• 6 CE credits for CFPs

CE Offerings: A Great Idea For Corporate Training And Employee Certification

The value of our CE courses as efficient educational tools has also led some major financial institutions to use our Learning Center for internal training and their in-house certification programs. To find out how our Learning Center can help your company, contact us at 617-734-1979 or editors@mystockoptions.com.

T+2 Is Here: What It Means For Stock Compensation

A big shift in the rules for stock transactions quietly began earlier this month. With effect from September 5, 2017, the settlement period for securities trades was shortened from three to two business days after the date of the transaction. This interval is expressed in the notation T+2, in alignment with the notation used to indicate the previous three-day settlement period (T+3).

T+2 is an important concept for any stock plan transactions that involve open-market sales, such as same-day sales and sell-to-covers. For example, in a cashless exercise of stock options or in a stock sale at restricted stock/RSU vesting or after ESPP purchase, the cash will now show up in your brokerage account sooner, within two days after the execution date. Additionally, to settle by T+2, the broker must, sooner than previously, receive the shares and know the funds to send the company to cover the exercise cost and/or the tax withholding. Companies may also now need to give withheld taxes to the IRS sooner after NQSO exercise and restricted stock vesting.

Details of the change to the T+2 settlement cycle are available at a website operated by US financial-services industry. The main reason for the move to a shorter period was to reduce risk in the securities-settlement process. A blog commentary from the NASPP provides background on the change, details about it, and what T+2 means for companies, stock plan brokers, and employees.

Survey Reveals An Intricate Mix Of Restricted Stock, Performance Shares, And Stock Options In LTI Vehicles

If you're as into stock plans and equity comp as we are, you're probably also really into survey data and statistics. That makes this blog entry a good one for both of us.

While the rise of restricted stock/RSUs and performance shares, along with the relative decline of stock options, has been well documented for many years, it is always interesting to get a nuanced picture of how all three grant types are used in tandem now. As we predicted a while ago, stock options have not disappeared but are often being granted to supplement full-value awards such as restricted stock and performance shares, especially in long-term incentives (LTIs) designed for executives.

That's where the following new survey comes in. For its study 2017 Trends And Developments In Executive Compensation, the research and consulting firm Meridian Compensation Partners surveyed 118 companies to uncover the current usage of equity comp in LTI vehicles for executives. Meridian found that for their senior executives, 90% of the surveyed companies use two or three types of long-term grants (though for grants to employees at lower levels, the use of just one type is more common).

Meridian discovered the following about the prevalence and weight of restricted stock, performance shares, and stock options in LTI vehicles for executives.

Type of award	% of companies	Performance awards (dollar weight in total LTI value)	Stock options (dollar weight in total LTI value)	Restricted stock (dollar weight in total LTI value)
Performance awards, stock options, and restricted stock	22%	44%	27%	29%
Performance awards and restricted stock	55%	58%	—	42%
Performance awards and stock options	11%	51%	49%	—
Stock options and restricted stock	2%	—	28%	72%
Performance awards only	8%	100%	—	—
Restricted stock only	0%	—	—	100%
Stock options only	2%	—	100%	—
Overall (averages) in 2017	100%	56%	13%	31%
Overall (averages) in 2016	100%	55%	16%	29%

An FAQ on myStockOptions.com presents numerous other surveys which show that many companies use a variety of grants in tandem, including restricted stock/RSUs and performance shares.

New Podcast Interviews With Equity Comp Experts Expand Innovative Multimedia Offerings Of myStockOptions

If you're like us, your eyes probably feel the strain of reading a lot—whether you've been working, catching up on news, enjoying the latest dystopian YA thriller, or reading blogs (sorry). Enter the podcast, civilization's answer to the eye-strain headache for busy people who need to stay informed. It is sometimes, frankly, a big relief to put down written work and absorb information through the ear rather than the eye.

At myStockOptions.com, we have an extensive range of podcasts on many topics in equity compensation for users of our website who want more than just written content. In addition to informative podcasts on the basics of equity comp, we also have engaging audio interviews with some of our expert contributing authors. Recently we published several insightful new interviews with experts. Along with their companion articles, these engaging interviews cover a diverse range of important topics, some of which are seldom covered by companies' stock plan education materials. They include the following:

 Stockbrokers' Secrets: Retirement Planning With Stock Compensation. CFP John Barringer discusses planning approaches to stock compensation that can help you build a financially secure nest egg for retirement. This audio recording is a companion to Mr. Barringer's popular article series Stockbrokers' Secrets: Retirement Planning With Stock Compensation.

 Stock Option Terms: What You Can Expect. Get a sense of what you should, and should not, expect in the terms of your stock option grant. In this interview, compensation expert Richard Friedman (Ayco Company) discusses trends in vesting schedules, post-termination exercise rules, and other plan features. The interview is a companion to Mr. Friedman's article on this topic, which includes findings from Ayco's extensive survey of features in stock option plans.

 Employment Issues With Stock Compensation And Key Stock Plan Documents To Understand. Attorney Alisa Baker discusses employment, negotiation, and job-termination issues with equity compensation, the related stock plan documents you must understand, and common mistakes to avoid. This audio recording is a companion to Ms. Baker's article series Negotiating And Structuring Your Stock Compensation.

 When To Wait, Hold, Or Sell: A Wealth Manager Reveals His Wisdom On Stock Option Exercise Strategy. When stock options or restricted stock/RSUs vest, you need a strategy to make the most of their wealth-building potential. In this interview, wealth manager Tim Kochis explains that no single strategy for timing option exercises or restricted stock/RSU sales fits everyone, and he discusses his approach to this idiosyncratic type of planning. The interview is a companion to Mr. Kochis's article series on this topic.

 Restricted Stock Units After An Acquisition: Know What Could Happen. When a company is merging or being acquired, its employees wonder what will happen to their unvested RSUs. In this interview, wealth advisor Kristin McFarland explains the potential outcomes for holders of unvested RSUs and current equity holders in an M&A deal. The interview is a companion to Ms. McFarland's article on this topic.

 Compliance Concerns That Executives Must Understand To Prevent SEC, IRS, And Corporate Problems. An often underestimated danger companies face is the risk that an executive or employee may violate corporate, tax, or securities laws. In this interview, compensation expert Richard Friedman (Ayco Company) outlines practices for executives to help them avoid compliance problems, and explains the possible penalties of noncompliance. The interview is a companion to Mr. Friedman's article series on this topic.

 Living And Working In Multiple States: Challenges For Mobile Employees In The USA. Moving between US states, whether to relocate permanently or simply to travel for business, can involve tax complications for people who have stock compensation. In this interview, Deloitte consultant David Johnson presents the issues that you may encounter when you leave your home office and cross a state line. This audio recording is a companion to Mr. Johnson's article (co-written with Mark Miller) on the same topic elsewhere on this website.

 LLCs And Equity Incentive Plans. Attorney Daniel Janich discusses the types of equity plans that are available to limited liability companies (LLCs), the considerations involved in establishing an equity comp program at an LLC, and the related tax treatment. This interview is a companion to Mr. Janich's two-part article series LLCs And Equity Incentive Plans, elsewhere on this website.

All of our podcasts are available on the website, at iTunes, and at Google Play Music.

Podcasts Among A Range Of Multimedia Educational Offerings At myStockOptions

Companies are always seeking new ways to deliver stock plan education for employees who may not have the time or the inclination to read articles and FAQs on important equity comp topics. myStockOptions.com can help with its innovative podcasts, videos, and interactive quizzes on all aspects of equity compensation. These multimedia offerings complement the articles, FAQs, tax guides, glossary, self-study courses, and other resources that form the core of the website's award-winning content, alongside its dynamic tools and calculators.

Corporate Licensing

All the content on myStockOptions.com is ideally suited for licensing by companies and stock plan providers for their stock plan participants. A customized version of the website's award-winning content can be seamlessly woven into companies' HR, benefits, and/or compensation portals. Accessible through any internet browser, 24 hours a day, 7 days a week, licensed content from myStockOptions.com lets stock plan participants answer their own questions about their stock grants whenever they need to learn more—saving time for the stock plan staff and costs for the company. (For information, please email sales@mystockoptions.com or call 617-734-1979.)

10 Ways Stock Compensation Can Make You Happier

From being solely a subject for philosophers and poets, the pursuit of happiness has become a pragmatic, widely acknowledged arena of interest for companies and their employees. Stock compensation, if fully appreciated and understood, can improve happiness. Excerpted from an article by Bruce Brumberg, the editor-in-chief of myStockOptions.com, the 10 points summarized below show how. You can also read his full article at our website.

1. Wealth creation. When your company's stock price increases—whether you have grants of stock options or restricted stock/RSUs, participate in an ESPP, or own company stock—your wealth increases, perhaps substantially. Remember that what really matters for your financial wellness (and overall happiness) is what you do with that wealth and how you fit it into your funding of personal financial goals.

2. A sense of anticipation. Wealth accumulated from your company's stock plan can bring satisfaction and financial security. Moreover, research has found that anticipating the benefits of these gains can be equally (if not more) enjoyable.

3. A feeling of being special. If you equity awards, you're typically receiving a benefit many employees do not get. Mindfully feeling grateful, appreciative, and enthusiastic about something that's special is another way to further your own happiness.

4. ESPP participation and discount. Most employee stock purchase plans (ESPPs) are a good deal. They offer a discounted purchase price, and some use a lookback to calculate it. Everyone loves a discount; getting one from your company should help to make you happy.

5. Control over when you receive income and pay taxes. You have the opportunity to avoid immediately triggering ordinary income and taxes when you receive a grant of stock options or stock appreciation rights or when you enroll in an ESPP. From our experiences with stock plan participants on myStockOptions.com and the popularity of our Tax Center, it seems that no matter how wealthy people are, they always want to reduce or defer taxes.

6. Donations and gifts of company stock. Studies have shown that charitable people tend to be relatively happy overall. Donations of appreciated company stock you have held long-term can support organizations and causes that you believe in.

7. Being an owner in your company. When you receive a stock grant or acquire company stock, you gain an ownership interest in your company. Ownership often brings more control over your work life and perhaps even some input into your company's decisions, making you happier at what you do for a living.

8. New friends. Bonding with other people is a source of happiness. Stock compensation can be a tie that strengthens your relationships with colleagues: talking with co-workers about ways to handle grants and taxes, or how you'll use gains from equity awards or ESPP participation.

9. Feelings of financial security. Even if your 401(k) plan is well funded and you are expecting meaningful Social Security benefits, you will probably face a gap between the cash these sources can generate and your spending needs and wishes in retirement. Income from stock compensation and company stock holdings can help you plug that gap.

10. Mindfulness and meaningfulness. When your honest, ethical, hard work elevates your company's stock price, equity compensation rewards you. That can heighten your feelings of engagement, optimism, and happiness by providing additional meaningfulness to your job. In doing so, it gives you the right mindset for professional and personal success.

Surveys Reveal Trends In Stock Compensation, ESPPs, And Participant Behavior

At myStockOptions.com, we love stock plan surveys. They provide instructive views both on the way companies grant equity compensation and on the way plan participants use their awards and the shares acquired from them. We often come across surveys on a range of topics involving stock compensation, ESPPs, and company stock holdings that are of interest to companies, individuals, and advisors. Below we discuss a few we have seen over the past few months.

2016 NASPP Survey On Stock Plan Design

Conducted every two years, the Domestic Stock Plan Design Survey is the flagship survey of the National Association of Stock Plan Professionals (NASPP), which produces it with co-sponsor Deloitte Consulting LLP. The 2016 survey contains a wealth of data from more than 400 companies on stock plan design/granting practices, restricted stock/RSUs, performance share/units, and stock options/SARs. The NASPP's blog summarized key findings of the survey:

• Use of full-value awards continues to increase. The percentage of the surveyed companies making time-based restricted stock/RSU grants increased to 89% in 2016 (up from 81% in 2013). Grants are most commonly in the form of restricted stock units.
• Use of stock options continues to decline. At all employee levels, stock options are granted by 51% of the survey respondents (down from 54% in 2013). Only 18% of them granting incentive stock options.
• Performance awards are for executives. In 2016, 80% of the surveyed companies granted performance awards to CEOs and NEOs (up from 70% in 2013). The percentage of companies making performance grants to other senior management grew to 69% (up from 58% in 2013).
• TSR is the top metric for performance grants. In 2016, 52% of the surveyed companies that grant performance awards used TSR as a performance metric (up from 43% in 2013). Nearly all (92%) use relative performance. Most (81%) pay out even if TSR is negative as long as the company outperformed its peers, and some cap the payout (69%).
• Dividend payments increase. More than three quarters (78%) of the surveyed companies pay dividends with RSUs, up from 61% in 2007. Companies commonly pay dividends when the underlying award vests.
• Payouts to retirees. Some type of accelerated or continued vesting upon an employee's retirement is common: 60% of companies making stock grants/awards; 68% of companies granting performance awards; and 60% of survey respondents that grant stock options.

For a roundup of stock plan design surveys from various sources, see the related FAQ on myStockOptions.com.

Employee Stock Purchase Plans

We are big fans of employee stock purchase plans and the role that ESPPs can play in the financial well-being of employees. In fact, with all of our content on ESPPs, myStockOptions.com could just as well be called myESPP.com. A recent survey of more than 2,000 ESPP participants by Fidelity Investments shows how those employees actually used funds from ESPP stock sales to improve their financial wellness:

• payment of bills and debt (34% of the respondents)
• emergency funds (11%)
• home improvements (10%)
• reinvestments in stocks or mutual funds (10%)
• reinvestments in retirement-savings accounts (9%)
• purchase of a new or second home (7%)
• college expenses or student loans (5%)

Rule 10b5-1 Trading Plans

In the Nov. 11 issue of its newsletter Compensation & Benefits Digest, the Ayco Company discusses insider-trading law and Rule 10b5-1 trading plans that can be set up to prevent accidental insider trading. Ayco reports that among the 2,000 Section 16 insiders, including nearly 350 CEOs, for whom it provides financial-planning services, about 24% of the CEOs and 21% of other insiders (including directors) have had 10b5-1 plans during the past two years. For more on Rule 10b5-1 trading plans, including best practices, see the related FAQs and articles at myStockOptions.com.

Director Stock Compensation

For its 2016 Director Compensation Report, the consulting firm Frederic W. Cook & Co. surveyed 300 public companies in the financial services, industrial, retail, technology, and energy sectors. The firm's key findings include the following:

• Among all of the surveyed companies, on average more than half (57%) of total director compensation is paid in the form of equity awards. In general, the larger the company, the greater the percentage of stock compensation for directors.
• Most of the surveyed companies (more than 80%) grant only restricted stock/RSUs to directors (no stock options).

For more on the issues raised by director stock compensation, and for other survey data, see the related FAQ at myStockOptions.com.

Lawsuits And Court Cases Of Interest That Involve Stock Compensation

Here at myStockOptions.com, we keep an eye on major court cases and rulings that involve stock compensation or stock holdings, as these developments can influence both stock plans and the actions of stock plan participants. A few recent lawsuits and court decisions have drawn our interest.

Class-Action Lawsuit Claims Uber Made Unfair Changes In Stock Grants

Uber is facing a lawsuit related to changes it made in its stock grants, according to the complaint in a class action recently filed against the company. The acquisition centers around the technical ISO rule that only grants with an aggregate value of $100,000 can be exercisable in any one calendar year. Any grants that vest in a year with a value over that automatically become NQSOs, and income, Social Security, and Medicare taxes are withheld at exercise. According to the complaint, Uber recruited software engineers with whom it had employment agreements to grant ISOs with a vesting schedule of 25% after the first 12 months and then monthly vesting thereafter (see Exhibit 1). However, the company changed the provision to allow all of the shares to become exercisable after six months, forcing some ISOs to become NQSOs (see Exhibit 2). This situation raises the issue of whether "exercisable" means "vested" in the related tax-code provision, which was adopted before a distinction between exercisability and vesting existed in certain pre-IPO stock options with early-exercise provisions.

Various news publications picked up on this lawsuit, including TechCrunch and Courthouse News Service. TechCrunch reports a statement issued by Uber, which explains that the company gives employees a "real stake" in its success and that it is "proud to offer equity compensation in service of that goal."

State Supreme Court Confirms Nonresidents Cannot Escape Taxation On Options Earned In The State

You cannot escape state taxation of vested stock options by moving to a state without an income tax. In Allen v. Commissioner of Revenue Services, the Connecticut Supreme Court confirmed that Connecticut can tax income from option exercises by a nonresident if the options were granted as compensation for performing services within the state. Connecticut, like many states, has a provision that authorizes the taxation of income "derived from or connected with sources within this state of each nonresident." The court rejected the plaintiff's creative positions, including the argument that it is "unconstitutional" to impose a tax on income derived from the exercise of nonqualified stock options by someone who at exercise is a nonresident. For more about this case, see an article about it at the website of Forbes. The taxation of mobile employees in the US and in other countries shows the eagerness of governments to find tax revenue in stock compensation.

Supreme Court Issues A Major Decision On Insider Trading

Everyone working for or advising a public company needs to know the insider-trading rules. Even if you unintentionally violate the laws of insider trading, you can face a serious punishment. (For details, see the FAQs on insider trading at myStockOptions.com and the Think Twice video series for insider-trading prevention.) It is not hard to imagine a situation in which you casually tell a relative or a friend about upcoming important company news, and that this person then uses that information to make a stock-trading profit. Although the tipoff would probably be a violation of your company's confidentially rules, you might not have miscreant intentions or expect anything in return from the tipped-off person, and therefore might (wrongly) not view this act as insider trading.

The US Supreme Court has issued a major decision on insider trading that involves just that type of situation. In its ruling on Salman v. United States, the Supreme Court makes it very clear that whenever a friend or relative is tipped, insider trading has occurred, regardless of whether the tipster receives a benefit. Prosecutors do not need to show something of value was received for providing the valuable information. In the court's view, "the tipper personally benefits because giving a gift of trading information to a trading relative is the same thing as trading by the tipper followed by a gift of the proceeds." The tipper does not need to receive something of a "pecuniary or similarly valuable nature" in exchange for this gift to a trading relative.

The ruling is seen as a victory for the US government, as it strengthens the position of federal prosecutors and their will to bring insider-trading cases. The case prompted several commentaries, including articles from the law firms Morgan Lewis & Bockius and Goodwin Procter and an analysis in the blog of the Supreme Court itself.

Stock Compensation And The Secretary Of State Nominee

President-Elect Trump has nominated many company executives, directors, and founders for cabinet positions. Not surprisingly, they have substantial experience with equity compensation and its wealth-building potential. As we mentioned in a blog commentary soon after the election, Trump himself has received stock options grants in the past, though they eventually became worthless.

Stock compensation has emerged most prominently in the news in relation to Rex Tillerson, Trump's nominee for Secretary of State. Tillerson is a 40-year employee at ExxonMobil and is its outgoing CEO. His substantial holdings of company stock and unvested stock grants have raised many issues for the company and for him, as discussed by a recent article in Fortune magazine. This is the type of situation that requires a company to tread carefully while balancing its stock compensation philosophy and its commitment to reward a successful executive. In addition, the company must consider the executive's need to avoid conflicts of interest and his or her desire to minimize taxes.

Special Feature Of ExxonMobil Stock Grants

Incentive compensation awards for senior executives at ExxonMobil are not paid out until 10 years after retirement and cannot be accelerated for any reason except death, a rare requirement that strongly encourages (or even forces) long-term alignment between shareholders and executives. (For more on stock retention guidelines, see the related FAQ at myStockOptions.com.) There is a tax-code provision, IRC Section 1043, that allows political appointees to sell stock and defer capital gains taxes on investments that they need to divest, assuming the money is reinvested within 60 days into diversified mutual funds or government securities. (For more details on that provision, see an article about it by three accounting professors in the publication Tax Notes.) However, for Tillerson, that would merely defer gains on company shares he owns, not the income from his unvested RSUs.

Grants Surrendered While Trust Created

According to the related 8-K filing by ExxonMobil, Tillerson will surrender about 2,026,000 restricted stock and RSUs. In exchange for the surrender and the cancellation of these grants, the company will make a cash payment into an irrevocable ethics-compliance trust equal to the value of the company stock under a market-based formula, discounted by about $3 million under guidance from federal ethics authorities. The trust will receive around $180 million. The payout under the trust follows the terms that would apply to the unvested grants if he were still at the company, while also adhering to conflict-of-interest requirements. For example, distributions to Tillerson will happen only in a way that is consistent with the 10-year payment schedule that would apply if he were keeping the stock grant. The trust also has an interesting type of clawback provision that will be triggered if Tillerson ever again works in the oil and gas industry while there are still undistributed funds in the trust. Any remaining funds in the trust would then be forfeited, and "the money would be distributed to one or more charities involved in fighting poverty or disease in the developing world" (see Section 2g of the cancellation and exchange agreement).

Tillerson will also give up $3.9 million in an unpaid deferred cash bonus, and he will divest his ExxonMobil shares within 90 days of his confirmation. For additional details on the arrangement for his stock and executive compensation and his company stock holdings, see the letter that Tillerson sent to the Office of the Legal Advisor for the Department of State on various ethics undertakings.

Stock Plan Education: Survey Shows Where Employees Need The Most Help

If corporate stock plan education were a student, it would be getting a B-plus—not bad, but can do better. This is our takeaway from the data in Securities' 2016 E*TRADE Corporate Services Annual Participant Survey, which obtained responses from more than 43,000 people with equity compensation who use the firm as a broker. (Please note that the survey results below are solely owned by E*TRADE Financial Corporation and may not be reproduced or distributed in whole or in part without the written consent of E*TRADE, which is not affiliated with myStockOptions.com. E*TRADE Corporate Services provides equity compensation management solutions, including participant services from E*TRADE Securities.)

Mixed Report Card

In brief, the findings of E*TRADE's survey indicate the following:

• Most stock plan participants like their equity compensation and say it enhances their commitment to their companies.
• About 40% of the respondents say that stock comp would be a factor in deciding whether to stay in their current job or take a job with a different company.
• The survey responses make it clear that participants need well-rounded general financial education, not just communications about the specifics of their grants. Respondents indicated a desire to learn more about basic financial planning, investing, and the role of their equity comp in their overall financial planning.
• Many employees are eager to know more about how to make the most of their stock comp, when to take action (e.g. exercise options or sell shares), and the related tax impact. The survey suggests that ESPP participants need the most hand-holding in those areas.
• The most popular uses of stock compensation are (1) acquiring company shares for long-term holding and (2) paying big expenses.
• It appears that few participants sell shares and then re-invest proceeds in other securities.
• A growing number of the employees apparently perceive stock compensation as simply "extra pay, like a bonus."

Survey Data Shows Areas For Improving Stock Plan Education

The majority of stock plan participants surveyed by E*TRADE (75%) participate in an employee stock purchase plan. More than half (57%) have restricted stock or RSUs. Despite general decreases in the use of stock options, 42% of E*TRADE's survey respondents continue to have option grants.

According to the survey, a whopping 80% of plan participants do not fully understand at least one concept or feature of their stock compensation. The survey data that we present in the table below indicates that maximizing financial benefits and understanding tax impacts are the areas where plan participants need the most educational guidance.

Plan concept or feature	Stock plan participants who understand this "quite well" or "extremely well"
How to access account	74%
How vesting schedules work	62%
How the stock plan works	58%
How to find information about the stock plan	49%
How to decide when to take action	43%
How to make the most of stock compensation	34%
Tax implications	33%

The survey found that email and video are the most popular media for receiving stock plan education and communications, followed closely by written materials that can be downloaded from the company's intranet.

Stock Plan Education Is A Core Company Activity

While stock plan professionals have made huge strides during recent years, stock plan education can always be better—both to help plan participants and to maximize the value of plans for companies, which are depending on them to attract, keep, and motivate valuable employees. The more participants know about their stock compensation, the more likely they are to appreciate it, avoid mistakes, benefit from it, and be loyal to the company. This puts stock plans in a crucial position for corporate vitality and value creation.

The independent, unbiased educational resources of myStockOptions.com can help with stock plan education, including tax impacts and financial planning. Our content is available for licensing by companies to help plan participants learn more about their equity comp. These resources include a growing number of videos and podcasts to complement our articles, FAQs, interactive quizzes, tax guides, glossary, and tools.

Survey Finds That Financial Planning Improves Participant Perceptions Of Equity Awards

A couple of years ago, UBS started a research project called UBS Participant Voice, a series of surveys seeking to canvas the attitudes of stock plan participants toward their equity awards (see our blog commentary on the first survey). The latest survey in the series, which obtained responses from more than 1,000 stock plan participants across a variety of industries, delivers some interesting insights into the value employees both perceive and actually get from equity awards. These insights may be useful both to equity-granting companies and to financial advisors who have clients with stock compensation.

The research starts with a formula, called the UBS Equity Award Value Index, that UBS has engineered to assess employee perceptions of equity awards. The factors going into the index score, which runs from 1 to 100, include the following:

• the plan participant's view of stock compensation (wealth-builder, paycheck-booster, lottery ticket?)
• the importance the participant places on taking his or her job
• the importance of keeping that job
• the importance of accumulating savings or wealth
• the extent to which equity comp is included in a long-term financial plan

UBS finds that only 9% of its survey respondents place a "high value" on their equity awards (defined as the group scoring between 81 and 100). Just under 50% view their grants as having "considerable" or "moderate" value (a score between 41 and 80). Surprisingly, a whopping 45% of the survey respondents said that they feel their grants have "minimal value" (14%) or "no value" whatsoever (31%).

Clearly, there is much work to be done to raise the perceived value of equity awards among stock plan participants (one of the reasons we started myStockOptions.com 16 years ago). Perceived value matters because, as UBS points out, "each year companies grant more than $110 billion in equity awards, clearly a sizeable expense."

How To Increase Perceived Value

According to the survey findings by UBS, one way to improve employees' perceptions of equity awards may be to encourage practical financial planning with grants. In short, UBS finds that stock plan participants are more likely to perceive high value in their equity awards when they take three steps:

• include the grants in their financial planning
• seek professional financial advice about the grants
• diversify their stock holdings

Returning to the UBS Equity Award Value Index, the survey reports that the average score of participants who take none of these steps is only 27 ("minimal value"). Meanwhile, respondents who have taken all three steps have an average score of 55 ("moderate value" in the perception scale), i.e. twice the average of the others. Moreover, almost 80% of those who have taken the three planning steps agreed with the statement "I feel highly confident in achieving my financial goals," but only 36% of the nonplanners did.

In other words, there seems to be a correlation between basic financial planning and perception of grant value. According to UBS, employees view their equity awards more favorably and become financially more confident when they include equity awards in financial planning. By extension, this also implies that stock plan education should include guidance on financial planning for equity awards and how to fit grants into preparations for important life events and goals (e.g. college funding or retirement), as myStockOptions.com does in its sections Financial Planning and Life Events.

Diversification: Proactive Participants View Grants More Favorably

Some of the other findings of interest in the UBS survey involve diversification. Throughout the surveyed employees, the portion of company stock among investable assets averages about 20%. Just over half of the employees have holdings of their companies' stock in excess of the amount they would consider to be the limit of a comfortable level. UBS reports that when employees proactively diversify to avoid overconcentration in the stock of their employer, they tend to value their equity awards more than do employees who diversify for more reactive reasons, such as concerns about the company's stock price. Once again, it seems that there is a correlation between proactive financial planning and favorable perceptions of grant value.