Selecting Your Equity Compensation Management Solution. A Buyer s Guide

Transcription

1 Selecting Your Equity Compensation Management Solution A Buyer s Guide 2015 Certent All Rights Reserved Selecting Your Equity Compensation Management Solution

2 Introduction Before you select an equity compensation management solution, consult your crystal ball, so that whatever solution you choose addresses today s realities and tomorrow s possibilities. Without a doubt, what you need to support today will change in the future. What award types will consultants and comp committees recommend next? Between regulatory mandates like IFRS2, continued scrutiny over executive pay, pay-for-performance sentiments and underwater options, companies need to rely on their equity compensation management systems to do more. So what should you look for before you buy or switch solutions? 1) Flexibility 2) Accounting Rigor 3) Responsiveness to Evolving Regulatory, Market and Customer Needs 4) Efficiency and Productivity Enablers 5) Robust Reporting 6) Payroll/HRIS Interface 7) Ease of Going Public 8) Add-on Functionality 9) Maintenance and Technical Requirements 10) Support to Make Switching Easy 11) User Interface and Employee Portal 2015 Certent All Rights Reserved Selecting Your Equity Compensation Management Solution 1

3 Flexibility The system you choose needs to give you flexibility to set parameters that are meaningful to your business. From selecting an unlimited number of tax jurisdictions using limits, flat rates or percentages, to simply assigning secure access to people by role, you need a system that lets you choose. Today s special circumstances require a flexible system, without which you will be doomed to workarounds. What if you want to define fair market values for different purposes for all award types and apply the correct market price on days when the market was closed? Will the system you choose let you? Choice of broker is another essential aspect of flexibility. If you don t want to be locked in to a package deal, then look beyond the captive broker solutions and work with a company that doesn t dictate your broker. Some equity compensation management solution providers offer direct-to-market trading. Some also let you take advantage of a direct interface to one of several brokers, so you can choose the broker and let participants use their portal for stock transactions. These options give you the greatest amount of broker choice. Accounting Rigor There can be more than one right way to handle expensing and tax treatment for so many variable scenarios. Your system needs to provide a clear audit trail and get the accounting right. Given the focus on tax reciprocity and the mobile nature of today s workforce, you need a solution that has the ability to tie tax to an event, not an individual. The system needs to keep a date-stamped history of any movement an employee makes to properly calculate taxes. You may want to check with your auditors to see if they have issues with any of the solutions you are considering. Fundamentally, you are buying the level of expertise of your vendor. Check to see who is behind product development and review their credentials. How many people at the company have CEP and other professional designations? Are there CEPs in customer support and engineering? The impact of knowing the right way to handle the accounting and administration cannot be underestimated Certent All Rights Reserved Selecting Your Equity Compensation Management Solution 2

4 Responsiveness to Evolving Regulatory, Market and Customer Needs The SEC, IRS and Financial Accounting Standards Board have the power to dictate changes that impact equity compensation management. The need to convert to IFRS2 is just one example. Changes in executive compensation reporting requirements and pay-for-performance mandates further underscore the need to choose a solution from a company committed to leading-edge functionality. Does the system you are considering support performance awards? What kind of performance models are supported today and what do they plan to add? It s easy for a supplier to check the box and say they support performance awards, but that may not mean they can properly handle the required accounting for the type of awards you offer today or might design in the future. Far too many companies have had to resort to complex workarounds to support the pay-for-performance programs that their compensation consultants design. Ultimately, you want to select a product with an agile architecture that enables rapid additions and changes. Software-as-a solutions are the easiest to update, because you don t have to rely on your inhouse IT resources to make time for a software upgrade. Typically, these products are on a development cycle where new functionality is delivered multiple times a year instead of just once. Efficiency and Productivity Enablers Ask your potential supplier if their platform enables effective collaboration. Can your colleagues in HR, payroll, tax, legal and finance access a shared data source that is service always current? Find out what kind of notification engine exists to flag actions, whether related to processing grants or filing Section 16 insider documentation. As equity compensation management becomes increasingly complex, you will want to rely more heavily on your system for tracking, sequencing and reminders to reduce the potential for human error. Most importantly, you want to be sure that the system you choose supports online grant delivery and acceptance in a way that is compliant with SEC regulations involving the offer to sell securities. Get a demo of this functionality, so you can see exactly what you are buying Certent All Rights Reserved Selecting Your Equity Compensation Management Solution 3

5 Robust Reporting To assess reporting capabilities, you want to examine four areas: speed, customization, quantity and processing. Find out how long it typically takes to run standard reports. With some products on the market today, it can literally take hours. Determine whether there is an ad hoc reporting capability, and if so, what skills or tools you need to generate user-defined reports. Compare the number of standard reports. Typically, the more the better, so you can avoid exporting data to spreadsheets. Last, ask about the ability to run batch reports overnight, so that you don t tie up the system during the day and can arrive in the morning with the data you need ready for review. Some systems also let you schedule when you want reports to run, providing the added convenience of getting exactly what you need, when you need it. Every solution has some type of standardized reporting functionality. You ll want to assess how comprehensive the reports are, especially given increasingly stringent requirements in areas such as proxy reporting. The goal is to find the reporting package that will serve up the answers you need and save you time. Ideally, the system will be able to auto-generate reports on a scheduled basis for a more efficient close. Payroll/HRIS Interface An automated two-way interface that moves data into and out of the equity compensation management platform can be an invaluable productivity tool. Be sure the system you choose has an import tool available through the interface, so that you can import new grants, demographic changes, etc. The ideal operating state, however, can be achieved with a tool that performs this task without human intervention. With this level of sophistication, tax calculations performed in the software can get back to payroll accurately, on time and without manual input. Ease of Going Public Although you may have no immediate plans to change your corporate status, it makes sense to consider a solution that is poised to grow with you. Many of the platforms designed with an emphasis on private companies fall short in enabling migration to public company status. Anticipate your future and shop accordingly Certent All Rights Reserved Selecting Your Equity Compensation Management Solution 4

6 Add-on Functionality Ask your prospective vendors what else they offer in the way of additional functionality to streamline equity compensation management and reporting. Tools that let you connect to your payroll, HR or accounting systems can significantly streamline data exchange and transaction processing. Likewise, the ability to model, train and troubleshoot in a test environment that is separate but identical to your production data is another capability that some vendors offer. When you are shopping for a solution, don t forget to ask what adjunct products are offered that might be of value to your company. Maintenance and Technical Requirements The IT resources and costs associated with deploying new functionality and software revisions are far from insignificant. Many equity compensation management software solutions are only updated once per year. Will that be sufficient if your company suddenly decides to offer performance-based awards and the software you have doesn t support them? Examine the track record of each vendor to see how often they update their product and whether their future product plans will bring the functionality you expect. Support to Make Switching Easy Whether you are moving from spreadsheets or a legacy system, you want to be sure your new provider has tools, processes, training and support to simplify conversion. Well-established companies have developed data importers that map old formats to new ones and reduce the time it takes to go live with a new solution. Some solutions let you enter a historical expense override, allowing you to avoid booking a journal entry when you switch. You may want to engage a third-party consultant who has experience with similar conversions to benefit from their expertise. Keep in mind that the best conversions and the best buying decisions are made when all of the users have a say. Companies are most satisfied with their buying decision when the finance, tax, payroll and equity compensation administration professionals all get involved early on and stay involved during implementation to keep the project on track and address any one-off issues under their jurisdiction Certent All Rights Reserved Selecting Your Equity Compensation Management Solution 5

7 User Interface and Employee Portal Don t be wooed by a pretty face. While a user interface may look slick, what really matters is what it delivers. The data integrity and structure have to be solid. Calculations have to be right. Audit trails have to be clear. Taxes have to be properly assigned and calculated to enable reciprocity payments. Expense calculations need to enable proper internal chargebacks. When you look beyond surface features, make sure that the architecture of the solution you choose is built for the long haul on a solid foundation that helps you manage risk and minimize cost. The user-friendliness of the employee portal is also an important consideration. Will employees have easy access to the information they need? Will they be prompted when they have to review and accept a grant or when options are approaching expiration? Can they model various selling scenarios and bring their broker into the system to provide guidance on what they are considering? The power of the employee portal has significant bearing on the workload of your equity compensation program administrator. It pays to buy a solution with a robust portal. Don t forget to ask what adjunct products are offered that might be of value to your company. Get More than You Pay for Beyond these considerations, cost is always a factor. Be sure you understand all the costs, especially training and maintenance, which can continue to add to the expense of the system over time. Compare the amount of functionality between systems and buy the most comprehensive solution you can afford. You may not need some of the functionality today, but a few months from now, your situation may change, and you certainly don t want to have to start the shopping process all over again. So weigh the alternatives carefully. Consider where you are today and where you may be in the future. And keep in mind that buying the technology is only a first step. The best solution is one that establishes a relationship with a partner that offers subject matter experts who remain available beyond the implementation phase. When they share their knowledge about accounting, financial reporting, tax, payroll, SEC disclosure, SOX and all the intricacies of equity compensation management, you will have more than a technology solution. You will have the tools you need to transform equity compensation management into a strategic value creator for your organization Chabot Drive, Suite 260 Pleasanton, California USA Tel: Fax: Certent All Rights Reserved Selecting Your Equity Compensation Management Solution 6