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1. The RSU Path.Paved with Pitfalls?
2. Agenda
3. Implementation Considerations What to Consider?
Vendor evaluation
Award types
Channeling the flow of information
Processes between internal departments
Procedures with outside organizations
Other Company Decisions
4. Implementation and Vendors Vendor Evaluation
Will my software help me manage the program
Are there importing/exporting capabilities
Will it help me monitor vesting and taxes
Will it calculate a Fair Value and amortize the expense correctly
What reports can I run
What are the restrictions
5. Implementation - Award Types RSA Restricted Stock Award
Shares issued at grant
Voting rights and dividends begin at grant
83(b) Elections allowed
More Complex Recordkeeping
RSU Restricted Stock Unit
Shares issued at vesting
No 83(b) Election allowed
Voting rights and dividends do not begin until vesting
6. Implementation.Channeling Information Creating a process to channel information between internal departments
HR
Legal
Payroll
Finance: Tax and Accounting
Communicating to outside organizations/groups
Board of Directors
Third-party vendor, outsourcer
Transfer agent
Broker
7. Company needs to make decision on:
How many units to issue. Set guideline
Withholding methods or mandatory share withholding
Timing for notifications on election Default?
Section 16 reporting
10B5-1 Plans to cover sale and/or withholding
Implementation Considerations Other Company Decisions
8. Granting Process What needs to be considered before the award date?
Setting up an broker account well in advance of vest date
Establish a process to track (report)
Pending vesting and release of shares
Determine employees tax election payment method prior to vest date
9. Granting Process What about an online broker?
If you use an online broker, verify:
Award setup is turned on at broker web site
Plan for additional time period 1-6 weeks for initial online setup
Types of documents needed for online program
Award Confirmation Letter
Notice of RSU Grant
Procedures for online Grant Acceptance
Is contract is required for additional set up
Employee tax election is it selected at broker site and turned on in software
10. Granting Process.. What else needs to be considered when a RSU is awarded?
As shares vest, calculate
Gain for reporting ordinary income and
Taxes due for withholding
SPA notifies Transfer Agent to release shares to broker account
SPA runs a statement for employee confirming shares released and taxes paid
11. Granting Process. What is included in an Award Agreement?
Full name of participant
Participant ID (maybe SSN)
# of shares awarded
Type of award: Restricted Stock or Restricted Stock Unit
Date of Award
Purchase price (may be $0 or a par value or other price)
12. Granting Process What else is included in a typical Award Agreement?
Vesting schedule
Termination provisions
LOA
Other corporate provisions:
Insider Trading Policy
13. Working with Internal Business Partners Internal Departments
HR
Payroll
Process flow
Procedures
Tax deposits
Finance: Accounting and Tax
Legal
14. Payroll as a Business Partner Establish a process flow between SPA and Payroll
Set up defaults for participant tax election
Domestic
Cash/Check
Trade shares (net exercise withhold)
Broker: sell-to-cover/same-day-sale
Payroll deduction
International
Check country tax and filing requirements
15. Payroll as a Business Partner Set up a procedure for IRS Next Day
Deposit Rule
$100,000 collected in taxes
Within any day during a deposit period
Must deposit the tax by the next banking day
Whether you are a monthly or semi-weekly schedule depositor
16. Accounting and Tax Issues Fair value and Expense
Intrinsic value at the date of grant
Fair Value = FMV grant date cost to purchase stock
Fact Pattern: FMV date of Grant = $10. Stock purchase price is $0. Weston Smith purchases 100 shares of XYZ stock on March 4, 2006. The vesting schedule lapses 25% a year starting on the anniversary date of the grant.
Fair value = $10 - $0 = $10 x 1,000 shares
Total expense = $10,000
17. International Issues Issues to consider include:
Taxation / Securities Issues
Some countries tax at grant; others tax at vest
Taxable event can vary by type of award (RSU/RSA)
Determine tax/legal requirements for each of your countries
Some countries may require filings with a local tax or securities authority before award is granted
Tax rates will be different from US rates
Company portion of social contributions could be significant
Some countries restrict ownership of foreign securities
Verify that your software can support international tax codes and calculations
18. Running Reports Verify that your vendor software can run the following types of reports
Awards granted, cancelled, exercised
Shares subject to Issuance/Release
Personnel Summary
Total valuation of awards granted
Plan Summary reports
Expense reports
Use the reports to help you develop a tracking process
19. Happy Employees Happy Employees are
Informed Employees
Explain key terms when different/new compared to stock options
Explain when you need to make decisions
Emphasize positive differences from options
Explain tax basics
20. Corporate HeadquartersStock & Option Solutions, Inc. (SOS)6399 San Ignacio Avenue Suite 100San Jose, CA 95119 USA 408.979.8700 Toll Free 888.SOS.0199 (888.767.0199) Fax 408.979.8707 General email: info@sos-team.com
Questions?