IMAGE: Iqoncept / 123rf.com
The 2014 Domestic Stock Plan Administration Survey was developed jointly by the National Association of Stock Plan Professionals (NASPP) and Deloitte Consulting LLP from March 2014 to May 2014 and was administered by Deloitte Consulting LLP. Last published in 2011, this survey provides a detailed look at the administrative practices of companies primarily headquartered in the United States (U.S.). The database consists of 494 survey respondents.
The participant responses reflect the most recent trends offered by U.S. companies. This year’s survey includes respondents from a wide variety of industries, U.S. regions and company sizes (in terms of revenue, market capitalization and number of full-time employees). Sixty-six percent of respondents represent non-high-tech companies and 34% represent high-tech companies. Financial Services (11%), High-Tech Manufacturing (10%), and Durable Goods Manufacturing (9%) are the top three largest industries represented in the survey. The majority of participants are publicly-traded companies (96%), primarily traded on the New York Stock Exchange (64%).
Stock Administration & Communication
The Human Resources department continues to be the most common group with primary responsibility for stock plan administration, however, 69% of companies surveyed reported outsourcing a portion or all of their stock plan administration, consistent with results observed in 2011. For companies surveyed that only outsource a portion of their administration, processing of stock option exercises (87%) and processing of award vesting and releases (85%) are the most common functions outsourced followed by distribution of grant agreements and materials (67%).
The majority of companies surveyed continue to distribute plan documents (other than individual grant notices and agreements) via intranet or website. For individual grant notices and agreements, the most common form of distribution by companies is via third-party website (77%) and email (56%), respectively. A majority of companies continue to require award recipients to acknowledge grants (76%), while utilizing a third-party website is the most common method used for recipients to accept or decline grants (79%). To the extent award recipients do not acknowledge the grant, 44% and 33% of respondents suspend the exercise of options or receipt of vested shares, respectively, until grants are acknowledged.
In comparison to 2011, the majority of respondents now provide presentations on stock compensation to employees (52%). Of those companies that offer employee presentations, 60% do so on an ad hoc basis, 31% do so annually, and 28% make the presentations available on a continuous basis via the internet.
Employee Stock Purchase Plans
In comparison to 2011, the use of employee stock purchase plans has remained unchanged — 52% of companies surveyed have an employee stock purchase plan. The primary reason cited by respondents for providing this program to employees is to promote employee stock ownership, followed by corporate culture and hiring practice.
Section 423 Plans (qualified employee stock purchase plans) continue to be more common than Non-Section 423 plans (non-qualified plans) among survey respondents. Of those respondents that offer a Section 423 plan, 15% is the most common discount applied to the purchase price. Applying the discount to the lower of beginning/end of offering/purchase period is the predominate approach utilized to determine the purchase price. The most common offering period is six months, which is consistent with trends observed since 2004.
For companies with Section 423 plans, only 33% of respondents report participation rates among employees at 20% or below; for Non-Section 423 plans, 60% report participation rates at 20% or below. The use of Section 423 and Non-Section 423 “quick sale” programs continues to be rare while 81% of respondents report that, for Section 423 plans, employee stock purchase plan participants hold stock acquired for under the plan for an average of six months or longer (almost one-third of respondents report that participants hold for an average of two years or longer).
For companies offering a Section 423 Plan where the purchase is the trigger event for Section 6039, 78% of respondents outsource both the preparation and filing of Section 6039 returns. Fifty-five percent of respondents distribute a substitute statement to employees, rather than a copy of Form 3922 and 81% of respondents distribute participant statements via paper delivery.
Insider Trading Compliance
Consistent with prior survey results going back to 1996, virtually all respondents (99%) have an insider trading compliance program and 89% require insiders to pre-clear all stock transactions, including stock plan transactions. Ninety-two percent prohibit hedging or monetization transactions in company stock, 89% prohibit trading in puts, calls and similar derivatives and 76% prohibit pledging of company stock.
Thirty-eight percent of respondents permit all employees to participate in Rule 10b5-1 plans, while less than 6% of respondents require insiders to trade under Rule 10b5-1 plans. Almost all respondents (96%) subject Section 16 insiders to quarterly blackout periods. Ninety-three percent of respondents subject other senior executives to quarterly blackout periods and 91% of respondents require employees with access to financial or material non-public information to comply with quarterly blackout periods.
Stock Ownership Guidelines
The prevalence of employee stock ownership guidelines has continued to increase (38% in 2004, 54% in 2007, 73% in 2011 and 80% in the current survey) based on shareholder expectations that companies require executives to own stock in the company. Named executive officers (NEOs) are the most common group of employees subject to stock ownership guidelines. The use of a multiple of base salary is the most common method for determining the level of stock ownership (83%). The most common multiple for CEOs and Other NEOs is 5x base salary and 3x base salary, respectively.
Fifty-seven percent of respondents that grant stock options do not count them towards their ownership guidelines. Of those respondents that offer restricted stock, 58% count unvested restricted stock towards the guidelines. Of companies that offer performance shares, 31% count unvested performance shares towards their ownership guidelines.
Fifty-two percent of companies with stock ownership guidelines impose penalties or restrictions for failing to achieve the guidelines. The most common penalty (34% of respondents) imposed for failing to meet the guidelines is to require employees to hold all or a percentage of shares acquired upon exercise of options or vesting/payout of awards.
Cash is the most common form of payment for board retainers, board and committee meeting fees, and committee retainers. The most common form of annual equity retainer is restricted stock or restricted stock units. One-year cliff vesting continues to be the most common vesting period, which coincides with the annual election of most non-employee directors. The majority of survey respondents don’t require outside directors to formally accept equity grants.
Sixty-eight percent of respondents have stock ownership guidelines for non-employee directors, with multiple of retainer being the most common form of ownership guideline.