The list of administrative challenges for global stock purchase plans is certainly daunting, but if the items below are considered, the plan will run more efficiently and participants will have a greater appreciation of the benefits of their equity plan.
One of the great aspects to an Employee Stock Purchase Plan (ESPP) is that it provides employees the opportunity to become shareholders of the company while typically providing great benefits too.
When designing a global stock purchase plan for employees or an ESPP, there are various things to consider:
- Should the plan have the same basic rules and provide the same basic benefits to all employees globally?
- Should the plan provide tax advantages to employees in the countries where special plans are available?
- Does the extra administration required for such plans make sense?
- Are the extra legal and administrative costs for tax qualified plans cost effective?
- How do you handle the official plan document?
Also, ask yourself if you should opt for:
- One plan that provides management to make specific adjustments to meet local requirements?
- One plan that has specific sub-plans to cover local requirements?
- One plan to cover the main country of incorporation and another plan to cover all other countries?
- It is probably best if the purchase does not occur at the end of a fiscal quarter or fiscal year; this provides more time to administer the actual purchase and not impact timely financial reporting
- If you want to allow all employees to sell their shares after the purchase occurs, the purchase date should not occur during a company black-out, or it should occur during an open trading window
Managing Eligible Participants
With a global ESPP one of the challenges is managing eligible participants.
Some of the things to consider include:
- Do you have a global personnel system or will have to rely on a local company’s personnel or payroll system?
- Is the data maintained on a current basis? Are terminations processed promptly?
- If you plan to exclude part-time employees, does your system track this status?
- Some countries may require you to include consultants in the plan. Do you have an effective way to track participant status?
Many countries have different registration and reporting requirements:
- You will need a way to track participation levels and share values to ensure compliance with certain registration requirements
- How will you handle the on-going reporting requirements?
- Should this be done locally or centrally?
Handling participant contributions to the purchase plan can also be challenging:
- Some countries do not allow for payroll deductions:
- How will you collect funds from participants?
- Some countries do not allow for contributions to be co-mingled with company funds, so special accounts need to be established to hold participant contributions
Foreign Currency Restrictions
Some countries have rules related to allowing funds to leave or enter the country:
- How will you handle the reporting and processing requirements?
- You will likely require local assistance and local advice
Foreign Exchange Rates
A special challenge with global plans are the foreign exchange rates. You will need to have a policy that is clear on what rates will be used for:
- Converting contributions
- Converting refunds or purchase residuals (roll-overs)
- Calculating any taxable income
- Internal plan accounting / financial reporting
Some countries in Europe have works councils that may need to weigh in on:
- The plan being offered to employees
- Any substantial change to the plan
- The cancellation of the plan
Taxation at Purchase
- Many countries will require that employees pay taxes on the discount of the shares at purchase. Some items to be considered include:
- If the plan benefit is recharged to the local entity, this may trigger taxation that may otherwise not be required
Some countries require a different value be used to calculate income – not the Fair Market Value defined in the plan
- How will taxes be paid?
- Withhold from payroll
- Is there enough pay to cover the taxes?
- Withhold shares to cover taxes
Can you handle the challenge of calculating the appropriate taxes due?
Does the company have the cash to cover the taxes due?
- Sell to cover the taxes
- You may not want employees to sell their shares if your company is encouraging employee share ownership
Local Tax Reporting / Filings
Many countries have annual or periodic local tax reporting and filing requirements:Will these forms be completed centrally or locally?
Choosing the appropriate plan broker is an important step in setting up and operating the plan:
- Some brokers may not facilitate sell to cover for taxes
- Some brokers may not be licensed to deal with people in certain countries
- Can you meet your broker’s data set and delivery requirements?
- How do addresses get updated, especially for terminated employees?
Plan Controls at Local Entities
Audits of local entities should periodically be conducted to ensure compliance with the share purchase plan. This could be handled by external or internal auditors. Items that should be audited include:
- Appropriate participants offered to participate in the plan
- Appropriate participants participating in the plan
- Proper deductions or contributions to the plan
- Enrollment amounts
- Changes to contributions
- Appropriate earnings be used for plan contributions
- Proper refunds to participants
One of the keys of operating a successful stock purchase plan (ESPP) to ensure employees appreciate the benefits of the plan is to have great communications. Some items to consider include:
- Paper communications may be required in certain countries
- It can be beneficial to include FAQs or simple explanations with tax forms that have to be provided to plan participants
- On-line access to statements, forms and other purchase plan communications can greatly assist participants as well as the plan administrator
- Translations may be required in certain countries, but translations may also be a good idea to increase employee participation and appreciation of the plan
- Many companies are now using short videos recordings to increase employee understanding and appreciation of their ESPP. This is an excellent form of communication
Mobile employees pose another set of challenges. A clear policy on how mobile employees will be handled is critical. Some things to consider include:
- Do you transfer the employee contributions to the new country when the employee moves?
- What FX rate is used?
- What if there are foreign exchange restrictions?
- Should you maintain the contributions in each separate country and then aggregate at purchase?
- Don’t forget any plan limits!
- Should you refund the employee’s contributions from the old country at the time of the move and allow them to contribute the contributions to the new country
- Good communication required between all parties involved
This list of administrative challenges for a global ESPP details many, but not all, of the considerations involved when operating a global ESPP.
At Global Shares we have seen how our ESPP module can transform how companies interact with their associated employee stock purchase plans and reduces their equity administration overheads, as well as supporting companies overcome all the challenges they face in operating a global ESPP.
Read more about Employee Stock Purchase Plans here.
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