The best way to manage your equity compensation plans

February 4, 2020 |



 

It’s hard work to run a company. There are so many decisions to juggle – opportunities to seize, pitfalls to avoid, and a constantly changing consumer landscape. To do this, and to do it successfully, you need the best team. You need employees that are just as committed to your company’s future as you are. You need the best and the brightest, and you need them to stay just as bright on day 100 as they were on day one.

How do you do this? How can you recruit the best employees, keep them engaged, and keep them from leaving? Judging by the fact that you’re reading an article with equity compensation in the title, I’m going to guess that you have an idea.

And you’re correct. Equity compensation plans are far and away the most effective tools for ensuring that company success starts from within. But, planning and designing your equity compensation plan is only the start. Managing the plan, from launch to end, requires a lot more juggling.

Here are a few things you need to do if you want to manage your equity compensation plans.

 

Gather employee data

You’re going to need both your Human Resources and your Accounting/Payroll departments for this step. (And all the other steps.)

Your HR is vital from the start. You need to know how long each employee has worked for the company and what their contract looks like, in order to determine who’s eligible and how much equity compensation they receive. And not just at the beginning of the plan. Different jurisdictions have different tax systems – and if your employees change their addresses, it could change their tax responsibilities.

Payroll has a variety of functions around equity compensation plans, but for this part, they need to supply information around salaries.

 

Respect jurisdiction

Your company might fall under just one jurisdiction – but chances are that it falls into multiple. Understanding these jurisdictions, and the varying tax laws and how they apply to your employees, is crucial. A plan that works great for your Tokyo office might not work for the employees in your Italian branch.

There are different laws around employment and compensation in different jurisdictions as well. These need to be considered well in advance of any plan or company expansions.

 

Reporting

Equity compensation plans come with a lot of reporting. Like, a lot. There are the reports that come from transactions, from contributions, from taxes, from payroll and many, many more. Every single one of these reports needs to be comprehensive, accurate, and – most importantly – prepared in a timely manner.

There’s a slightly different form of reporting as well – communication.

 

Communication

There are two types of communication. One is the participant communication, and this is a big part of managing your equity compensation plan. It’s all well and good to establish a plan – but you need your employees to join. You need to make sure you communicate the benefits of the plan effectively and show them that joining the plan is easy.

But there’s another type of communication – internal communications. This is crucial. Every department needs to be kept up to date on any changes that occur, within the company or externally, that could affect the plan. Your payroll needs to know if there are any new hires or policies from HR. HR needs to know if there are any jurisdiction updates from legal. And so on. Here’s one example.

If you’re like me, terms like withholding rate make your head spin. But it’s a vital part of many equity compensation plans. It’s not as simple as payroll deducting a contribution towards a savings or purchase plan each month. There are certain timelines and guidelines that need to be adhered to, and these can change. If the changes are not communicated appropriately, it could lead to disaster.

Although, almost nothing can be as bad as messing up this next one.

 

GDPR Compliance

GDPR is quite the buzzword these days. As it should be – it dramatically changed the face of many businesses in Europe. All employee data that you’re handling – the numerous tax documents, contract notes, financial reporting, etc. – need to be handled in a GDPR compliant manner.

The penalties for breaching GDPR, even incidentally, can be incredibly severe. A breach of GDPR, by not dedicating enough time to how you manage your equity compensation data, could be the worst business decision you ever make.

 

Can you do this?

You might be starting to doubt yourself. There are a lot of logistics that need to be hammered into place, and the stakes are quite high. You might even be rethinking an equity compensation plan altogether.

Don’t. Remember how much value an equity compensation plan can add to your company – all the benefits it will bring to you and your employees. Yes, the paperwork can be daunting, but there’s an easy fix. Have somebody else handle the whole thing for you.

At Global Shares, we have been providing award-winning equity compensation plan management for 15 years. Contact us today to find out how we can help you launch your plan.

Request a Demo

Please Note: This publication contains general information only and Global Shares is not, through this article, issuing any advice, be it legal, financial, tax related, business related, professional or other. The Global Shares Academy is not a substitute for professional advice and should not be used as such. Global Shares does not assume any liability for reliance on the information provided herein.


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