Rethinking Equity and Empowering Employees - Innovative Approaches and Sweeping Changes

By Robyn Shutak posted 04-04-2016 13:51

Most people agree that, for most things, it’s nice to have a choice.  Who doesn’t love a choice?!  Would you ever go to a restaurant that only served one dish?  Would you load your golf bag with only one club?  How does that apply to the issuing of equity awards?

Given that equity compensation represents a significant portion of total compensation for many executives and, in some cases, other employees, it is surprising how homogeneous many equity programs are.  A few brave souls are breaking out of the box and offering a new twist on old favorites and some new ones.

Oracle Corporation (Oracle) and International Fragrances and Flavors (IFF)  have put the power of choice into their employees' hands, although they offer very different choices.

·      Oracle introduced restricted stock units (RSUs) into a staunch options-only culture, with an expansive choice program, offering over 16,000 participants in 47 countries the choice between options and RSUs, with the added possibility of deferral in the US.

·      IFF has found an intriguing formula with a mix of three choices for its executive population: options to purchase shares on the open market along with matching RSUs, standard RSUs, and stock-settled stock appreciation rights.

Choice programs can be a powerful tool in driving employee engagement and building a deeper appreciation of the company's equity program.  However, choice programs do come with complexities:

There are different tax, legal and administrative considerations when offering a choice program, both from the company perspective and the employee experience.  For example, options in Canada are taxed more favorably than RSUs; options in Thailand trigger a securities filing for the company while RSUs do not.   The simple fact of allowing employees to make a choice and delivering materials discussing the choice program can trigger securities filing requirements.  Plus, tax withholding and social insurance obligations may be different depending on the award so companies may need to withhold taxes for some employees in a country and not others, depending on the employees' choices.  Companies need to understand these differences to stay compliant around the world, employees need to understand the implications of their choice in order to make an informed decision, and administrators need to be able to adapt processes to communicate and capture choice.

Silvana Nuzzo from IFF, Barb Wallace from Oracle, Larry Reynolds from Fidelity Stock Plan Services and Denise Glagau from Baker & McKenzie will present on choice programs at GEO's 17th Annual Conference in Boston on April 20-22, 2016 - join them for an exciting discussion on leading change within an organization, managing the challenges of a choice program, and measuring the success of such a program. Register for the event here!