Post-IPO (Initial Public Offering), companies need to be aware that the regulatory and reporting requirements related to their employee equity compensation offerings will differ from when they were privately owned.
Going public is a massive undertaking and requires considerable time, effort and attention to detail across numerous fronts while making that transition. Often, so much energy is spent on preparing the company for the initial public offering (IPO) that it’s easy to overlook the fact that the IPO day, while a major milestone, is not the end of the journey. After the IPO, the focus must shift from the intense preparation phase to the ongoing challenge of ensuring the company continues to succeed as a publicly traded entity. As it relates to employee equity compensation, that means making sure that you are aware of and fully abiding by all rules, regulations and reporting obligations that now apply.
Among the key points you may look to consider are:
Your stakeholder team
As part of your pre-IPO efforts, you will have brought together a team made up of personnel drawn from different strands of the business to combine their respective experience and expertise to work towards that goal.
All that knowledge and know-how, along with the greater cohesion that comes from bringing representatives from different areas of the business together (e.g., HR, legal, finance and tax, as well as equity compensation) can be an enormous asset as you navigate your way through life as a public company.
Award procedures
Equity tends to be handled differently depending upon whether you are a public or private company. Monitor your offering pre- and post-IPO as there may be scope for improvements. This ongoing review should cover all aspects of the process, e.g., proposals around types of equity, eligibility guidelines, communication, acceptance and vesting.
New reporting and regulatory requirements
The Securities and Exchange Commission (SEC), or whatever equivalent oversight body operates in your jurisdiction, e.g., HM Revenue and Customs in the UK, has different rules and expectations in place for equity compensation depending upon whether a company is private or public. Following flotation, you will be obliged to become informed on whatever reporting obligations and regulatory requirements apply to you now and into the future.
The key point to be aware of is that as a public company you will be subject to greater scrutiny than was previously the case and you will need to adjust to the need to meet additional demands, so get on this early.
Global compliance
The same principle applies as above when you have an international presence. As part of your pre-IPO process you will have had to ensure that you comply with relevant equity compensation-related guidance and rules in all the countries in which you operate and grant equity to employees. As with so much else, regulations change over time and you and your people must stay on top of these. Obviously, the more countries in which you operate the more demanding this might turn out to be.
Ensure insiders understand their reporting obligations
The SEC has stringent rules in place covering reporting requirements from corporate insiders at public companies, i.e., individuals who hold at least 10% of overall equity, or individuals who are party to material nonpublic information (MNPI), which is data relating to the company that has not been made public but which could impact the share price, either positively or negatively.
Paperwork must be submitted when someone becomes an insider and will have an impact on when and how they can buy and sell company shares, as well restrictions around how they exercise stock options.
These are ongoing obligations and are designed to ensure public transparency.
Again, you will need to inform yourself on the corresponding rules that may apply in other countries.
Administration
It is not uncommon for companies to decide to update their equity compensation approach as they transition from private to public.
In practice, that might mean adapting existing equity plans or perhaps introducing one or more new offerings Whatever you decide, a related issue is how the administration of those plans is overseen. Early in its life, a company may use spreadsheets to track equity compensation inhouse. For a public company however, as more-and-more data accumulates, as regulation requirements intensify and as more executives and employees receive awards, the trend moves inexorably towards greater complexity. At some point along the way though this may become a less than effective solution with the prospect of human error an ever-present danger.
If you did not do so pre-IPO, the immediate post-IPO period can be the moment to look at how an alternative approach, automated software designed to attend to your equity compensation admin needs, could help. Automation removes the possibility of human error, can save you time and help with the managing of large amounts of data as look to move your company forward as a publicly traded entity.
Contact us
At J.P. Morgan Workplace Solutions we provide businesses of all sizes, whether they’re only setting out on their IPO journey or already trading publicly, with equity compensation management solutions. We handle all the award administration so you’ve got more time to focus on growing your company. Get in touch today to find out how we can assist.
This publication contains general information only and J.P. Morgan Workplace Solutions is not, through this article, issuing any advice, be it legal, financial, tax-related, business-related, professional or other. J.P. Morgan Workplace Solutions’ Insights is not a substitute for professional advice and should not be used as such. J.P. Morgan Workplace Solutions does not assume any liability for reliance on the information provided herein.
