Equity Management Outsourcing

Equity management, commonly known as share plan or stock plan management, is the process of creating, tracking and administrating employee equity plans in a company.

This process can be performed in-house typically by Human Resources (HR) or Compensation & Benefits, or outsourced to a stock plan vendor. In this article, we’ll discuss why the majority of companies choose to outsource their equity plan management.

Current Trends of Equity Management

90% of companies outsource at least a portion of plan administration according to an industry survey in 2022. The top three outsourced functions were:

• Processing award vesting and releases (58%)
• Processing option exercises (53%)
• Grant agreement distribution (53%)

‘’It makes sense to me that these functions are outsourced. For most companies, these are very cyclical events with high peaks in high activity and then valleys in low activity. And it can be very hard to staff that peak activity so it can be a big help to get assistance from a third party.”

Barbara Baksa, CEP

Executive Director of NASPP

In addition there are further benefits which you may notice when you outsource your equity management tasks:

1. Improved efficiency and accuracy with the aid of technologies

When you outsource your equity plan management, it usually means you’ll use your provider’s technologies to automate the complex tasks and administration involved in running your equity plan. Equity management software can have a number of benefits, including:

• Provide one single source of truth to avoid confusion and human error
• Allow automation, like vesting tracking, notification, disposition settling
• Give access to numerous audit-ready financial reports in a few clicks
• Facilitate data-driven decision-making
• Help you stay legally compliant in each jurisdiction
• Promote data security
• Engage participants to track and manage their equity awards
• Provide a regulated trading platform to allow for easier transactions
• Save you time and money in the long run

If you’re currently using or looking to use a spreadsheet for these purposes, the huge volumes of complex data are not only increasing your administrative burden, they are potentially inviting disastrous human error.

2. Adoption of best practices to optimize your plan

Not only will you benefit from the automation provided by your stock plan vendor’s technologies, but also from their knowledge and experience.

We oftentimes hear companies say their plan isn’t working as expected. A professional stock plan company would be able to understand your own situation and provide specific solutions to improve your plan. Some of the areas they would look into include:

• Use of equity vehicle: Does each equity award effectively help you achieve what you need? For example, stock options could help improve stock price while performance shares may help reach specific financial or operational goals.
• Plan design: If you offer an all-employee share plan, like an ESPP, is the plan discount attractive enough particularly in a market environment with higher interest rates.
• Performance metrics tracking: If you include performance stock in your executive compensation package, are your performance metrics too complex to track and monitor?
• Performance target settings: Do employees feel the goals are too hard or too easy to achieve?
• Communications: Is the plan sufficiently and clearly communicated to prospective and current employees?

With their professional help, your stock plan could be optimized to its full potential by following industry best practices.

3. Compliance with laws and regulations

One of the key elements in stock plan administration is compliance and staying compliant is critical for companies.

Since laws and regulations (e.g. securities, exchange control and local laws) often change, and not all companies may be able to always stay on top of the latest updates. So, if you’re on board with a professional vendor, they can help you to stay compliant with current rules, regulations, changes in taxation etc.

4. Global expansion of stock plan simplified

When you look to extend your share plan to your global workforce, you need to watch for local requirements.

Since different jurisdictions have different laws and regulations, the on-the-ground teams of your outsourced vendor could help you understand the feasibility or any challenges of rolling a stock plan out in each market. For example, Securities fillings (e.g. Form 7) can be costly and time-consuming if an ESPP is offered in Japan.

Knowing these potential issues in advance allows you to plan and balance between benefits and costs associated with launching a plan in a certain country.

5. IPO navigated with ease

If you’re considering an IPO for your company, one of the millions of things you need to review is executive compensation as you will be required to disclose executive and director compensation levels publicly.

By bringing in a vendor with industry experience, you can prepare your company to justify pay strategy and practices as executive compensation continues to be a very high-profile topic at the SEC.

6. Increased focus on core business functions

As Barbara said, there are peaks and valleys in equity management throughout the year. With a stable stock plan vendor, you won’t need to worry about hiring people or allocating internal staff when things get busy.

Your employees can focus on their core functions, resulting in increased productivity, efficiency, and better resource utilization.

7. Time and cost savings

Even one of the above benefits can potentially save you time and money in the medium to long run.
As your company expands and starts hiring more employees, the benefits of outsourcing equity management should become more obvious. That’s why 90% of companies let professionals do the work.

Are you one of the 90% or the 10%?

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Global Shares, a J.P. Morgan company, specializes in offering customized equity management solutions. We can help you with the things listed above and beyond in order to maximize the benefits of equity compensation. Contact us now for more information on how best to manage your stock plan.

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