Retreat from Convention: Purchase Plan Design Alternatives You Should Consider! October 24, 2013

Transcription

1 Retreat from Convention: Purchase Plan Design Alternatives You Should Consider! October 24, 2013 Patricia Boepple SVP Global Client Solutions, Global Shares Scott Barrall Sr. Tax Manager, Deloitte Tax LLP Brian Lee Manager, Benefits, Huron Consulting Group Denise Scoville-Glackin Client Relationship Manager, My Equity Comp

2 Agenda Basic plan comparisons 423 Basic Plan Basic non-qualified ESPP Plan Huron Consulting Case Study Discussion on Huron s non-qualified plan design Save as you Earn/ SAYE Plan Share Incentive Plan/ SIP Plan Global Considerations Employee communications

3 Plan Comparison: 423 Requirements Basic 423 Plan eligibility requirements; Employees only Equal rights & privileges (Globally) Requires Shareholder approval Non-discriminatory (with exceptions) Share limitations $25,000 Annual limit How not to inadvertently disqualify the plan

4 Plan Comparison; Non-qualified ESPP Design choices Basic Design Alternatives The Plan Term is typically ten years Eligible participants; May be selective Requires Board approval Share & Contributions Limits; You may elect to design a plan to allow for pre-tax earnings Share matching; you may offer a match rather than discount RSA, RSU, SAR s, Un-Restricted shares or Stock Option Share Holding requirement You may also require holding period in order to receive matching share Income deferral Restricted Stock - no deferral past vesting RSUs further deferral of income tax past vesting is possible Sec. 409A ERISA regulation may apply US Sec. 83(b) Elections

5 Quick Comparison Checklist; 423 qualified plan Requires Shareholder approval Non discriminatory Reduced income taxable wage potential US Social Security tax exempt No US income tax withholding Disposition (qual. and non qual.) survey and wage reporting processes Lost US company tax deductions & W 2 income Non qualified Plan Uniform Global program (if desired) Plan Flexibility US company deductions No disposition surveys Income and social security tax withholding at purchase Potentially more employee and employer tax liabilities Simple to communicate

6 What people are saying; according to GEO GEO Global Equity Insights Survey 2013

7 GEO Global Equity Insights Survey 2013

8 GEO Global Equity Insights Survey 2013 Step 1 Contribute $$ Step 2 Buy Shares Step 3 Shareholder

9 GEO Global Equity Insights Survey 2013

10 Huron Consulting Group; Case Study Non-Qualified Plan Design

11 Fast Facts: Huron

12 Huron Consulting Plan Study 2006 Employee Bonus Stock Purchase Plan (EbSPP) Plan Wanted to give employees (below the senior level) an opportunity to buy stock. Accounting rules for ESPP were changing, tighter reign on amount of shares a company could issue (05/06). Wanted to foster an ownership culture and reward those who believed in our value and want to own and hold Huron stock. Created a plan to allow employees to use a portion of their annual incentive bonus to purchase stock, and receive a 25% matching grant of restricted stock (RSA).

13 Huron Consulting Plan Study 2012 Stock Ownership Participation Program (SOPP) Employees wanted more opportunities to purchase stock Expanded to provide quarterly purchases via payroll deductions=5 total purchase opportunities per year Rebranded to use as a communication opportunity with an emphasis on ownership.

14 Evolution of Huron s ESPP at a glance (IN COMPARISON TO TRADITIONAL ESPP) $000 Traditional (Non qualified) ESPP Huron 2006 Employee Bonus Stock Purchase Plan (EbSPP) Huron 2012 Stock Ownership Participation Program (SOPP) All US employees All US employees (below MD level) All US employees (below MD level) 5 15% discount No discount 25% restricted stock match = 20% discount Purchases semi annually Once per year 1% and 30% of annual cash incentive bonus ($500 min) Same Purchases 5x per year (bonus and quarterly up $20K/yr for $5K match) Payroll deduction and/or cash Withheld from bonus Payroll deduction (1 25%) and/or cash Offering period utilizes formula to determine purchase price ( discount) No holding period required Shares purchased on open market at fair market value 25% restricted stock match vests in 1 year if employee held purchase shares for 6 months & employed at vesting Same Same Discount is considered taxable income to employee Match considered taxable income to employee on vest date Same Tax implications to company Company expenses match over one year Same

15 Huron ESPP timeline

16 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% HURON S EMPLOYEE STOCK PURCHASE PROGRAM 20.00% 10.00% $800, $700, $600, $500, $400, $300, $200, $100, $ 2013 Sept 2013 June 2013 Bonus 2013 Mar 2012 Dec 2012 Sept 2012 Bonus 2011 Bonus 2010 Bonus 2009 Bonus 2008 Bonus 2007 Bonus 2006 Bonus Percent Contributing to EbSPP Total Contributions 0.00%

17 Office Locations

18 Global Purchase Plan Design Benchmarks What percentage of companies operate share purchase plans? Matching Shares or Discounted Purchase? Source: Deloitte Global Share Plan Survey 2013

19 Save as you Earn; SAYE Plans Among UK headquartered companies, for broad-based stock compensation programs, there is a strong (75+%) preference for UK tax-qualified share purchase plans (either at a discount to market value or with a company match) Source: Deloitte Global Share Plan Survey 2012

20 Save as you Earn, SAYE Plans Save as You Earn (SAYE) (and UK tax qualified plans generally) currently require HMRC approval, but a proposal for issuers to self-certify online is likely to become effective 6 April Participants enter into a savings contract with an approved savings carrier (bank or building society) and use the accumulated funds to pay the exercise cost. Contributions/savings of between 5 and 250 every month Interest on contributions/savings (at set rates) is tax-free Historically an interest-based bonus was paid at 3, 5 and 7 years; Currently none

21 Save as you Earn, SAYE Plans Share options must be offered to all eligible employees/directors on the same terms, although qualifying employment of up to 5 years service may be required. The option exercise price can be set at a discount of up to 20% from the grant date price, which is typical. Options granted can be exercised 3, 5, or 7 years after grant. Employees may choose in advance between 3 and 5 year option term, and may extend a 5 year option for 2 more years

22 UK SAYE Tax Consequences If the SAYE option is exercised after 3 years from grant, the spread is not subject to regular tax or NIC If the SAYE option is exercised within 3 years from grant, the spread is subject to regular tax but not NIC Exception for exercise by good leavers Cost Basis of the shares is the exercise price + any amount subject to regular tax Annual capital gains tax exemption: 10,900, TYE2014

23 UK Share Incentive Plans (SIP) SIPs are umbrella, all-employee plans offering a variety of non-taxable award types (income tax generally is due upon distribution of shares to employees before 5 years): Free Shares - Employers can give employees up to 3,000 worth of Free Shares each year (3 year holding period). Partnership Shares - Employees can buy up to 1,500 worth of shares per year out of pre-tax salary, up to 10% of salary. Matching Shares - Employers give up to 2 free Matching Shares for each Partnership Share (3 year holding period). Dividend Shares - Reinvestment of cash dividends paid (formerly reinvestment was limited to 1,500).

24 UK SIP Tax Consequences Free and Matching Shares Regular income tax is payable when shares are distributed within 5 years The taxable value is: if taken out during first 3 years, the FMV at the time of distribution If taken out between 3 and 5 years, on the FMV that is lower of: Time of award, or Time of shares distribution to the employee Partnership Shares - Regular income tax is payable when shares are distributed within 5 years The taxable value is: if taken out during first 3 years, the FMV at the time of distribution If taken out between 3 and 5 years, on the FMV that is lower of: Salary used to purchase the Partnership Shares, or Time of shares distribution to the employee Dividend Shares - Taxed as dividends if distributed between 3 and 5 years Cost Basis of all the share types is FMV upon distribution

25 Global Purchase Plans Contribution Measures/Limits Regional Favorites: % of salary Source: Deloitte Global Share Plan Survey 2013

26 Non-US Plans Matching Shares Ratio of Match to Purchase Shares Vesting Term of Matching Shares Source: Deloitte Global Share Plan Survey 2013

27 Global Considerations US ERISA regulation may apply if plan provides: retirement income, or deferral of income to termination or beyond Watch out for income deferral features Limited exemption for top hat plans (unfunded, and only highly compensated participants) Securities Law Compliance Financial Accounting Foreign Exchange FX Controls Purchase Money Conversion Employee Communications

28 Employee Communication What should your employees know about the plan? How does the plan work- what do I get out of this? How/what do I contribute? Taxes? How much & when? What is hard-ship withdrawal? Will they have share ownership requirements? Location, Location, Location China: SAFE accounts for all transactions before settlement to employee Australia: Employee Share Scheme (ESS) statement UK: SAYE plans Others

29 Employee Communication; How will you communicate to the masses? Online Communication Intranet or external online enrollment tool Current & up to date? Necessary forms, reports & FAQ s? blasts Brown bag lunch meetings Series of pre-recorded videos Mobile employees? International employees?

30 GEO Global Equity Insights Survey 2013 The results indicate satisfaction, understanding the plan, and participation is not where is should be due to the low budget allocated to employee communication.

31 Disclaimer

32 Final word Patricia Boepple Scott Barrall SVP Global Shares Senior Tax Manager, Deloitte Tax LLP Phone: Phone: Brian Lee Denise Scoville-Glackin Manager, Benefits, Huron Consulting Group My Equity Comp, LLC Phone: Phone: