Leading the evolution of global stock plan management TO INSOURCE OR OUTSOURCE? Four Steps to Gauge Your Equity Plan Needs

Leading the evolution of global stock plan management TO INSOURCE OR OUTSOURCE? Four Steps to Gauge Your Equity Plan Needs

TO INSOURCE OR OUTSOURCE? FOUR STEPS TO GAUGE YOUR EQUITY PLAN NEEDS Administering employee equity plans can be a tricky business. Keeping up with complex and ever-changing compliance requirements while managing efficient processes with limited resources can be an overwhelming responsibility for anyone. And determining the resources you need to administer your employee equity plan can be confusing as well, given the wealth of options that exist. Deciding how much of your stock plan administration to outsource is a major undertaking. Some companies like their staff to manage everything in-house using recordkeeping software and a broker partner. Others prefer to fully outsource the administrative tasks to a third party who provides the recordkeeping system, handles the trading and offers knowledgeable stock plan experts to manage the program. The most suitable method for you depends on a number of factors there s no right or wrong answer. This white paper will guide you through a few points to consider when making this assessment. STEP 1 ASSESS YOUR TECHNOLOGY AND THEIRS Because the factors in the decision are largely interdependent, determining what degree of outsourcing is right for you will not be a linear process. But a good place to start your assessment is with technology, which provides the foundation for a successful administration infrastructure. A stock plan recordkeeping system is essential for tracking various plan terms, participant activities, demographic information (e.g., ID numbers, addresses and hire dates), grants and awards, and other related data. The system also houses information about transactions, such as option exercises, restricted stock releases and acquisitions from share purchase programs. Reports from the system are necessary for accurate financial reporting and accounting, and the company can also use the platform to track share-pool balances and behavioral trends. You should address the following major questions when deciding on stock plan software: Does the system have the functionality required to support your equity plans? Most available programs will support standard equity vehicles, transactions and reports. If your plan has unique terms, such as market-based performance vesting, or if you want the flexibility to generate fully customized real-time reports, you might need a more specialized application. If you can t find a system to handle these requirements, you ll need to look for a gap solution or build a manual workaround. How does the software interact with other systems involved in the workflow? If you want to connect the stock plan software to your HR system, the broker s trading platform, a participant web portal or your payroll provider, think about what data needs to be exchanged and how this will be accomplished. Integrating multiple technology platforms enables data integrity and efficient data movement while minimizing risk associated with human error. Do you want to be responsible for maintaining the system? If you like having full control of the database and don t mind handling all the data entry, storing the system at your site may be best. But if you want to avoid licensing issues and software upgrades and simply want to run reports from the system, a third-party outsourcer may be optimal. 2

How much time will the proposed technology save you? Look at how the system can automate tasks that you would otherwise perform manually. Make sure to consider not just the core recordkeeping platform, but connected interfaces (e.g., participant web portal) that could save a great deal of your time. Will the system grow with your company? As your company matures and the characteristics of your employee base change, your equity plan will evolve. The system should be adequately flexible and robust to support evolution. Ideally, you should be able to move from in-house administration to outsourcing on the same system. Your answers to these questions may help you narrow down the wealth of software choices. Some systems are available as part of a software-only, in-house administration solution while others are only offered in an outsourcing relationship with that particular provider. Once you know how you want to manage your technology platform, you are one step closer to finding the right administration structure for your company. Bottom line Understand what you need a recordkeeping system to do and how you want to interact with it. STEP 2 ASSESS YOUR HUMAN CAPITAL No matter what structure you choose, the people managing your equity plans must be knowledgeable. With a software-only, in-house arrangement, you ll need people with expertise to handle a wide variety of tasks. If you are considering this route, ask yourself the following questions: Who will be responsible for managing each function? Are these employees dedicated to stock plan administration or do their core responsibilities lay elsewhere, such as payroll or HR? Do you have enough people to handle the inevitable volume of work that comes at year-end or during a stock price spike? What about coverage for absences? If you have one person responsible for stock plan administration, who audits his or her work? Does your team have sufficiently broad knowledge to handle the demands of your plan and the needs of your participants? For example, if you grant internationally, how well do you understand equity plan requirements in the countries where you operate? 3

If you have adequate internal stock plan expertise, in-house administration may be viable. If not, an outsourcing relationship could be beneficial, as you can draw on the provider s staff to provide critical expertise and continuous, scalable coverage regardless of high volume and employee turnover. Bottom line Your capacity to handle a software-only model depends on the number of people you have staffed to the administration of your plan and their level of expertise. STEP 3 ASSESS YOUR COMFORT WITH RISK Employee equity plans come with a great deal of risk, as they are subject to corporate governance practices and various securities, tax and accounting regulations. Your employee equity plan will also affect your financial reporting and involve an accounting expense for your company. When you work with a softwareonly solution, all aspects of managing your equity plans are totally up to you, including risk management. Three things can help minimize exposure to risk: Internal expertise Those responsible for stock plan administration should understand regulatory compliance requirements and be able to provide sound counsel when challenging situations arise. You should know how you ll keep up with ever-changing rules and practices and understand how they affect your equity plan. Automation The less your equity data is touched by human hands, the safer it is. Think carefully about how equity data flows through the cycle and across multiple platforms, and find a solution that allows as much automation as possible. Process design Well-crafted, standardized processes with audit controls and consistency of application are also key to a risk mitigation strategy Fully outsourcing your stock plan administration can offer peace of mind. You ll gain access to stock plan professionals with extensive expertise, sophisticated technology tools to move and process large amounts of data, and systems built to streamline tasks. And many service providers have documented practices in place to offset risk for themselves and their clients, such as a Statement on Standards for Attestation Engagements (SSAE) No. 16 (formerly known as a SAS 70). A SSAE 16 provides significant information about the provider s business controls and can help mitigate your risk. Bottom line Expertise, automation and intelligent process design mean less risk. 4

STEP 4 ASSESS YOUR PARTICIPANTS Ultimately your equity plan exists for your participants, who are most likely your employees. If the program is too confusing or participants can t get answers easily, you may find the plan is not achieving its purpose as a retention, reward and incentive tool. As you assess your participants, think of the level of support you want to offer them. Are your people savvy when it comes to employee equity programs or do they need a bit more assistance? If they need significant support, are you able to offer it? Fielding questions and performing transactions for employees can be a time-consuming responsibility, especially for large, high-needs populations or on days when the share price jumps. The following are two popular methods for reaching participants: A web portal where participants can log in anytime, view their outstanding equity grants, enter transaction requests and access useful documents A call center that offers knowledgeable representatives, extensive hours and support in multiple time zones and languages Outsourcers often provide these resources at no additional cost, providing an easy way for your employees to ask questions and take advantage of their equity awards. Because the outsourcer handles administration for you, their web portal and call center will likely be able to support more than just basic transactional inquiries. This is a great way to extend your capacity if you don t have the time or resources internally to manage this responsibility. Bottom line Know the level of support you want to offer your participants and decide who will provide it. FINAL THOUGHTS Deciding how much of your equity plan administration to outsource will likely provoke valuable discussions about your organization s culture and values as well as our equity plan s strategic objectives. The only right solution is the one that s right for your unique needs. No matter where your needle sits on the gauge, Solium Capital offers a solution for you. We have a range of products and services to help you achieve your goals, from software-only, broker-agnostic solutions to full-service arrangements that include brokerage services and participant interfaces. 5

ABOUT SOLIUM CAPITAL Solium is a leading global provider of web-based stock plan administration technology and services. Shareworks, our industry-leading software, provides unrivaled, comprehensive regulatory and financial reporting capabilities, helping companies automate and manage their stock option and purchase plans. Since our inception in 1999, we have been known as industry pioneers, always striving to change the status quo and challenge conventional methods. We take great pride in being leaders of change and delivering the most innovative stock plan administration experience possible for finance and HR professionals, plan administrators and participants. Solium has offices in Canada and the United States. Contact Solium Toll free: 1.877.380.7793 solutions@solium.com solium.com 2011 Solium Capital Inc. All rights reserved. The Solium Capital logo and Shareworks are trademarks of Solium Capital in the U.S. and/or other countries.