Equity compensation has proven to be an effective means in both public and private corporations, large and small, to help boost employee retention, enhance motivation, engagement and productivity.
Setting up and running a stock plan does come with challenges however – one of which is administration.
What does a job in stock plan administration involve?
Stock plan administration, commonly known as share plan or equity plan administration, is the process of creating, tracking and managing employee equity in a company. It involves input from internal and external parties.
- Examples of employee equity awards: Approved/Unapproved Options, Executive Stock Options, ISOs, NSOs, Cash-settled SARs, Stock-settled SARs, RSUs, RSAs, Performance stock/units, Phantom shares, Cash-based, warrants and a wide range of other custom award types.
- Examples of employee plan types: Approved and Unapproved purchase plans, ESPPs, LTIPs, JSOPs and a wide range of country-specific and custom types.
A stock plan administrator is typically required to understand the accounting, tax, legal, and securities regulations governing employee equity and other broad-based plans.
“Stock plan administration is a multifaceted process where admins are tasked with creating, tracking and managing the equity programs within a company. Research by the NASPP and Deloitte Tax reveals that an average of five internal departments, and sometimes as many as nine or more, are involved in management of equity plans.
Stock plan administrators must be able to work cross departmentally with these stakeholders, including internal legal, finance and HR teams, and various external parties including law firms, brokers and tax professionals.
For this reason, administrators need a comprehensive understanding of all relevant areas as they pertain to equity compensation to effectively administer their company’s equity programs.”
– Jason Mann, CEP, Director of Content at NASPP
Which team is responsible for stock plan administration?
According to a 2020 survey, over 70% of the companies report that the primary responsibility for the administration of their stock plan is housed within their HR or compensation & benefits department.
As mentioned already running an equity compensation program requires a wide range of skills and knowledge, not all of which might be readily available within one department or even across your employee base. In a recent survey, we discovered that 63% of public companies choose to outsource all, or part of, their equity compensation management to a professional third party provider.
Let’s break equity compensation administration down
As you can see from the definition above, equity compensation administration is a complex process. Here, we break it down into ten major components:
1. Gather all the necessary employee data to help figure out each eligibility, tax liability etc:
If you’ve never launched a share plan, when you’re gathering data from your participants, it’s important to do it in an organized manner and in accordance with any data protection rules or guidelines. If are looking to switch equity plan providers, you will need to be careful that no data is lost during the data migration.
2. Have a plan for your equity plans:
Companies could have multiple equity plans and awards running at the same time. Making sure vesting and termination rules, exercise windows, expiration dates, contribution limitations and other rules are correctly implemented for each plan and each individual grouping.
3. Tracking and processing day-to-day activities:
Enrollment, grant acceptance, vesting, exercise, historical issuances, termination and a lot more besides.
4. Taxation:
Calculating and withholding taxes as required, issuing and filing tax forms (e.g. Form W-2), and the requirement to stay compliant with local and international tax laws.
5. Accounting:
Recording and reporting equity compensation costs, updating valuations of equity, and again the requirement to stay compliant with accounting standards.
6. Dealing with multi-office locations:
A plan that works great for your Tokyo office might not be suitable for the employees in your Italian branch. You may need to consider country-specific plans that may be more tax efficient than a global offering. You will also need to consider specifics around local cultures.
7. Handling reports:
Everything from processing transactions, contributions from salaries, taxes, payroll and so on.
8. Compliance in each jurisdiction:
You and your teams should regularly review and monitor federal, state and foreign regulations along with securities laws when not only designing a plan but also when administering the ongoing running of the plan.
9. Communicate with participants, internal and external parties at all stages, from inception and launch through to vesting and beyond.
10. Mobile workforce:
Communication and compliance get even more complicated when employees move across locations, e.g. a mistimed move may put your employees in a situation where they have to pay more tax or result in them no longer getting the benefits of a tax-favorable plan.
To learn more about these considerations, head over to our equity compensation management guide.
At J.P. Morgan Workplace Solutions, our Equity Intelligence team is made up of in-house lawyers, tax specialists and fully accredited stock plan professionals. Our team has helped clients launch and operate plans in more than 140 countries. Contact us to learn more about how to manage your administration challenges and reduce risk and engage your employees with equity rewards.
Ways to administer your equity plan
Equity plan administration can be performed in-house, outsourced or both by:
- Onboarding a stock plan service provider
- Creating a spreadsheet and setting up formulas from scratch;
Pros & cons of using an employee share plan provider
An easy way to administer your plan is to leverage an experienced and professional equity plan administration provider.
In large private companies, pre-public companies, and public companies, it’s usual to see this function fully or partially outsourced. By bringing in a specialized equity management provider like J.P. Morgan Workplace Solutions, you can focus on your core business while leveraging their experience and knowledge to ensure high-quality equity programs.
| PROs | CONs |
| Can provide one single source of truth | Higher setup cost |
| Allows automation | Takes time to find the right provider |
| Provides a regulated trading platform | |
| Allows participants to access/view/manage their equity themselves | |
| Generates different types of BI/financial reports easily | |
| Offers customer support from a dedicated team | |
| Helps you stay legally compliant in each jurisdiction | |
| Secures your data | |
| Saves you time and money in the long run | |
| Provides extensive equity knowledge for each jurisdiction |
To learn more about other benefits of equity management software, read here.
Pros & cons of using spreadsheets
It is possible to build a stock plan from scratch using a spreadsheet and manage the plan on it. We’ve heard some companies do this in the early days however it doesn’t always scale with their company’s needs as it grows.
| PROs | CONs |
| Low setup cost | Susceptible to human error |
| Easily accessible | Has scalability issues as you grow |
| Allows low or no automation | |
| Potential for a lack of version control and audit issues | |
| Time-consuming | |
| Requires an extensive understanding of tax and compliance in each jurisdiction the plans operates in |
To read more about the dangers of managing stock plans with spreadsheets, click here.
Find your ideal equity plan administration provider
Although it’s possible to use a spreadsheet to administer your stock plan when you’re starting out, why not save yourself some time and effort by starting it right?
With equity management powered by Global Shares, we have over 15 years’ experience helping companies of all sizes harness the potential of equity to attract, retain and reward key talent. From software and administration to compliance and reporting – we can help support your teams and help your employees take full advantage of the benefits of employee equity compensation.
Request a free demo to find out more about our equity management software and services.
Please Note: 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.
