Lauren Jenkins  0:04

You’re listening to Prosperity at Work from JP Morgan Workplace Solutions, the podcast all about equity compensation, financial, well-being and more. I’m Lauren Jenkins, Head of Executive Participant Servicing at Workplace Solutions.

Chris Dohrmann  0:16

And I’m Chris Dorman, Executive Director of Strategic Partnerships and Workplace Solutions. This week, we’re taking a look at a bit of an emotional issue for employees, as well as an elephant in the room for US companies right now, pay transparency.

Lauren Jenkins  0:30

So from a government to an individual level, there’s demand for transparency on jobs. Like it or not, it’s already here and it’s coming for your state soon, so get ready.

Chris Dohrmann  0:39

This week’s guest has all the insight you’ll need on how this impacts comp and benefits. We’re joined by Nancy Romanyshyn, Senior Director of Total Rewards Strategy and Solutions at Syndio. Nancy, welcome to the show.

Nancy Romanyshyn  0:52

Thanks so much for having me. I’m so excited to be here and talk with you both.

Lauren Jenkins  0:57

Nancy, tell us a bit about Syndio and your role within the company, and how that connects to the issue of pay transparency.

Nancy Romanyshyn  1:02

So Syndio is a software analytics platform. We help companies do analyzes where they can make sure that they are paying people fairly and promoting and conducting performance fairly and consistently throughout their organization. So we provide both analytics through the software as well as expert support, really helping them navigate through things like pay transparency. And the work that we’re doing with so many of our customers is helping them do the analytics to prepare for pay transparency. So really getting a better understanding of how they’re delivering, pay, how they’re promoting people, how people are advancing and moving to their organizations, so that that way they can be more transparent about what they’re doing and make refinements potentially to their programs before being transparent. So we’re just helping our clients really navigate this new world of transparency.

Chris Dohrmann  2:01

Let’s talk a little bit about what repay transparency really means. Where is this new legislative trend coming from? And as a secondary question, what does it really include, both now and maybe in the short term?

Nancy Romanyshyn  2:16

I think it’s a great question, because when we talk about pay transparency a lot of times we think first and foremost of the legislation. So we know that there are so many different regulations across so many different jurisdictions around a variety of transparency requirements. So it may be posting ranges around when you’re advertising for a job. That’s sort of a kind of simple way of looking at it, but I think we know it’s so much more. So what we’re finding is the legislation is saying, well, it’s not just say the range for base salary, but it’s looking at other components of compensation. It’s being transparent around how folks are advancing in your organization. What are those opportunities that they have for advancement? It’s being those types. It’s really looking at a lot more than just pay and I think that’s one of the things that that we’re seeing really emerge. And then I think the other dimension of it, Chris is really thinking about how different jurisdictions come at it. So in the United States, we tend to be, I don’t want to say a little more laid back, but believe it or not, a little more laid back. We’re less prescriptive, and we’re starting to lean into being more prescriptive about what exactly we want employers to post and share and disclose. Where in Europe, you find a lot of the European countries have been more prescriptive. There are specific analytics that they’re asking you to provide to demonstrate that you have fair and consistent pay practices and talent management practices. And I feel like everything’s sort of feeding into itself, and everybody’s sort of learning and borrowing from one another, and that’s really what, what is continuing to emerge.

Chris Dohrmann  4:05

And you read my mind, because that was the point I was going to bring up as a follow up, the fact that in the US, this is almost following the same type of path as data privacy did, where each jurisdiction is going to be either assertive or, as you know, basic as it wants to be, and that’s a problem for employers and employees alike, because they have to navigate all in multiple jurisdictions and then deal with an overarching format, much like the

Nancy Romanyshyn  4:34

EU as 100% agree. I think that’s what we’re hearing a lot from employers, is, you know, okay, I get it in this state or in this country, we have to do this. We have to do this. But, oh my goodness. Like, how do i First, how do I manage the complexity of all that, the patchwork of different legislative requirements, and then, how does that relate the all of these compliance exercises? How does it relate to what we’re. Trying to do from an employee value proposition standpoint. You know, how we this is all about how we value our employees. So how do we have one holistic approach, one consistent sort of set of messaging and way of operationalizing that? So that’s what we’re seeing a lot of you know, most of our our customers are global, so they have many different places in which they’re operating, and that’s what I think is really rising to the surface. Just like you say this, it’s now we’re sort of in this moment where employers are saying, Whoa. We need to have a strategy around this, a true transparency strategy.

Lauren Jenkins  5:36

So pay is personal, but transparency is, of course, public, what is your take on these two opposing forces?

Nancy Romanyshyn  5:43

So I think there’s a convergence. I would say that is happening. I think we are in a place where we need to think about all of that, how I think employees now are part of the conversation when it comes to pay in a way that they’ve never been before, because they actually have access to more information now than ever before. So from this sense of pay being personal, it is getting up to a point where employees have agency. Employees are not just advocating for themselves from that right, emotional, personal place. They’re advocating for each other. That’s been really fascinating. When you see somebody post, hey, I was a marketing analyst at this company. I’m leaving, but I want you all to know what I was making, so that when you apply for this job, you know what you should be asking for, wow. I don’t think we’ve ever seen anything like that before. So I think what employers you know or would do best to do would be to really lean into that and say, Hey, we get it. Let’s have a conversation about how we value your work, how we value your contribution, how we value, how all of that, those values, come together so that and meets our business objectives. This is what we’re trying to achieve with our pay programs. This is how it ties to our business. So these are all the things together, how it works together. This is what it means, then, how we value, the role, the skills you bring, and this is how we’re going to value and how you can advance, how you can build on that. This is how we can share success together. I think that’s really what I’m seeing happen, but I think, to your point, it hasn’t happened that way in the past, so I think there’s a there’s a transition that’s happening right now.

Chris Dohrmann  7:36

Nancy, I’ve heard you talk before, and we’ve seen each other at national conferences and mutual clients. And what I’m struck by is, you talk about, when clients first hear about pay transparency, they have a wait. What response Am I exaggerating that even just a little I

Nancy Romanyshyn  7:54

think now, Chris, you and I have had this conversation about generational differences too, in terms of, you know how some of us feel about transparency. Like you said, you know, pay is personal, and we have to be conscious of the fact that you know, who are the folks in leadership? They’re folks that are, you know, our contemporaries, right? So there’s been this big change management a couple of years ago at one of those conferences, Chris, in fact, what I did was I actually shared my own personal pay history as part of my presentation. And I looked at everybody in the audience and I said, Are you uncomfortable? I’m uncomfortable right now. Did that make you uncomfortable? Because guess what? This is what’s happening so and I want you to be ready to be uncomfortable. And it was, it was extremely uncomfortable, but yeah, I think employers, it’s rare the employer that say leans into it right away. I think there is that visceral reaction when we think about the way we’ve managed comp and design programs in the past, we used to say things like, this is our competitive advantage how we’re paying you, and especially when it comes to beyond base salary, when we’re talking about bonus and equity and and how we structure those programs, I think everybody is realizing it’s all out in the open, so we’re going to have to think of other ways to have a competitive advantage. And I think that’s that’s going to take some time for I think some employers are transitioning more quickly and leaning into that than others, but yeah, I think it’s safe to say most folks are feeling vulnerable about transparency,

Chris Dohrmann  9:30

and you are 100% correct as the oldest person here, I would say that I would rather talk about my medical history than my pay history. So you are spot on one other issue, and I wanted to bring up, is many companies, after the pandemic, may have thrown up an unintentional hurdle for themselves by by having geographical differences when people go from low cost or high cost of living areas and they’ve adjusted salary with pay transparency the same job. Job done in different places may pose a problem. Have you seen that

Nancy Romanyshyn  10:05

prior to the pandemic? A lot of my so I was, I was a long time consultant at Willis towers, Watson, that’s where I spent the majority of my career. And a lot of my clients prior to the pandemic didn’t necessarily have formalized geographic differential approaches. It wasn’t necessarily something they communicated to employees if they were doing it, and they had somewhat different ways that they were doing things. The pandemic hits, and all of a sudden they have all of these remote folks, or they’re deciding who’s in person, who’s remote. How do we navigate this? And the pay issue really did kind of come to the forefront, because then it was, well, wait, I’m not requiring them to be here. And then, oh my gosh, I have employees that are moving across the country that I don’t even know about, you know? So I think what it what it required, was a level of transparency. We’re gonna be saying that word a lot, but it required us all kind of being grown ups about it. And I think there again, you have some employers have been pretty resistant. We’ve had conversations with folks where they’ve said, Wait, we have to post ranges. Now, my folks in, you know, Alabama, we’re gonna have one range, and then the folks in Pennsylvania are going to have another range, and they’re going to see it, and I’m like, Well, yeah, but I bet if you talk to them and said, Well, hey, you’re going to buy a house here versus here, or you’re going to rent an apartment here versus here, I think they know that there’s a different cost of living, so there’s probably a different cost of labor, and you could Talk to them about that and how you’re structuring that, but I agree it’s on the face of it. First it was identifying and sharing. Yes, we we do value labor differently depending on the market, because of local market forces. But then the second piece was, okay, now, how do we reconcile that you’re no longer working in the Bay Area. You’ve moved away from the Bay Area, and we have a differential for working in the bay area because it’s cost of labor. It’s high there, but you’re working now in Idaho, so we’re going to adjust your pay. You saw some employers come out pretty loudly around that. We used to get asked that a lot as people were reconciling that. And I think my advice was always, it’s never great taking pay away from people. It’s always something that always, you always kind of want that to be your last resort. That’s not a wonderful message. So one of the things we, you know, we typically advise is, why don’t you look analyze it, look at the scale. Look at how many employees you have in certain locations and model the changes that you would make and maybe, maybe taking pay away isn’t the right thing. Maybe it is the right thing, but maybe it’s not the right thing, but I do think it’s led to, again, more transparency around this is how we design a pay program. Your job is valued differently depending on where it is, because of cost of labor, maybe cost of living does influence that as well. Scarcity of talent, you know, my my data scientists, get a premium right now because there aren’t as many of them, and we need them, you know, those types of things, those types of choices. But I think being, you know, having a conversation with employees, just explaining to them that rationale, employees respond, well, they like that there is this purpose and this rationale associated with how they’re paid, because their pay is really important to them. So they want to know that there’s a plan behind it. Absolutely,

Lauren Jenkins  13:37

I think that’s one of the big things with transparency is just creating that dialog thinking about other impacts here on compensation and benefits and overall total comp What do you see trends wise as it relates to this pay transparency?

Nancy Romanyshyn  13:56

One of the things we’re seeing is, yeah, transparency is definitely changing the design of pay programs. So we are seeing things like sort of a, I want to say, a normalization in a way of base pay for sure, where you’re going to see less variation, less swings in the data around base salaries as more and more people are sharing what they make. And, you know, again, there may be differentials based on location, but it’s but in other words, things that are observable, things that are objective, not you know, Nancy negotiated for that really high salary, you know, so you’re seeing, I think you’re continuing to see some of that, at least, employers moving toward that, employers around base salary. Employers are also tightening those ranges because they know they have to post them. So you’re seeing employers move to functional ranges. So maybe all of finance, rather than having finance marketing, HR, everybody in the same band, you know, this global band, we’re going to say, No, this is Finance. Yes. So within that, I have financial analysis, I have accounting, you know, I I have, you know, tax. I have some of these different job families and they and they may vary, but at least I have this one consistent range and I can and a structure that I can better communicate with my employees. We’ve seen some companies go to job based ranges, which is fascinating to me, and I think, difficult to manage, but some companies are choosing to do that. They’re like, forget it. We’re just going to go to that. So I’m seeing that change around transparency. The other interesting thing I’m seeing is, especially among, say, some of your large tech companies, there’s a lot available in terms of information on the internet around how equity is structured, vesting schedules, like different it’s really fascinating how a lot of that is being shared. So I think that too goes to really recognizing that, you know, employers may be coming in with this design, but now it’s you’re seeing the public kind of weigh in, and the people that you’re attracting and incentivizing are weighing in on it. And I think there’s sort of this feedback loop that’s developing around, is that fair? Is it effective, you know? So I think that’s going to shape some of what’s done around how that’s structured. So I think things are just becoming less nuanced at an individual level. There may be, I think we are seeing an increasing nuance, though, at more of a group level, function segment of industry, those types of things. It’s just that we have to be able to explain? Well, yeah, we teach, you know, we treat these folks differently for these reasons, these objective reasons. So it’s more like that versus, say Nancy negotiating for a better deal. So

Chris Dohrmann  16:53

just let me sum up so companies that have a philosophy and are also multi state employers or multi country employers, and knowing that in the US, they’re not likely to get an overarching federal, codified regulation here, what are they doing? Are they forming at least common denominator strategy?

Nancy Romanyshyn  17:13

They are developing a strategy. First of all, it’s elevating, it’s coming out of, say, compensation administration sort of level, and it’s you’re seeing that total rewards. Leaders are really elevating it to say, hey, leadership, we need to let you know this is a strategic imperative, our approach to transparency. And then they’re putting together, say, different work streams to determine exactly, let’s assess what’s required. What do we do now? What’s, you know, let’s do the gap analysis. What do we need to do? Where are all the data? Do we have one system? Do we have several systems? You know? How are we going to do that? So they’re doing sort of this assessment, and then they’re moving toward, you know, again, depending on how centralized or decentralized they are, that really kind of dictates the speed we’re seeing kind of a centralization right of how we need to address this, and we’re seeing transparency strategies play out, I want to say at the country level, at the very least, where folks are making a decision that, okay, yep, we have significant operations in, for instance, New York and California. And now, you know, we’re seeing other states follow suit. So we’re not going to do different things in different states. We’re going to have one us view with the EU pay transparency directive, you’re seeing sort of a similar motion where, and that’s what that’s done, is that’s laid out sort of a least common denominator the EU pay transparency directive is the floor. It is saying you need to do these five things, and then each of the member states can transpose the law, and you can, they can toss in their own little flavor of what they want to do. So that’s what Sweden did. Sweden said, we make you do all these things already, and we’re going to do the EU pay transparency directive. So you’re going to have to do all of it. So I think for a lot of employers, what they’re what they’re in the midst of deciding is, do we do anything beyond country by country? Do we do an even sort of broader strategy? And I think that’s still in play, but what I’m hearing is we, we typically have a global perspective. We are going to be globally transparent. But then there’s an element of, we’re going to sequence that country by country. We may decide not to, depending on whatever’s going on in that particular country. It may look different country by country, kind of a thing. So that that right now, that’s really what’s playing out, but, yeah, having, but at least having a strategy across the enterprise for sure, and

Chris Dohrmann  19:46

just to be completely, you know, transparent, that’s what prompted my original interest in this whole discussion. Because equity compensation is part of the EU directive, but not yet part of the. Us. You know, approach to this maybe coming soon in jurisdictions like New York City or Colorado or even Hawaii, but not here yet.

Nancy Romanyshyn  20:09

That is exactly right. Companies are realizing just because this is what’s the bare minimum that’s being articulated, there’s eyes on all forms of discretionary compensation and beyond, because in the EU pay transparency directive, they talk about benefits, they talk about allowances, they talk about a myriad of different things. So when I’ve spoken with some global employers, for instance, that have grown by acquisition, it starts to get a little problematic, because they may have made different deals with different companies that they acquired, and they may still be in a transition stage. So yes, three years ago, we acquired this business entity, and, oh, that’s going to be transparent now that those employees get this and these employees get this even though we’re all one company. So I think preparing for that eventuality, that there’s going to be some level of disclosure that you’re going to have to make on all forms of compensation. So what you know, do you want others telling your story, or do you want to tell your story? I think the other thing that’s that’s a challenge, but an opportunity is for some of these global employers We’ve been speaking with, they kind of go, Oh my gosh. You know, pay is defined as this for the purposes of the EU pay transparency director, but then we say, Pay is this, and then over here they’re talking about this, you know, what’s the right answer? And I think that’s where employers have a great opportunity to lean in and say, well, let’s just, let’s lay it out. Let’s say at our company, this is how we define pay. We’ve always talked about pay with you. This is your total rewards. This is how we think about it, in the context of your employee value proposition. This is what you know, our mission, our goals and how, how we value you. What you’re going to see Nancy is you’re sitting in France. France legislation requires the disclosure of data, and that’s how it’s going to be defined for the purposes of complying with, you know, the local legislation. But understand this is how it relates to how we think about it at our company. So I think it’s just making those distinctions, but but being more and more intentional, and making sure that you have a strategy for how you’re setting that up, how you’re scaling that education and those conversations internally with your employees, I think that’s where, that’s what we’re starting again. It’s all sort of in motion. It’s all happening right now.

Chris Dohrmann  22:40

So I think that brings us to my favorite part of the podcast, which is a rapid fire round. And this isn’t a press conference where we’re going to try and ask the question that you’re not ready for. This is part of the podcast that highlights your expertise in the most efficient manner. All

Lauren Jenkins  22:56

right. First question is, what’s the number one thing a company can do to prepare for? Pay transparency. It’s

Nancy Romanyshyn  23:02

a really good question. The number one, the first thing, I think I wish understand what you have. And by that, I mean I would say, Maybe another way to say it would be, don’t underestimate what pay Transparency means, and really think about it in a strategic way. So that means first understanding what what you do, what you have, what it means, how you’re defining it, how the world is defining it, really spend some time assessing and being planful and intentional around then what you’re going to do. Don’t just dive in. So I guess maybe it’s more of a Don’t, don’t just dive in. Don’t be reactive. Try to be proactive and strategic around it, and that’s going to serve you well.

Chris Dohrmann  23:52

You’ve addressed most of this already, but for listeners in the comp and benefits space, what three things can they bear in mind when they’re first addressing pay transparency,

Nancy Romanyshyn  24:01

putting, I think number one would be putting the employee at the center, making sure you’re always thinking from the employee mindset. I think that will really help orient you toward how you’re going to share information, making sure you’re setting just the right tone, and again, having that intentionality around how you’re communicating, all that you’re going to be communicating and educating, and how you’re going to invest in that education of your employees. Then the second thing I think, I’d go back to, you know, sort of that assessment, right? It’s, I think, assessing and pulling together the different stakeholders you’re going to have, looking beyond your your own immediate team, and recognizing that you’re going to have to bring leaders along. Leaders are going to be reluctant, or anticipate that they may be reluctant. This is a big change, so I think assessing and pulling together, say, a multi disciplinary team, to help you then you. Really get a handle on what is the scope and breadth of of what we’re going to have to do to meet all of this. And then I think giving, giving yourselves grace, I think would say, I’d say, that’s the third thing, knowing that this is a moving target. It’s evolving as we speak. And I think the more you’re thinking strategic about it, the more you’re thinking about it from the employee point of view, the better you’ll you’ll be able to then pivot as new things emerge and have sort of these, it’s, I’m going to sound very consultant speak, but having these guiding principles right in your brain that you’ll continue to go back to so that when this new law pops up, it’ll be like, Okay, let’s think about it within this context, this law is going to impact. Let’s see these stakeholder groups. Let’s immediately, let’s have a plan for checking in with them and then figuring out how we’re going to move forward. So I think it’s, it’s really around having, being planful and intentional, not reactionary. It’s very difficult, because you’re you’re changing things as you go. But I think that the good news is, you know, total rewards. Teams have a lot of these things in place. It’s just maybe framing them a little differently, thinking about them a little differently, and then being ready to share them. I would say, don’t be scared. We’re all scared. So I can’t really say, I know it’s not helpful to say, don’t be scared. But I would say, you know, what do they say? You know, courage is being scared and doing it anyway, kind of having that bravery. I think, as total rewards professionals, we’re always so worried. We perseverate on do we get the calculation right? Do we have the right amount of data? Do you know, analysis paralysis? This is not a time for that. The best thing you can do is just be vulnerable and say, so we’ve refined our ranges. They’re narrower than you’re used to. This is why we’re doing this. We’re being transparent. Yes, people are in different places in the range. I can answer most questions. I can’t answer all the questions, but I’m going to do my best to answer them for you. And let’s keep the dialog going. And these ranges may change too as we get more information, that’s what we’re doing. This is a I like to sometimes talk about it as like, almost like six sigma, like you’re we’re moving from a set it and forget it, kind of total rewards mentality when it comes to structures, to more of an ongoing, continuous improvement motion as we get more data, as we use different as new and different market data emerge, right? We have so many different sources. As we do better analytics internally, we’re going to continue to refine and hone what we’re doing, because we this is really important. So we do these analytics all of the time. I think leading into process versus the product is what’s really something that’s been successful at a lot of with a lot of the companies that we work with, where they talk more about the process, less about, say, the number or the range. It’s really how the process of how we got there, employees really appreciate that, because, again, it shows, yeah, we we take a lot of time and and we put a lot of thought into how we value what you do. So,

Chris Dohrmann  28:02

Nancy, you just mentioned data, and this happens to be at a time when AI and data cataloging and everything else is really at the forefront. Are your clients using the vast amounts of data to form the data ranges that they need?

Nancy Romanyshyn  28:18

I think what we find with our clients is, yes, in the sense that they’re what they’re doing is they are really leading in terms of using new and different sources of data. So we find, for a lot of our clients, I think it kind of in a binary kind of fashion. Sometimes there’s your external data and there’s your internal data. So your external data is, you know, when we think about market data, and we know that there’s been a huge and very rapid evolution around how we’re defining market we’re seeing a lot of our customers use the conventional, sort of typical surveys and information, but then also use things like, you know, applicant tracking, ATS data and offers data and what’s available sort of these different variations of I’m going to put in air quotations real time, because a lot of times they’re not real real time, but so they’re definitely looking into all of these different things and referencing them. I’m hearing more and more about that, but then the other part of it is the internal data, and I’m seeing certainly a lot of our customers, that’s exactly what they’re doing. Is they’re getting better around analyzing how they’re actually delivering pay in real time, and what can that tell them about what they should do next and how it informs pay decisions go forward.

Lauren Jenkins  29:37

So last question here, Nancy, can you sum up your philosophy on pay transparency in one sentence.

Nancy Romanyshyn  29:44

Let’s see my philosophy on pay transparency in just one sentence is just do it. Just do it. I do a workshop where I ask employers in the workshop. So what if tomorrow you woke up and everything was completely transparent, everything, everybody had access to all the information about all the employees, every bit, every bit of it. Hey, performance, ratings, job, everything, what are the first three things you do? It’s a great exercise. It’s a great mental exercise. You can get past the visceral like heart beating reaction to help you prioritize what you need to do to get ready. So and usually it’s one of three things. It’s I don’t know what. I don’t know things are broken. I need to do some assessment and analysis to really understand what’s broken, because I’m not sure what, but I know I have some ideas. Or it’s I know what’s broken. I need a chance to fix it before we you know, we go forward, or I feel okay about that. I’m actually pretty happy with what we’ve done, but I I want to lean into explaining it. I don’t know that we’ve explained enough of it, so we really need to focus on communication. It just really helps take this overwhelming concept and and bring it back to what is practical. There you there is no benefit to waiting. There is every benefit to do something, take one little step, do something, assess, do whatever it is, but just do it, because you’re just going to feel a lot better in the end. There’s much more upside to this than downside, and it truly can be exciting once you get past you know the fear and trepidation it can it’s a really exciting time to be a total rewards profession.

Chris Dohrmann  31:37

People need to remember what it was like to be a kid. Ripping the band aid off is always easier than just agonizing through it. Nancy, it’s been a real pleasure. Thank you very much for joining us on the podcast. Well,

Nancy Romanyshyn  31:50

Thank you so much for having me. It’s been so wonderful talking with you and I, I enjoyed this and all of our conversations at the next conferences that we bump into each other at.

Lauren Jenkins  32:00

Thanks so much, Nancy. And that brings us to the end of this episode of Prosperity at Work from JP Morgan Workplace Solutions.

Chris Dohrmann  32:06

Thanks for listening. If you’ve enjoyed this episode, we hope you’ll review rate and subscribe to JP Morgan Workplace Solutions Prosperity at Work, available wherever you get your podcasts.

Lauren Jenkins  32:18

You can find more insights on equity compensation, financial wellness and more by following us on LinkedIn or over at globalshares.com where you can also download our new global equity compensation report 2024.

Chris Dohrmann  32:30

Until next time, that’s Prosperity at Work. Bye!

Information provided in this podcast is intended for informational and educational purposes only. It may contain views which differ from the views of JP Morgan Chase and Company. For specific guidance on how this information should be applied to your situation, you should consult a qualified professional for full details. See the show notes on your podcast player right now.

Lauren Jenkins  32:54

The Prosperity at Work podcast is produced by dustpod.io for JPMorgan Workplace Solutions.

0:00:05.2 Chris Dohrmann: Welcome to Prosperity at Work, the newly branded podcast from JP Morgan Workplace Solutions. You may have tuned in previously when we were known as Own Up, the podcast by Global Shares. So welcome to a new and improved show. As you may know, Global Shares was acquired by JP Morgan some time back, and has now completed this transition to a new brand. On this podcast, you’ll learn about equity compensation, financial well-being and more with expert insights and stories from people who’ve already done the hard work and have lessons to share. And so here we are, new name, new look and feel, and a new co-host here beside me, Lauren Jenkins, our head of Executive Participant Services. Lauren, welcome to the show.

0:00:46.5 Lauren Jenkins: Thank you, Chris. I’m really excited to be here, especially as we unveil our new podcast name and a few new features of the show. So what are we talking about today? Let’s get into it.

0:00:57.5 Chris Dohrmann: Financial reporting. It’s an essential of equity compensation plan administration, but for one of a better word, it can be painful.

0:01:14.0 Lauren Jenkins: There’s no getting around it. How do we get through the sea of complexity, that is, reporting. Today’s guest navigates one of the most complex reporting environments you can imagine. Listeners in the US or North America, may not know Coupang, but it’s the Amazon or eBay of Korea, as well as one of the top three IPOs of 2021, that’s a pretty big deal. We’re joined by Lilyanne Nuevaespana, the Director of Global Accounting, and it’s our pleasure to introduce her now. Lilyanne, welcome to the show.

0:01:41.3 Lilyanne Nuevaespana: Hi, thank you for having me.

0:01:43.1 Chris Dohrmann: Could you tell us a little bit more about Coupang for the listeners that may not be very familiar.

0:01:49.4 Lilyanne Nuevaespana: Oh, yes. Coupang is like, as you said, the Amazon of South Korea. It’s actually now the biggest e-commerce retail company in Korea. And they are well known for what you call the rocket delivery, which, you order from them by midnight and it will be in your door by 7:00 AM. And this is mostly for, especially for groceries and fresh produce and the like… So as you said, they did the IPO in March of 2021, ’cause it’s a US company, it’s listed in the New York Stock Exchange, and that’s why we do all the US Cap reporting and the SEC filings of the 10Qs and the 10-Ks.

0:02:35.9 Chris Dohrmann: You also have a couple of other complexities, so if not for the size of the company and for the multi-national aspect of the company, listing on a US exchange and having a headquarters in Seattle, but having operations primarily in Korea, you also do dual standard, Accounting Standards IFRS 2, as well as US Cap.

0:02:55.1 Lilyanne Nuevaespana: Yes, exactly. So we still have to file all the standalone financials of each country where we operate. So Korea is the biggest one, but we do have operations in Japan, China, Hong Kong. And with the acquisitions of Farfetch, we also have operations in Europe now, which is the UK, Portugal, and Italy are the biggest ones.

0:03:21.4 Chris Dohrmann: So you’re going over there as if it’s routine, there are a number of other things that you do that make the complexity even more so. So, you allocate expensing down to whether it’s the country level, but actually down to the corporate budget level, so you have budget expenses that you keep in the system and allocate expense that way.

0:03:46.6 Lilyanne Nuevaespana: Yes, so each employee is assigned a cost center and an entity, and we do that in Global Shares, it’s in our HR tool, which is called Workday, and our HR to a Workday is interfaced with Global Shares. So those data, the cost center and the entity, we can allocate the expense of that particular employee using those two fields in our reporting and on the system. So it makes it easy for us to allocate expenses to each entity and each cost center.

0:04:27.2 Lauren Jenkins: Regarding the garden leave process and sabbatical tracking in Workday. Can you talk a little bit about how that works for Coupang?

0:04:38.4 Lilyanne Nuevaespana: So every month, we have a summary of anybody who has applied for a leave of absence. So any leave of absence that is more than 90 days, means that your vesting of your shares will also be pushed back 90 days. So we do have a process where we send this to Global Shares, and they will be the one to update all this in the system. We have the Jira ticketing system, for all our requests, so I guess we have set up this system where none of Coupang employees can change anything in Global Shares. Anything that we need to change, we need to send to Global Shares using the Jira ticketing system.

0:05:26.7 Lilyanne Nuevaespana: And they will be the one to change the vesting dates and anything that needs to be changed, then they give us the report back and we have to double check, make sure everything is accurate before they actually put it live in the system. So this is done every week actually, or every day, if we need to change anything, we send it to them, and usually it is done overnight and we get it there. Garden leave is different. Garden leave more of a… If somebody… This is usually for executives, when they terminate and we still give them like, okay, this is your termination date, for example, today, but you see your will still vest one year from now. So that one is totally different for accounting purposes and in the system also, it’s a different kind of change to just a regular leave of absence.

0:06:26.7 Chris Dohrmann: We’re talking about reporting, as if it was something that basically came right out of the box for you, but as a private company that was founded in 2010, and then IPOed in 2021, you had a lot of conversion to do, an orientation for many of your stakeholders about new reporting, because you probably had an abbreviated reporting period right after the IPO to do your first financials, whether it be a Q or a K. How is that process for you? And how did that work?

0:07:00.7 Lilyanne Nuevaespana: Yes, once you do an IPO, there is a lot of compliance and regulations that you need to follow, one of which is reconciliation and the other is segregation of duties. So those two are the main controls that we need to put in place when once you become public, because of the SOX audit and SOX controls, I don’t know if you guys are familiar with SOX controls, but this is like the requirement of the SEC, the Securities and Exchange Commission, under the PCAOB. This was actually formed in way back in 2001 when that [0:07:41.5] ____ happened, a long time ago. So anyway, so before we became IPO, those were the two issues that most private companies have is, segregation of duties. So one person can do a lot of things, and when one person can do a lot of things, fraud can happen.

0:08:03.3 Lilyanne Nuevaespana: So when we did the IPO, we had to separate the operations or the admin side of RSUs and the accounting side of RSUs. Before the IPO there was only one person in charge of everything, the admin and the accounting, and so there was a lot of errors. So when IPO happened, before IPO we moved to Global Shares, but that was… Aside from the segregation of duties and reconciliations, it’s also because of we are in so many countries. We needed someone who can cater to sending money to all these different countries or administering our issues to all these different countries. So there is the accounting side controls, and there is also the operation side where we actually had to move to Global Shares to be able to address all those needs.

0:08:57.9 Chris Dohrmann: The global aspects. And just for our listeners, the SOX refers to Sarbanes-Oxley, the controls that were put in place by that legislation.

0:09:07.5 Lauren Jenkins: So one of the complexities that you’re dealing with at your company is that you’re doing a roll forward for every reporting period. Can you talk to us a little bit about that?

0:09:16.5 Lilyanne Nuevaespana: Yes, so one of the biggest footnotes disclosures needed for the filing of SEC is the roll forward of the shares. It is presented in our statement of equity, and it is also presented in our footnotes. So the way we do it is you need to have your beginning balance, right? Whatever is outstanding. So there are two kinds of RSUs, what is outstanding that’s already in the white CAP, that means it was already issued, right? And then there is also the outstanding, but not yet… It’s outstanding grants is what we call it. So it was already granted to the employees, but they haven’t vested yet, or they haven’t took… Employees have it exercised. So there’s two things that we are monitoring. So the one that is outstanding and in the market, it’s basically, okay, you’re beginning balance, and then what was released and then what was…

0:10:21.2 Lilyanne Nuevaespana: Exercise is actually release an exercise, it would be your outstanding balance out in the market. And then for the ones that are outstanding, granted that would be your beginning balance of what was like outstanding in the previous reporting period, and then you add all the grants, all the RSUs that was granted during the period that we’re talking about. And then forfeiture, you remove all the forfeiture, and then you remove all the ones that were released and exercised. So we used Global Shares reporting for all of these. So we go get all the release report, the exercise report forfeiture reports. So having all these reports and also the [0:11:08.3] ____ Grad Malan report reconciling all this, then we can get those discourses that we need for our filing.

0:11:17.1 Chris Dohrmann: So it sounds like just the regulatory piece of this is only a small part, you use the reporting to also manage dilution, calculate burn rate, make sure that the General Council and compensation committee are updated, so it sounds like all of these people are literally interested in everything that comes out of your department.

0:11:38.3 Lilyanne Nuevaespana: Yes, there’s a lot of stakeholders. We have FP&A that ask for a lot of these reports for budgeting and forecasting purposes, we have global compensation that gets this so that they will know for each employee how much is outstanding, how much is for… This is for planning on the compensation basis for each employee, because ours issue is a big part of the compensation.

0:12:07.7 Chris Dohrmann: Right, and you mentioned executives before, so I mean the executives, even when you were talking about garden leave, they may be the minority of the population, but they hold usually the majority of the shares. So it has a big impact. So a small amount of people have a large impact.

0:12:23.6 Lilyanne Nuevaespana: Exactly, so we really watch those executives when there are movements on those executives who watched them, ’cause they’re very significant in the total.

0:12:32.8 Chris Dohrmann: We’re gonna move to a section now that really highlight your expertise, and we’re gonna call it quick fire. We’re gonna make you talk less because you’ve been very gracious and explaining much of what Coupang does, but we’re gonna ask you some very specific questions. Is that okay?

0:12:47.6 Lilyanne Nuevaespana: Sure.

0:12:48.4 Chris Dohrmann: Great.

0:12:48.5 Lilyanne Nuevaespana: If I have the answers. [chuckle]

0:12:49.8 Chris Dohrmann: Great, I think you will. So, I’ll start. What three things were essential to be able to do your job properly when converting the data on to the system?

0:13:03.6 Lilyanne Nuevaespana: Well, first is accuracy, right? So we do a lot of validations when we did transfer our data. The second one is the timeliness of the reports and timeliness of processing data. Because there is a very specific dates where once, for example, when grants are given, we make sure it’s in the system, and then we have to release letters to all these employees to give them the grants, because those are required, the communication to the employees, so timeliness is also important. And then the third one is, when we have issues, we want somebody who can address them in a timely manner, so that was also one of the requirements that we had that was really important to us, especially during the early stage of implementation in Global Shares.

0:14:02.1 Lauren Jenkins: And what would you say is the sign that things are working well from a financial reporting perspective?

0:14:09.0 Lilyanne Nuevaespana: So we do a lot of recalculating and double checks, so when everything works well in the roll forward reconciliation and we can generate it on a timely basis, then we know that it works very well. When there are unreconciled items that we cannot figure out, which sometimes happen because of the timing, as long as it’s not material, so sometimes we have like 7,000 of shares that we cannot figure out, but 7,000 compared to 20 million of shares is nothing. So we can pass on those and we can just reconcile them the next month. So those things as long as they reconcile and then they roll forward properly, it helps a lot and we are sure the financial reporting is working well.

0:15:05.2 Chris Dohrmann: So it seems like your stakeholders like payroll and Workday, it’s really impact your job and it’s easy to manage the roll forward if you’re gonna use them as an out of period next time using the ticketing system, so great.

0:15:21.4 Lilyanne Nuevaespana: Yes, yes. Definitely.

0:15:23.9 Chris Dohrmann: I’m glad that’s working. Maybe one final quick question is what role do communications with your stakeholders, ’cause you’ve mentioned them a couple of times, play?

0:15:32.4 Lilyanne Nuevaespana: Oh, that’s very important. We have regular communications, they let us know what they need ahead of time, and I guess it’s all… You know how Accounting works, right? We want check list. Everything is a checklisted. What you need, when you need it, when is the deadline? So most of those are already in our checklist, so we know when they need it, but sometimes they do ask for something, and that’s where Global Shares really helps a lot because we can generate reports anytime we want in Global Shares. So they do sometimes ask for things that’s not in the checklist, but we are always ready for it just because we are using this Global Shares, that’s always… Usually it’s all realtime.

0:16:18.3 Chris Dohrmann: Great, I just wanted to thank you for your time, but was there anything that you wanted to talk about before we stop asking you questions? And again, thank you so much for being so gracious with your time, Lilyanne.

0:16:32.9 Lilyanne Nuevaespana: I really wanna thank the accounting team, your financial reporting team for helping us a lot. It was a lot of work, especially the first few months that we were working with Global Shares, but they were very gracious, they always communicate well and they’re very timely in their communication and they have solved a lot of our problems, a lot of our issues, especially with financial reporting, so thank you so much for from Global Shares.

0:17:00.4 Chris Dohrmann: And I wanted to emphasize the fact that there… You’re being very kind again, and the fact at best they’re six hours away, and at worst, they’re sometimes 13 hours away. So the ticketing system and the communication is critical. Thank you again, Lilyanne, from Coupang, Director of Accounting. Thank you so much.

0:17:19.9 Lilyanne Nuevaespana: Thank you again.

[music]

0:17:26.6 Chris Dohrmann: Now, to help us get some even deeper insight on financial reporting, let’s welcome, Mayura Arankalle, our Global Head of Financial Reporting at JP Morgan Workplace Solutions.

0:17:35.6 Mayura Arankalle: Hi, Chris, great to be here.

0:17:38.7 Chris Dohrmann: It’s great to have you. I wanted to just mention quickly, before I forget, Lilyanne was talking about expensing and the fact that they use cost centers. And I wanted to bring up the point that most times the expensing follows the recipient and follows the employee. So I wanted to see how you can explain that to our audience because it’s a little bit of a concept that’s very important, depending on the size of the benefit, but it’s something that people have to make sure that the data gets into the system to reflect that.

0:18:11.4 Mayura Arankalle: No, absolutely. So Chris, the fact is that the accounting standard requires companies to book the cost in the employing subsidiary. That’s the requirement of the accounting standard. But in addition to that, a lot of companies, especially the size of Coupang and the likes, they need to record expense for their management reports, which could be for the purpose of forecasting, budgeting or just a cost location. So it becomes quite important for such companies to track the participants and how they move from one cost center to the other so that they’re booking the expense in the right cost center. So when they’re creating P&Ls for their subsidiaries or at a cost center level for any decision making, it is quite important that the cost is booked in the right cost center and tracking of this for multinational companies can be quite a lot of challenge.

0:19:00.2 Mayura Arankalle: So in order to help that kind of having some sort of an automated system where you could potentially have the data coming through from HR into your financial reporting system could help all financial reporting teams really to streamline this activity and get the right costing at the right demographic data. It is not just the cost center and the movement as well. One of the factors that plays a significant role is that some jurisdictions, for example, does not allow participant to get cash. It does not allow participant to get stock and they need like cash settlement, for example, China. And if a participant moves from a jurisdiction, say like US to China, their award type changes. Now again, this is part of… This is very common for big companies where there are people in all across the world, how do you account for this? Because the accounting treatment as such changes as well. So it’s just not about booking in the right call center, it’s also making the fact that you’re booking the right accounting methodology and that makes it quite difficult for the likes of Coupang to manage.

0:20:05.6 Chris Dohrmann: Yes, you raise an excellent point. The fact that she mentioned it a couple of times as well, accuracy. And the accuracy really is reflected by the quality of the data in, and the timeliness of the data date in. So as long as we’ve given them the wherewithal to make sure the system is updated, it sounds like the expensing can follow suit rather seamlessly.

0:20:26.1 Mayura Arankalle: Yeah.

0:20:26.7 Chris Dohrmann: I did also wanna raise one other issue, that we kept referring, to the fact that leave of absence is something that is available at Coupang, whether or not it’s garden leave upon termination, or whether or not it’s leave of absence. How does that pose an issue for you and how do you address that?

0:20:44.6 Mayura Arankalle: So the view that Coupang has taken, that if there is a garden leave, what it effectively means that the service period gets extended from the original vesting schedule. The view that Coupang has taken is that from an accounting point of view, they will just extend the expensing over the extended period. Now this is a view that is taken by Coupang in terms of their circumstances. However, this could result in a modification accounting because effectively extending the service period could result in modification accounting as well, which creates a lot more complications. So again, it is one of the things that for Coupang we would tracking of the fact that someone has gotten in the garden leave when now his original vesting schedule is no longer the service period, it needs to be extended. We need to make those updates. Again, goes back to… And it can be material because you could have a lot of people with high number of awards whose expense could effectively be extended significantly per a year at least. That makes a big difference on their P&L reporting. Again, just the fact that you can do this on an automated system makes it far simpler and the accuracy level really goes, this is is good in that sense.

0:22:00.6 Lauren Jenkins: So Mayura, communication is obviously a critical piece to success in financial reporting, can you talk to us a little bit about how both internal and external communication come into play here?

0:22:11.0 Mayura Arankalle: Absolutely. Now, in terms of financial reporting, generally these teams are, they have real tight deadlines to book their expense to publish their reports. So they have to close their books. Now, in order to do that, they need to have the data in regarding their share plans in terms of any new awards granted, any participants moving the fair valuations to be done for these awards, any forfeitures terminations, because all of this has a direct impact on the expense calculations, or it could be the deferred tax calculations or it could be the earnings per share calculations. Now that makes it very essential to have a clear communications between the HR and the data flowing through HR through the finance teams. Now that could be… Every company will have their different way of doing it, but in terms of Coupang, it just making sure the right termination means are applied.

0:23:03.0 Mayura Arankalle: So if there are any shares getting profited before the end of the reporting period, that needs to be reported accurately. If some shares are gonna get accelerated on termination, that has a different accounting treatment. So that needs to be reported accurately. If participants are moving from one jurisdiction to the other, that demographic update needs to happen before the close of reporting period. So it’s just making sure that the HR has updated all of these before you close your books, so that when you put your experience and you do your calculations, you have the accurate reports and you don’t have to kind of reverse out any entries in then in the following period just to get an accurate picture. So it’s just important to have… Use technology where possible it could be using a service provider or just having systems in place, but all of this information is recorded timely.

0:23:50.1 Mayura Arankalle: Now, one of the things with Coupang we’ve seen is we have this process documents in place where we followed timelines with them that help them get to their, deadlines, but even given to the fact that we have a bit of time difference in terms of… So they’re based in Korea, we are based in Europe, we try to manage this by using Jira ticketing system where we were able to communicate to them, and not just between my team like, JP Morgan Workplace versus Coupang, it’s also within Coupang’s HR team and our EPM teams as well. So just having this Jira’s ticketing system, which is like a common system, like everybody can see the tickets coming in and being processed, that helps in making sure that we are able to meet the tight deadlines accurately. The data updates have made accurately at the right time. So there is no need to kind of undo stuff, redo stuff, and waste time. So it has helped in the sense of just having clear communications between HR, finance and then if you have an external provider using some sort of technology like Jira ticketing system that helps communicate things faster, get things done faster, and there’s a good audit trail as well just to make sure where the source came, how we made the processes, and what that resulted in.

0:25:00.4 Lauren Jenkins: Absolutely. All critical to a successful process.

0:25:04.3 Chris Dohrmann: Mayura, thanks for joining us. That was really great, and it really puts a tech or an expert spin on the conversation we had with Lilyanne. Thank you very much.

0:25:15.0 Mayura Arankalle: Thank you so much for having me.

0:25:21.3 Lauren Jenkins: And that about does it for this episode of Prosperity at Work by JP Morgan Workplace Solutions. You can find more insights on equity compensation, financial wellness and more by following JP Morgan Workplace Solutions on LinkedIn or checking us out over at globalshares.com.

0:25:35.5 Chris Dohrmann: And as always, remember to follow or subscribe at your podcast provider of choice, and until next time, that’s a Prosperity at Work. Bye.

0:25:45.4 Lauren Jenkins: Bye.

0:25:45.4 Lauren Jenkins: Information provided in this podcast is intended for informational and educational purposes only. It may contain views which differ from the views of JPMorgan Chase and company. For specific guidance on how this information should be applied to your situation, you should consult a qualified professional. For full details see the show notes on your podcast player right now.

0:26:05.2 Chris Dohrmann: The Prosperity at Work podcast is produced by dustpot.io for JP Morgan Workplace Solutions.

00:00

This is Own Up, the Global Shares podcast about employee ownership and equity compensation. Answering questions and sharing with industry experts, here are your hosts, Chris Dohrmann and John Bagdonas.

Chris Dohrmann 00:24

Welcome back to Own Up.

In today’s episode, we’re tackling one of the most important financial skills you need to learn…and that is how to ensure your own financial wellness.

We have spoken previously about the challenges presented by grant or award recipients not understanding their benefits. In the same vein, companies commonly encounter difficulties when offering an all employee ESPP, as almost inevitably a large percentage of those eligible will have little to no experience with stock or the market in general. So, when an organization such as Stanford sets up a program to offer Financial Education to students, it should be recognized. You cannot appreciate the value of what is offered unless there is a strong foundation in place.

Our guest today is the manager of the Mind Over Money Financial Wellness Program at Stanford University. Known on campus as ‘The Financial Wellness Guy,’ Danial Khan you’re very welcome to the podcast!

Danial Khan 01:22

Yeah, I’m very happy to be here. Thank you so much.

John Bagdonas 01:24

Danial, why don’t you tell us a little bit about yourself, and your very interesting journey to Stanford and why you’re so passionate about this topic?

Danial Khan 01:32

Yeah, I’m Danial Khan. I’m from Buffalo, New York. And I’m kind of known as the financial wellness guy, on and off campus! We have a program. And I don’t know, maybe financial wellness is not a familiar term. But essentially, we try to align financial wellbeing with life aspirations.

A lot of that is blending personal finance with health promotion. And so trying to make financial education and wellbeing promotion more accessible to people, trying to cut through some of the jargon. We’ll get more into that I’m sure throughout this conversation, but my backgrounds in social work, business administration, and psychology. So I found this work to really well blend those worlds together. I also have background in non-profit consulting, and helping social workers promote their own financial wellbeing and to talk to their clients about personal finance in a more healthy way. And yeah, I’m just happy to be here.

Chris Dohrmann 02:31

Thanks Danial! I wanted to just say that John and I deal with, you know, executives and other employees of companies, and Palo Alto sits right in the middle of Silicon Valley, where equity compensation is a big part of their compensation package. And we tend to think about, you know, on one end of the spectrum, where people are getting more complex awards, and we’re eliminating 65% of the spectrum, where people are coming in, they’re either new to the workforce, they may be new to equity compensation. And what we’re disregarding and what we really should pay much more attention to is where you fill the gap. They need to have a basis in their educational wellness, I mean, their financial wellness, so they need to understand budgets, they need to understand a little bit about taxes. And I think that’s what you bring!

Tell me a little bit more about the fact that, I think this is an introductory offering, but you get people, you know, from all over the world that are taking courses at Stanford, and they come to you to try and get a sound basis in this, correct?

Danial Khan 03:40

Correct, yeah. And to be honest, I came into Stanford with some biases about the population of students I’d be working with. In our program, we serve students and alumni. So a lot of the people we talked to are starting the career after graduating, and they are trying to have those introductory conversations. But my assumption was that, well they’re at Stanford, what do they need help with personal finance about but that was, I was incorrect in that, you know. People are coming from a lot of different socio-economic backgrounds, different experiences with their family that weren’t financial experts. And a lot of times, they’re kind of starting from more or less Ground Zero, for how they want to learn about where personal finance plays a role in their life. So most of the conversations are just getting started. How do you manage your money, develop some awareness and intentionality around your spending, your saving? How do you actually start investing, and what does it mean to you? Setting financial goals, and a lot of those aspects of starting your career and navigating the benefits and getting paid for the first time on salary, getting bonuses and stock options, all that stuff really comes up, and more, it gets more complex sometimes, but a lot of times, it’s just starting off with the basics.

John Bagdonas 04:55

You know, I was going to say also from our previous conversations, that, as you say, so many of the students at Stanford, and obviously the alumni, come from so many diverse backgrounds, both economically and culturally as well and that here in the US, we tend to look at financial wellness more as, Chris and I are obviously trying to drive it as a necessity, something that you really had to be focused on, but I’m sure that there are people that come from other parts of the world where it truly is a luxury.

That the necessities in some of the places that they come from are truly you know, very basic and that financial wellness is really deemed as a luxury. It’s almost I can think back to my earlier sort of academic, early business days when you learned about like the Maslow’s Hierarchy of Needs like from a psychologist standpoint that is really very similar from a financial wellness standpoint, that there really is a hierarchy as well.

Obviously there are the short term financial needs, budgeting and things getting by, just on a day to day basis, but then investing for the longer term, but then also having a certain level of comfort in the current day, you know, you’ve a certain amount of financial freedom currently. And then the obvious and long term objective is to which achieved that, that ultimate financial freedom, you know what, as you near retirement or later in life where you can do whatever you want, you can, you know, use your wealth for charitable purposes, for generational purposes. I know that’s one of the things we talked about as well. So, it’s just interesting to hear your perspective on people coming from such diverse socio economic and cultural backgrounds, how you get them, basically, to the same starting point from what we’re talking about.

Danial Khan 06:34

Yeah, I’ll provide a little bit of a definition that I’ve really liked that we use when we teach. The Consumer Financial Protection Bureau, the CFPB, they define financial wellbeing more or less as having some sense of security, and freedom of choice, currently, and in the future. And so you can kind of break that down a little bit. But I think that’s something that pretty much people around the world, no matter what perspective you have, I think that can resonate with most people, that you just want to feel like you can manage the day to day. But you can also feel like you have some sense of security in what’s coming down the road, expected and unexpected. And then the freedom of choice option, especially, you know, I like to work with students and with professionals who are in the fields of like social impact. And I used to do a lot of my work with social workers. And a lot of that was learning how social workers, they really wanted to do work that was meaningful, but perhaps felt like they had to sacrifice making a living for themselves or for their family, because they wanted to have work with some sense of purpose and to serve people. But that’s not true. You don’t have to choose between one or the other. And I think working on your financial wellbeing specifically can help you be able to make decisions, and have freedom of choice to do the work that you want to do. And not have to sacrifice the important things that you value most, whether it’s your spending or your career.

Chris Dohrmann 07:57

There’s so many areas I wanted to touch on, I’m going to try and just take them slowly. Because you and John have both mentioned a couple of them. One is the audience, the classes, you know, you’ve the students that are actually coming forward, what’s the mix? Because when we look back on the podcasts we’ve done, we’ve tried to pay attention to gender equity, and the fact that women and minorities need to be included and need to be offered this type of a service, because they need to have a stronger base and need to have the structure so that they can rely on that when they receive new benefits and new challenges when they’re talking about finances.

Danial Khan 08:42

Yeah, so I mean, a couple of the offerings that we have. One of them is a course called Wellness 183 – Financial Wellness for a Healthy, Long Life. I’ve noticed in that class, as well as in our one-on-one financial coaching, that most of the, based on gender, most

identify as women. So in coaching, especially the one-on-one conversations, it might be 60 to 70% of students that I talk to are women, a lot are international students, first generation low income students, who kind of had this feeling that they really want to take control of their finances and have some sense of guidance.

Because a lot of it is not even just trying to educate, a lot of students know more than they think they know, even if it didn’t have parents that were experts or had influences in their life. And a lot of us, most people don’t have a high school personal finance requirement either. And so a lot of students are coming into Stanford or into university in general, with little to no financial education. And so even just having those first conversations, and how do you make decisions, I think is an important place to start.

And a lot of students know, I like to say, you know, you are the expert in your life. And so, I’m kind of here to help just align how you already make decisions and to clarify what you already value and aspire to with some of the ways that you can manage your personal finance now and plan for the future. But yeah, a lot of it, mostly women are the ones that are reaching out and seem to have maybe greater needs around this, especially when you talk about gender equity.

John Bagdonas 10:18

One thing that I think cuts across genders obviously is student debt, it’s very interesting in terms of how you coach undergrads and alumni in terms of how do they manage that going forward, where obviously that is a bit of a long term, debt, long term objective in terms of retiring that enabling them to actualize their longer term dream. So I’m just curious in terms of how you sort of coach people based on, and actually also from the Stanford experience as well, because I think that maybe student debt is not as much of a concern as it is in other places because I think Stanford can be a very generous University, depending on your circumstances.

Danial Khan 11:00

I think just trying to put myself in the position of a student again, and being, let’s say, 18, you’re going into college, and imagining having to take out a student loan where maybe you never had even took out any debt before, maybe you’ve never even had a credit card and had to have experience borrowing money.

So I think it’s a very, it can be a very emotional, emotionally draining task to think about, not just having to do your school and focus on that, and then your career. But a lot of what students are talking to me about is just a little bit of that stress of man, I know I have this thing looming when I’m done with school. And I just want to have some sort of clarity and plan for how I’m going to manage it. And to just have someone to talk to about that, before even making a plan just to express that, yeah, this feels a little stressful, but it can be a lot more manageable.

I think around student debt, a lot of it is just knowing what your payment options are, or your repayment options are. When you go to studentaid.gov, you can see all the different plans that are available, whether it’s income driven, you can stick to the standard plan, if you want to pay it off in 10 years, there’s public service loan forgiveness, there’s so many different options from the federal level, depending on the types of loans you have. But starting off, what kind of loans do you have, and how much do you have to pay off because it’s very easy to want to push that away, and not have to deal with it or think about it, especially until after you graduate. But a lot of students want to be a little more proactive, even if initially in the conversation they didn’t. Throughout the conversation, it seems like just having the information you need.

John Bagdonas 12:46

I was going to say also, the further consideration that you know, over the last couple of years at least, is higher interest rate environment that those loans were at a higher interest rate. So depending on, as you said, the choices, the repayment choices, it could be a bigger, you know, sort of monthly amount if you want to do the traditional route as 10 years. But it’s a consideration as well, as you know, same thing with credit cards, any kind of credit or debt that is extended now, it’s typically going to be at a higher rate than traditionally it has been over the last, you know, whatever, 10 years or so.

Danial Khan 13:19

And it especially if you’re in graduate school, and you don’t have the subsidized loans, a lot of times you have to go unsubsidized loans, private loans, if you’re an international student, most of the time, you have to work with scholarships, grants, private loans. And so you have this big amount, especially being at Stanford, right. But no matter where you’re going, a lot of times it can feel like a lot that you have to manage. But, again, you can’t go bankrupt, or you can’t file bankruptcy on student loans either. So not to focus on the negative. And yes, except those things that is the state of where you’re at right now and where things are at.

But what can we do to make the best of the situation? I’ve worked with PhD students who are like PhDs in comparative literature, let’s say, and there’s like a very maybe specific career path that they’re looking at, maybe they want to be a professor, but they wanted to choose this focus area as a PhD. And they have hundreds of thousands of dollars in student loans that they have to pay off.

And there’s this one student, this was when I worked at University of Buffalo, but him and his wife had nearly $200,000 in student loans. And they came into coaching, just wanting to feel a little bit better, and to have some sort of clear plan. And so throughout our sessions, it was getting the information that you need the principal amount, what’s the interest rate? Who’s your servicer? Who can you talk to? And then what are the plans that might best fit with your, your life goals, because if you want to have a house, start a family, all these things, it’s more and more common that students will delay these major life decisions because of economic burden.

And while you’re in school too or let alone, when you’re working at your first job, it can serve as a distraction and kind of make it a little less like you can focus on your work, the most important things in your life as a student, as a as an employee. So yeah, a lot of it’s about making a plan, trying to feel a little bit more in control. And feeling like I got this even though yes, this might feel like a lot. I still have a plan of action, and I have someone to hold me accountable, which I think is underutilized. The idea of having an accountability buddy, whether it’s a coach, a friend and advisor. So that really goes a long way, yeah!

Chris Dohrmann 15:42

Perfect. I mean, I think you’ve hit on a number of different things that we wanted to address. One is it’s very gratifying that people are seeking help or seeking guidance, because you don’t know what you don’t know. I personally went to school with people that I guarantee were paying for the pizza they had on every Friday night for five years that could be classified as bad debt. There is good debt as far as a car or student loan or whatever and knowing the difference. And knowing that you have a plan to approach it, I think enables people to be in a much more grounded place, when they’re talking about wealth, and what they can get from a new job, and what’s going to what that’s going to bring them. So it’s very gratifying that people are seeking it out, and that you have people that are embracing this class. I wanted you to mention a couple of things that we’ve talked about, with people that come back to you, maybe a year later, because you talked about this has to be a continuing effort. Maybe if you can give us a little story about people that have come back and said, how this has worked for them?

Danial Khan 16:43

Yeah, so some examples. I mean, that’s really important, because I mentioned that, that one intervention is only going to go so far and promoting someone’s sense of financial wellbeing and promoting their circumstances. So one example that often comes up is a lot of the students that just want to have the foundations for investing. A lot of it is, I’ve heard about a Roth IRA. And I do want to plan for the future. And I feel like this might be the best place to start. And so a lot of our conversations and coaching are just opening the account, automating some contributions, and just choosing an index. And I don’t recommend anything specific, but going the route of low cost index funds, and just choosing one or a couple that resonate with how you want to manage your risk and your time horizon. So they might choose an index fund, and they just buy one, one share of it right. And then they’ll follow up, maybe like a year later. And maybe they’re coming with a different topic like now, it’s like I’m trying to prepare for tax season right now. And it’s the first time I’m doing it on my own, versus doing it through my parents’ accountant or whatever it is.

And they’ll mention that. Now I’m like, fully funding my Roth IRA each year. And they have like a concrete plan of like, this is how much I’m actually going to have for retirement, it feels really good just to know that I have a little bit more sense of security in my future, where, because I like to tie in this idea of your future self. And we often don’t have this solid relationship with our future selves. It’s almost like it’s a stranger. And so how do we right where we’re at, think about how will my future self be feeling about the way that I made decisions today. And I think that can be pretty powerful.

So yeah, investing, and just getting those first steps, and also paying off debt. I feel like that’s something that means a lot, because I had my family and I had an interesting relationship with debt. I feel like I learned a lot about how you have conversations about money, and how that can produce some conflict, specifically around debt. And that’s something that I really want to learn more about, because relationships and money is very important to me, but also not having to feel like you have this monster on the other side, which can often be high interest debt from a credit card that is very easy to just let go by. And when I get to hear back from a student after they’ve had coaching, or been in the course, and they say that, you know, I started off feeling like this is unmanageable, and I wasn’t willing to do something about it in the moment. But just after our conversations and having those first steps to work on, and now automatically paying off my credit card debt, I already have like one credit card paid off or two, and now I’m focusing on my student loans, or now I can actually start investing. So those are some of the examples that I really like to hear when they come back.

John Bagdonas 19:53

You know, I was going to add to that one thing that’s very, you know, important from the standpoint of wellness is that wholeness and completeness, a person that we’re talking about financial aspects, but, and I remember you bringing up this point when we first talked about the difference between financial literacy and financial wellness, and sometimes people think that those are synonyms, but they’re absolutely not.

And in fact, I know you don’t even like to use the term financial literacy because it could be a put off to people that are not from a financial background or have any kind of financial savviness. And that there’s really financial literacy, just understanding the concept really, there’s no necessarily choice or any kind of emotion that’s associated with it. There’s no wholeness, it just basically the tools of potentially how you can achieve financial wellness, and that I think you bring up such a really, really good point about how finances is so fundamental to human relationships. Whether that’s, I mean, in a utopian state, it wouldn’t be but in reality it is and that so many relationships go sour because of the fact that there’s not communication about, you, you’ve brought up your own personal example and how it drove you to learn or to want to understand so much more because the on your own sort of family adventure but or voyage I should say.

But it’s very interesting and I think from particularly from a social worker standpoint, your background that to integrate the two, it’s just so important terms of being successful, because you can understand the concepts, but if you don’t integrate it into your whole experience and in your game plan for life, you’re not necessarily going to succeed, particularly as things change. You know, that’s one of the things we talked about a lot is how things are changing how, you know, banks are changing how, you know, cash is going to be a thing of the past.

But back to the point about that wholeness, maybe just talk a little bit more about that, beyond just financial in terms of, I know, you touched on a couple of the success stories about how you ground the person into making them actualize their future, and you know, their future happiness by being in control of it.

Danial Khan 22:06

Yeah, really, my passion and the place where I see my role in this field, as well as the stories that have felt the most satisfying to hear. And I know feel the best for students are the ones that students just feel healthier, they feel more in control, they feel less stressed, they feel more confident in making decisions. And, you know, I don’t use the term financial literacy very often because I just see my role in this space to be more focused on promoting health. And, yes, promoting education as well. So yeah, like, I don’t think there’s anything wrong with the intent behind financial literacy, it’s more that I think it’s used as a term, as a catch all. And I think this wellness focus really is powerful because it represents the whole person, like you mentioned. And it makes it more accessible to learn about personal finance and more relevant to people. Because, I mean, we’ve talked about this in a past call, but it Stanford for our mind over money program, their financial wellness program, we use these reframes, which we call financial capability, focus areas. And so instead of the budgeting, credit, debt investing, we use terms like spend mindfully, earn enough, borrow with intention, grow your money. And I think for anyone, those things seem a lot more relevant or personal.

And just if it’s enough to get a student or an early career professional, to just get their foot in the door, when before they may have had these scripts in their head that investing is not for me, but I do want to grow my money. I think that that can be, especially for certain, you know, like, with women, it can be often that there is this stereotype that like investing is not for women, right? And I think that’s something that is definitely changing. Where, no, that’s not true at all. And I think interventions like ours that are focused on not just how do you navigate the financial world? But also how do you make it personal and relevant to you, because everyone has their unique situation, and life goals? So how do we line what you do about your money, how you feel about your money, and what you’re planning for, with the things that are most important in your life? So we don’t start with budgeting. We start with what are your values and your aspirations? And how do you clarify those in a way that’s going to set you up for these next things in your financial life that can best promote that.

So yeah, I come from philosophy, psychology and health promotion background, as well as my social work and MBA. And I like to think of these first steps as just developing mindfulness and intentionality in your financial life. So it just makes it a lot more approachable and accessible for majority of people who don’t have a financial background, maybe.

Chris Dohrmann 25:07

I’m so impressed with the positive spin that you and the program seemed to put on this, I just want to wrap up with maybe two things that are very topical for this generation. University is probably when you’re most idealistic in the world. And that is, if it can be sustained as long as possible, is life changing. So it’s really something that’s very helpful going forward to have a positive mental attitude.

So I wanted to talk about this generation is probably going to be the recipient, and maybe the next. So generation Y and Z are going to be the recipients of some of the largest transfer of wealth in history, you know, from baby boomers. It’ll happen over a period of 20 years, but the likelihood that’s already started, and back to my point about idealism, does philanthropy and you know, trying to carve out a piece of your budgets or your thinking, do you talk about giving coming into play as well?

Danial Khan 26:08

Yeah, this was actually an important topic for me over the last, in my early 20s, especially, I had this like social media page and this movement, I was trying to start called One for All. And it was just about trying to make the world a bit better. And how you can start

now with the little things that can best promote this state of giving that makes it more important to you throughout your rest of your life. So for example, starting off, if you don’t have much, how can maybe giving me a motivation for a savings goal where let’s say, by the end of the year, you have this giving goal in your budget, or in your saving plan, so that you can contribute to like a meaningful cause in your life. So I don’t know, I think, right now, it might philanthropy might seem like a very distant thing that’s only for maybe like corporate foundations or for like, very, very wealthy people.

But I do feel like I want to help encourage younger people to even try to give and doesn’t have to be with actual donations like monetary donations, it can be with your time, like sweat equity, and I just having some state of giving while you’re trying to grow your wealth, and especially when we have this wealth transfer. I think getting clear on that, about what are the little things you would do now without having a lot of wealth, that might be able to scale down the road, when you actually do have greater resources.

Because I think sometimes people, they get this influx of capital that they can decide what they want to do with and they hear like, oh, you should be putting it towards philanthropic efforts. But if you don’t have that practice, you might just be solely relying on someone else to like, handle it for you. And that it doesn’t go to something that’s like, values driven, I suppose. So yeah. I don’t know if that answers the question. But I think the things that you can start with today, and the little ways that you can develop that giving mindset and practice, I think is probably the best way to inform how you might give when you start to scale your wealth, and have more resources to share with the world.

Chris Dohrmann 28:16

I think it’s perfect! Thank you!

John Bagdonas 28:18

Danial, this has been great! This has been exactly what, you know, Chris and I have talked about from the standpoint of being proactive in financial wellness and completeness in a person and we thought this was going to be a great session. And it really has been and we want to thank you so much for your thoughts, your insights, the anecdotes you’ve shared and best of luck to you and your program at Stanford. And I know you’ve already been successful. I’m sure you’re going to continue to be successful with everything you do at Stanford. Thanks again.

Danial Khan 28:50

Thank you. I really appreciate the time!

Chris Dohrmann 28:53

A huge thank you to our guest, Danial Khan, Manager of the Mind Over Money Financial Wellness Program at Stanford University. It’s been great talking to you!

And that’s it for another episode! Thank you for listening to Own Up by Global Shares. If you found our podcast helpful, I hope you’ll consider sharing or recommending us to your peers. Until next time, from me Chris Dohrmann, and my colleague John Bagdonas, thanks for listening and take care!

00:00

This is Own Up, the Global Shares podcast about employee ownership and equity compensation. Answering questions and sharing with industry experts, here are your hosts, Chris Dohrmann and John Bagdonas.

Chris Dohrmann 00:21

Welcome back to Own Up, the Global Shares podcast all about employee ownership and equity compensation. I’m your host Chris Dohrmann. Today we are going to hear from two experts who believe in the power of employee share ownership plans. As we know attracting and retaining quality employees is becoming difficult in the ever-changing market. Employee Share Ownership Plans (ESOPs) are a fantastic way to engage and motivate your current employees while providing an attractive benefit to potential new employees. So let’s get straight to our podcast where our experts will explain the benefits of ESOPs along with the considerations for designing and implementing your own unique plans to keep your employees engaged and motivated. Let me hand it over to our VP of Business Development, Erin Fraser and VP at ESOP Builders, Joanna Phillips.

Erin Fraser  01:14 

Thank you, everybody for joining us and the how to motivate, reward and retain in a bear market podcast. I’m here today with Joanna Phillips of ESOP Builders. We’re going to chat to you today about equity compensation, share ownership and how it works best for your company. If those of you don’t know me, my name is Erin Fraser, I work with Global Shares – a J.P. Morgan company. I’ve been in the equity compensation space for nearly 15 years now. I’ve seen everything from the company side to the vendor side. And I’m really happy to be here with you today. Thank you, Joanna, for joining us today. Tell us a bit about yourself.

Joanna Phillips  01:54 

Hi, everyone. And hi Erin, thank you so much for having me. Super happy to be here. I am with ESOP Builders, and I’ve been with them for about four years now. My background is HR, Human Resources. So the employee ownership concept was a really great fit for what I was interested in, what I had studied and what my career ended up being. And so that’s why I’m here and happy to talk about employee ownership in the Canadian landscape as we go forward.

Erin Fraser  2:30 

All companies have short and long term goals whether those include stock price targets, revenue or rate of return targets, expansion goals, the ability to weather the storm, etc. These cannot be accomplished without the best talent on board as we’re all aware. It’s important that we recognize our employees as our best asset who get us through hard times and help us identify the risks we should take to meet our goals and exceed our goals. As part of recognizing their importance, it’s imperative that we also reward them accordingly. We need to motivate and retain our employees and that’s why we’re here today to discuss employee ownership. Unfortunately, we are in a situation right now where market volatility and economic uncertainty are making it harder to push towards our goals. And depending on your industry, harder to attract, motivate and retain the employees that are key in driving your company to success.

According to HubSpot 2023 Marketing Strategy Report, 48% of global marketers say the potential for an economic downturn or recession has affected their company’s hiring plans in 2022. The recession has only exacerbated an existing issue. 35% of respondents say they had to slow down or pause their hiring efforts. 27% of respondents say their company had to fire or lay off employees and 26% of respondents say their company had to rescind offers made to prospective employees, which means you have to motivate your existing employees to perform at a higher capacity, making it that much more important to focus on retaining them. If you add in the impact of remote work throughout the pandemic, you have a situation where 54% of hiring experts in the last year have seen candidates turned down job offers when flexibility or remote working isn’t included in the agreement. So where you are fortunate to be able to hire in times like this, where you’re trying to move your existing employee base back to the office. If you can’t or don’t offer remote working or provide flexibility around remote working, you’ll need to offer an attractive compensation and benefits package in order to secure and retain talent.

So how do we attract, retain and motivate employees in a bear market? Well, you can offer flex days, free pizza and beer Fridays or a ping pong table in the lunchroom. But unless you put something tangible in front of your employees that reaps financial benefits as a reward for performance, you will not inspire the impact you’re looking for. What is a tangible reward? Well, it can be as simple as offering employees stock options or right to purchase company shares, giving them an opportunity to own some of the company they work for. That’s when we introduced the golden handcuffs. What are golden handcuffs you ask? Golden handcuffs are a collection of financial incentives that are intended to encourage employees to remain with a company for a stipulated period of time. They’re also intended to make your employees feel like owners by giving them a stake in the company. Now, some of you may ask, why would we do that? Well, as an example, if you give your employee a grant of 1000 shares, where they get 1/3 of that grant every year over three years, you not only motivate that employee to stay for the three year period, but you inspire better performance from that employee as well, because now they’re an owner. Share ownership breeds and cultivates a culture of innovation and promotes engagement. It’s just good for business.

In the Harvard Business Review, companies are more productive, grow faster and are less likely to go out of business than their counterparts with three things exist. One, at least 30% of the shares are owned by a broad based group of employees, two, all employees have access to ownership or the right to purchase shares in their company. And three, the concentration of ownership is limited, meaning it spread among a larger population. Why is this better for business, more people have skin in the game and something to lose if the business does not thrive. Employee ownership and the right to earn ownership, example, stock options, incentivizes employees to ensure the company does well because then they do well. Thus, employees who are productive and boost company earnings will benefit. But how do we make sure these golden handcuffs reap the most benefit for the company. By spreading the benefit of this ownership over multiple years, so employees can see the potential growth and their benefit, encouraging them to stay with the company and not leave to work for a competitor.

The Institute of Directors says that share plans create a more loyal and driven workforce. Employees who hold shares in their employer tend to work smarter, because they benefit directly from the growth of their company. This link between the factors of production of capital and labor is known as the wages of capital. In addition to increased productivity companies with share plans enjoy reduced absenteeism and better staff retention. Let me repeat myself, it’s good for business!

Joanna Phillips  7:20 

Right. And as Erin was just starting to allude to, there’s obviously tons of different studies from the US that talk about the benefits of employee ownership and what that looks like. Unfortunately, in Canada, we just don’t have the same level of data available, especially for private companies. But there is still a lot of applicability from the information from the US that we’ll be using here. ESOPs in general can work for a wide variety of industries, for many different companies sizes as well, small, medium, large. And so it really doesn’t have to do specifically with a certain industry or with a certain company size. But you do want to identify what the right plan structure is going to be for your company. It’s not a one size fits all for sure. We can see from the studies that, you know, with the greater growth also comes great opportunity for new jobs.

Also, employee owners in successful ESOP companies are less likely to be laid off than non ESOP companies and non-employee owners. So really, how does this work? And we’ll get into more in more detail about that. But overall, ESOPs do generally have this long term mindset going on, right? So it’s the concept of long term retention, not only attraction and what’s going on in the immediate, in the present, but the focus on long term. If you are, you know, agreeing to come into a company and you’re agreeing to be part of that company, not only from an employee standpoint, but also from an ownership standpoint, you have these two levels of commitment rather than just the one. And so you’re more likely to stay for a longer period of time, you’re less likely to be tempted or to see, you know, grass is greener on the other side, you want to stay where you are, because you have this additional commitment that’s kind of pulling you to put your effort into the company that you’re at right now. Really, as a company, you’re retaining, but you’re also taking away the talent that you’re retaining from your competitors. So there’s sort of a double benefit.

Also, thinking about, you know, the cost and the effort that are involved in attracting and retaining because you have, you know, the training, the development of your people, you’re making the most of your benefit when implementing some sort of employee ownership plan to make sure that they’re happy where they are, and that your development of them, your training of them goes, the long haul. The other thing would be considering the alignment of the individual and your company goals. So it’s not only, you know, the individual has their own things that they’re pushing towards, the company has completely separate goals. Now you’re aligning those two things, because you have sort of their buy in, their commitment from that ownership standpoint, that they also want to get to that success, long term, increase company value, and increase their own portfolio share value, because they’re an owner as well.

And lastly, considering the retention rates and how that’s viewed for potential new employees, employees that are looking to your company as a possible place to work, they can see how long your group has been with the company, they can see how happy they are, they can see the results. And so they’re more likely to be attracted to your company. Now, this is where ESOP Builders comes into the picture. We are a firm specializing in design and implementation of employee share ownership plans. We’ve been around for over 25 years now. And not only do we consider sort of the ESOP from a technical standpoint, because of course, there’s the things of legal structure, tax considerations, business valuation, but we also want to consider how it’s being rolled out to the employees, how it’s being communicated. And also what the education component is like, as well. It’s, especially in Canada, employee ownership, not really being widely understood or even known about, we want to make sure that the potential participants understand the concept and understand what they’re going to be getting into. Now, I also want to add before we go further, that, in Canada, our concept of ESOP, the acronym, employee share ownership plan, different people might call that different things like employee stock option plan, or employee stock ownership plan. So we like to think of ESOP as employee share ownership plans, that is just describing the general concept of employee ownership, but it doesn’t necessarily describe the specific plan structure that you’re eventually going to implement.

When business owners come to us, and they’re interested in the concept. And you know, obviously, they’re starting to ask the questions, well, how do I start doing this? How do I design this for my company, we want them to first think about, what specifically are the goals that you’re wanting it to achieve. For today, of course, we’re talking about attraction and retention, there could be other goals that are in addition to those things, it could be part of an owner’s exit strategy or succession plan. Or it could be wanting to help the company and get to an IPO or a third party sale in the future. And so those are very different things. The goals that the owner wants to plan for, are going to drive how you strategically design and structure your plan. And so that’s why it’s really important to first identify those goals, and also identify how the ESOP can fit into your corporate structure. So from a tax and illegal perspective, especially in private companies, you really want to make sure that the ESOP will fit when you consider not only the company’s tax implications or legal implications, but also from the employee standpoint, you don’t want to put them into a negative position tax wise, if that could have been avoided at the outset of the program fairly easily. So that’s why first, we want to look at the corporate structure. And of course, there’s many methods to achieve employee ownership with the specific goal of attraction and retention.

Like I mentioned earlier, the owner’s goals that are in addition to that are going to help drive what your design of the plan looks like. And you might go more towards a stock option type of plan where the employee has the right to become an owner, the right to purchase shares in the future, and that incentivizes them to work towards improving the company’s success and proving the company’s value. Or you might have a direct purchase plan, an equity ownership plan, where the employees invest and become owners right away. And similarly, they have incentive to make the company more successful, to improve the company’s value and so on.

Overall, you want to make sure that it is attractive for their participation. Something that’s not going to be looked at favorably from the employees, they’re just going to decide, I’m not going to participate in that. So making sure that it does look attractive to join, that is easily accessible, especially if it’s a broad based program, where you want the majority of people to participate. Obviously, everyone is going to be at different positions in their career, in their life and their situations. So making it easily accessible through flexibility in share purchase, or flexibility in participation, depending on how your plan is structured is important. And that kind of brings me into, of course, getting into the details of the plan parameters, which we won’t go over today. But just wanting to note that these are important to consider, even if it’s something in the future, that is not going to be applicable right away. You still want to consider it and make sure that you’re defining it well. Things like the eligibility, how do you define that? How do people know if they can participate in this program or not? How do you allocate ownership to your employees? Is that going to be based on their position? Is it going to be just based on how much they make? Is it based on how long they’ve been with the company, lots of different things can be considered for that. And then into the future? You know, what if you do have someone that resigned after they’ve become an owner in the company, what if you have a termination that happens? So identifying what’s going to happen in those different situations that may occur in the future is going to be beneficial to you to have a successful program and not only, you know, from a legal standpoint, but also from a communication standpoint, making sure that when people see the program, see what you’re offering them, they know these different situations, and they know how it implicates them.

So we’ll just go over sort of things about what to avoid versus how to make sure your plan is successful. And there’s going to be, you know, some overlaps and things you’ll hear me say multiple times, which I think I would hope that that makes you think, Oh, this must be important. So complexity really is a big one, making sure that you keep it simple as much as you can. Of course, this program is not a simple plan. It’s not something that is going to avoid complexity. But throughout the implementation and design process, you should be able to kind of identify what areas are complex and simplify them. So that’s what we mean around avoiding complexity. Something that is implemented and stays complex is not well communicated. It’s not going to therefore be well understood. And the take up rate is not going to be great. Participation in your plan is one of those factors that shows you how successful it is. So having it simple and well understood is going to be a major indicator. If you haven’t first identified how it could fit into your corporate structure that could implicate how successful your plan is going to be moving forward. And also, not considering the communication to your employees, as I’ve mentioned before, launching the ESOP before even talking about the concept to your employees or before, you know, identifying why you wanted to do it in the first place as the business owner, those are really important as part of the rollout process and even ongoing to continue reiterating that when new employees are joining your company as well.

It’s easy to really focus on, you know, the benefits to the company, the downsides to the company, implications to the company. But we also want to think about the employee who is going to be participating, what are the rewards looking like for them, potentially, right, into the future, what could they be looking at? And we kind of break this down, you know, mainly it’s going to be the dividends or the share appreciation, or both, short term versus long term. And as I said before, most of the ESOPs that we work with, or that we help implement, are really focused on long term. But some companies do want to declare dividends, it’s always communicated that there’s never any guarantees, right? Like any investment there are risks.

And that it’s always up to the board to determine when dividends are going to be declared, if any. Ultimately, it’s up to the board as to how the profits of the company are going to be used. Mostly as long as it’s communicated well and the rollout has gone through smoothly. Employees coming into this program understand that, you know, it is a long term focus, and that they’re all aligned in their goals to improve company value, which improves their share appreciation. So they may not even want dividends, they may want to reinvest into the company that they’re a part of, that they’re a part owner in.

Tax advantages could be a big one for private company companies in particular, structuring it in a way that the employees can access, you know, the capital gains treatment rather than tax on income, and even access the lifetime capital gains exemption, where their gains might be tax free, will be a really big advantage for them, and could be a really nice incentive for them wanting to participate. But that’s one of the things when I was talking about earlier as looking at your corporate structure, making sure that the ESOP can fit into that to offer these tax advantages will be important. Something that’s simple to understand, and I’ve mentioned this before, clearly laid out that can be well integrated into other business strategies, like you’re going to be hiring people. And now you have this new program in place, how is that going to be communicated? So it does come down to branding. How are you branding your company to new potential employees, and how is the ESOP being integrated into that branding. And then finally, identifying what success means for your program, so that you can track it, you can measure it, and you can make sure that it is continually being successful for you long term.

Now, I mentioned, Canada doesn’t have a lot of data. The Toronto Stock Exchange did do a study, which I do like to highlight because it also shows all of the results that the US studies, and other studies in other parts of the world also show about successful ESOP companies, higher growth, higher profitability, higher productivity, and so on. And the National Center for employee ownership, they’re a US organization they have a lot of great data on ESOPs in the US with, you know, information on culture and behavioral aspects of ESOPs being applicable to the Canadian landscape as well. From an employee standpoint, there’s benefits there too, higher median household wealth, higher income from wages, higher retirement accounts, longer tenure in a company. So these are, of course, also really great benefits for the individual, not only just the company,

Erin Fraser  22:53 

Thank you, Joanna, for that very informative set of information, I quite enjoy hearing about how best to structure plans. And I love statistics. So the statistics of that, the ESOP, and how it can really benefit a company and your employees is really important, I think, for us to point out here how important it is to have an ESOP in your company if you’re really looking to manage growth, and become that force within your industry.

We’re going to move on to the administration piece. So obviously, as we heard from Joanna, you know, there’s some complexities to the design of ESOP plans. But there’s also a bit of complexity, again, depending on how you really choose to structure it in terms of the administration of your plan as well. There’s probably 100 questions you could consider when trying to understand what you’re going to need around the administration of your plan, but some to consider would really be how much time would be required to manage the workload of the plan you’ve designed? And which portion of that workload would you be able to handle in house versus need to outsource? How many employees will be offered ownership? And do you want those employees to have visibility into their current and future ownership? What information do you want to track for effective reporting? Are there tax and compliance requirements, as touched on by Joanna.

Is your plan unique, requiring a significant manual workload? Or is it relatively standard? Meaning the workload isn’t as intense? How do you want to communicate the plan to your employees to promote a high level of engagement? Do you have those resources internally? Or again? Do you need to outsource to assist with the communication strategy that you’d like to deliver? And do you understand the financial reporting requirements of offering stock options and other awards? If you are, in fact, a reporting issuer? Those are just a few of the questions you could ask again, there are many, but ultimately it comes down to how best to answer these questions in a way that you meet the business objectives of offering a plan and create the best experience for your internal administration team and your employees. One important objective that I see with most companies is a high engagement rate of their employees. Keeping your employees engaged through their equity starts by giving them visibility into their awards.

Almost without question, the biggest challenge businesses deal with when it comes to equity compensation is clearly communicating their benefits. Often an employee will receive an email with some forms to fill in, and then they never see their options until a vesting day approaches. With a platform and employee access your employees can view and interact with their equity at any time and make it real in their minds. This helps build a culture of ownership and shows the employee their tangible assets within the company. Using a transparent digital platform is crucial for awareness and helps you encourage the correct behaviors when it comes to ownership of the company through consistent messaging and communication.

It’s also important to ramp up engagement around vesting days, the day your employees award becomes available to them. Companies need think about vesting dates in the same manner as a birthday, it’s something to be celebrated. They must engage with those employees particularly at the top level around vesting dates to ensure that the company remains central in the mind of the employee as they interact with their equity and celebrate the benefits of ownership. The most powerful engagement technique you have is one on one meetings, much like the communication of new grants using vesting days as an excuse to schedule individual performance review is an opportunity to ensure personal goals are aligned with business goals. You can also encourage your line managers or division leaders to promote the upcoming vesting dates and provide them with information on how, what, where, when and why of the vesting so they can keep their employees engaged and informed. Beyond these individual meetings, there are several options like interactive group workshops, sharing of past success stories, email nurture campaigns, town halls, where you explain what’s coming up with the vesting. What does it mean to them from a tax perspective, etc., just to keep them engaged and keep them really informed on why having ownership in the company is such a benefit.

That’s where we can help. As I mentioned previously, I work with Global Shares, a J.P. Morgan company, and we focus primarily on the administration of equity plans for all companies, automating your administration needs, no matter the size of your company, the industry, whether your private, private looking to go public or already public. I won’t go into too many details on it, as I know you’re here to learn. But if you do want to hear more, please reach out. And I’m happy to schedule a separate call on that. Okay, now we’re going to move to questions. The first one I see is actually for Joanna at ESOP Builders. The question is, do you see a trend with the types of plans companies are implementing as we go into a bear market?

Joanna Phillips  27:53 

Great question! So it is interesting that I do see trends over the years as far as the types of specific structures that are used. Now, in small private companies, we’ve often seen plans be like equity ownership plans, where there is a purchase requirement, it’s usually every year, you know, there’s an annual offering, and the employees are allocated a certain amount, and they’re able to invest and purchase shares. And then the stock option concept we really saw very strictly for like the tech industry, startup companies like so it was more specific. But I think that’s being kind of incorporated more so recently, not just the equity ownership purchase plans, but also incorporating stock options as part of that, or instead of that, not just for startups, not just for tech, but in other industries and for more established companies. So it is kind of interesting to see that changing a bit. Ultimately, every company is different. There’s never been one two plans that are exactly the same.

Erin Fraser  29:07 

Wonderful, thank you for that. There’s another question here for you as well. And it’s just asking if there’s a specific company type that would be ideal for launching an ESOP.

Joanna Phillips  29:20 

Again, there’s different considerations that would kind of make me answer a certain way. So and in terms of going through, you know, the full sort of holistic process that ESOP Builders does, which is a two stage process, we first go into identify if it’s feasible, and then we help you design and implement. Going through that process it really depends on having an established company already a company that’s been around for at least two years, and has at least 10 employees. But that’s not to say a company that’s newer or has less employees can’t do to employee ownership, you can still do that. So really, you know, I consider it if you have, like more than two people in your company, you can have an employee ownership plan, it’s just always going to come down to the goals of what you as the owner are looking to achieve.

Erin Fraser  30:17 

Well, that about does it for us today. If you have any more questions, please do submit them through, we’re happy to respond and have a conversation with you as well, depending on the complexity of the questions. And I just wanted to thank Joanna again for joining us here today. It’s very insightful, the information you reviewed with us. And I hope that everyone who joined did get some something of value out of today’s session in terms of one, when choosing whether to offer an employee ownership plan internally, and two, if you already are, how best to kind of drive it towards internal corporate objectives. Joanna, do you have anything to say before we wrap up?

Joanna Phillips  30:55 

Well just thank you as well, Erin, it was a pleasure. And I’m happy to be here. Happy to have further conversation as needed, if anyone has any questions.

Erin Fraser  31:06 

Wonderful. Thank you everyone for joining and we hope you have a fantastic day. Bye for now!

Chris Dohrmann  31:11 

That was Erin Fraser, our Global Shares VP of Business Development speaking with Joanna Phillips, Vice President at ESOP Builders.  For contact or more information for Joanna or Erin, just check the show notes in the description area of this podcast.

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The Own Up podcast is brought to you by GlobalShares.com. To get the inside track on employee ownership and equity compensation, click ‘Follow’ on your podcast player right now so you get the next episode automatically. Information provided in this podcast is intended for informational and educational purposes only. It may contain views which differ from the views of JPMorgan Chase and Co. For specific guidance on how this information should be applied to your situation, you should consult a qualified professional. For full details see the show notes on your podcast player right now. The Own Up podcast is produced by dustpod.io for globalshares.com