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From Remote Work to Crypto, NASPP Conference Looks at Equity Compensation

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Playing to its strength as a provider of expertise and education to more than 6,000 global members, the National Association of Stock Plan Professionals  recently convened its annual conference, a virtual affair rather than the originally scheduled gathering in San Francisco. Participants had online access to everything from a quick hit to a deeper dive on subjects that matter — or will matter — to the total rewards strategies of equity and executive compensation professionals.

Wondering about the tax and regulatory impact of employee mobility and remote work in a pandemic-altered world? A session on “remote-ready rewards” had straightforward answers as well as some more questions. As for more complicated issues, sessions explored how the “E” in DEI — diversity, equity and inclusion — might be reframed beyond comp and investments to achieve greater equity enterprise-wide. And the financial future was intriguingly broached in a discussion of cryptocurrency as a new form of equity compensation.

For Barbara Klementz, global equity service partner at Baker McKenzie, the issue of remote rewards is a two-way proposition. “If employees are staying in their work location and working from home, there’s little tax impact on equity awards,” Klementz said during her session.

“But for people who have moved around during the pandemic, there’s much more [potential] impact on equity awards. The more flexible you’re trying to be for employees, the more complexity and administrative burden there may be, with significant tax burdens and risks.”

These can include a need to comply with  DBA (doing business as) registrations in new jurisdictions where employees may have relocated to temporarily (or have been stranded in), and new employment agreements compliant with the laws of new countries or jurisdictions. Such compliance details as they pertain to remote employees are bound to vary greatly from company to company, but the focus of the NASPP conference is squarely on the bigger picture, as in a major session on 10 factors shaping the future of equity compensation.

The ESG Link

Not surprisingly, ESG — environmental, social and governance issues — was one of the first topics under the microscope. According to the expert panel, when it comes to linking equity compensation for executives to ESG factors, the future calls for more clarity. “In the world of EC and executive comp it’s never clear who really owns ESG,” said Takris Makridis, president and CEO of Equity Methods.

“Some think it sits in finance, or perhaps HR, or IR, but it seems that everyone is going to end up owning it since it is expanding so much. Shareholder proposals are way up on ESG — especially the E and the S.”

Tellingly, a flash poll of session attendees showed that 74% did not have an ESG metric in their organizations’ incentive plans — yet.

Another major factor shaping the future of equity compensation is the recent expansion, under the pandemic-driven American Rescue Plan Act of the U.S. congress, of the number of covered employees whose compensation exceeds $1 million in one fiscal year and may not be deducted by public companies, beginning in 2027. The expansion includes disclosure of an additional five most highly compensated individuals. Such new regulations bring new layers of complexity to corporate disclosures.

“Like most public companies, we have a matrix-type organization, with attorneys and executives supporting various business unit,” said Jessica Lange, a vice president and associate general counsel with Orlando, Fla.- based Darden Restaurants Inc. “We look at the types of human capital metrics and at comp and benefits with our disclosure experts.”

Lange described how organizations can benefit from conversations about what disclosures are interesting to investors, deriving metrics from various internal processes for reporting, and having discussions with external auditors about the sort of data and reviews auditors would like to see.

The NASPP panel also touched on the evolving agenda of the U.S. Securities and Exchange Commission. The SEC is apparently focusing on financial risk statements, and has noted that, under the clawback provisions of the Dodd-Frank act, the number of companies that have adapted clawback provisions for erroneously rewarded incentive-based pay has quintupled in the past five years. “The SEC seems likely to require additional disclosure on company methodology in calculating a clawback when stock price is involved,” said Mike Melbinger, compensation blog author and editor for CCR Corp.

Rise of the SPAC

Another equity comp complication that will increasingly define the future is tied to the rise of de-SPACs, a different way for private companies to go public, via a Special Purpose Acquisition Company — or a “blank check company,” as one panelist described it — that essentially sits and waits for the right company to acquire. (SPAC shareholders have certain rights and responsibilities that parties in a merger don’t. Post-deal, they are prohibited from taking certain actions by security law, and are generally required to retain their equity for at least 12 months after the deal.)

“You need to review all employment agreements, letters, and conversion issues going from an LLC to a C-corp,” said Arthur Meyers, a shareholder in the Corporate Practice Group of Gunster, Stewart and Yoakley.

“Whether an IPO or a de-SPAC transaction is a vesting event for equity, because of a milestone event or a change in control, a discussion with management as to what is going to happen can be difficult as you go public.” Meyers added that a SPAC is a shell company, and more complex SEC rules apply.

While the NASPP conference shines a spotlight on the high-profile, high-stakes world of executive comp and equity awards, it doesn’t ignore rank-and-file benefits, which continue to underpin the total rewards approach in an evolving world of work.

To that end, Palmeira Burnsworth, director and CR Manager with Bank of America, gave an overview and some granularity to BoA’s 2021 Workplace Benefits Report, emphasizing the theme of financial wellness in an increasingly diverse workplace.

First launched in 2011, this year’s report surveyed a national sample of 1,363 employees who are working full-time and participate in 401(k) plans, and 834 employers who offer both a 401(k) plan and have sole or shared responsibility for decisions made in the plan. Respondents were 45% men and 55% women from 419 small, 219 midsize and 196 large companies. Respondents identified as 78% white, 10% Asian, 8% Black, 7% Hispanic/Latino, 2% multiracial, and 1% Native American.

The results were encouraging if tentative. “In 2021, 46% [of surveyed companies] offer financial wellness programs,” Burnsworth said. “That’s up from 40% in 2020, and 95% feel a sense of responsibility for the financial wellness of employees, with 72% offering or planning to offer D&I programs in the next one or two years.”

Overall, employee feelings of financial wellness are on the upswing, especially among Gen Z and Millennials, with 48% feeling financially well in 2021, up from 41% in 2020, while 48% of Gen Xers feel similarly, up from 36% over the same time period. Still, women continue to feel less financially well than men and are twice as likely to be kept up at night by financial stress. And significant numbers of employees report that they feel debt has affected their overall quality of life.

Burnsworth emphasized that organizations should “enable employees to take control of their financial futures, and invest toward retirement goals, as well as invest in promoting digital resources to drive engagement. It’s time to think about supporting workforce diversity in terms of age, gender and ethnicity to benefit the business and take action toward D&I across the company.”

Crypto Comp’s Cutting Edge

For all the data and specificity of the NASPP sessions, though, the session with the least data underpinning it may have been the most interesting — or at least the most cutting edge and far-sighted. “Cryptocurrency: The New Form of Equity Compensation” addressed the light-speed trend of bitcoin, blockchain, NFTs (non-fungible tokens) and the soft parade of financial assets with no regulation or centralized currency system.

“Cryptocurrency is supplementing and, in some companies, replacing equity compensation,” said Fred Whittlesey, founder and principal consultant for Compensation Venture Group SPC. “It’s time to examine whether crypto as compensation is the right strategy for your company and how to navigate the taxation, regulatory, valuation, and volatility considerations. The big difference is volatility.”

Indeed, Whittlesey pointed out that awareness of crypto ranges widely, from employees who know nothing about it to those who are so crypto-savvy they want to know why their firms aren’t already offering it as equity compensation.

“Crypto is a forward-thinking way of paying employees, and for some it is already part of their culture,” affirmed co-presenter Sinead Kelly, a partner with Baker McKenzie, a multinational law firm. The vanguard of crypto and tech companies is offering crypto equity comp “to get everyone into the game, to get people excited and motivated about it,” said Kelly.

“Companies not in the crypto industry are finding that the candidates they are hiring want cryptocurrency, that the younger generations are focused on it.

“It’s risky but exciting for employees, and it’s cutting edge,” added Kelly. “But crypto employee education and communication is the biggest challenge for most companies.”

About the Author

Matt Damsker is a former principal with Mercer, an author and journalist.

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