Stock Plan Administration Buyer’s Guide


Making Sense of the Market

Differentiating stock plan providers.

Equity compensation can be an indispensable business tool, creating long-term value for both public and private companies, but its prominence within an employer’s total compensation strategy has been somewhat diluted since market volatility began taking root.
According to Corey Rosen, the co-founder and senior staff member of the National Center for Employee Ownership (NCEO) in Oakland, California, it is very common that top executives receive equity compensation in public companies, yet, other than for the top five, there is no requirement to disclose this information. “Equity compensation peaked in the early 1990s with 10 million or 11 million executives, and currently approximately 8 million employees receive an evolving mixture of types of stock options,” he says.
A contracting market has created a strong competitive environment, which has resulted in stock plan administrators employing extremely complex platforms to track operations. There has also been much innovation in awards design, including a major decrease in the number of options granted—and missing in other types of equity; more performance-based awards; and the shortening of the life of a grant. These changes combine to make the selection of a stock plan administrator by a plan sponsor that much more important.
Additionally, stock plan administrators today enable participants to interact with their accounts online. At the same time, plan sponsors can monitor the programs and tap into specialized expertise to receive information as varied as Financial Accounting Standard (FAS) 123R, which requires companies to deduct the amount of share-based (equity) payment granted annually to their employees, and Securities and Exchange Commission (SEC) Section 16 reporting.
“These plans are very complex, with a zillion moving parts, so providers really need to spend a lot of time to be sufficiently educated on the topic,” says Rosen. For this reason, he recommends that, when looking for a stock plan administration company, plan sponsors note what percentage of provider staff members have a Certified Equity Planner (CEP) designation.
Another area in which plan sponsors should consider their options is employee education. “Companies haven’t done a really good job, and providers haven’t been very successful,” Rosen says. Employers should want to help ensure that their programs are fully understood and utilized.
Eight providers responded to our request for information (RFI) for the “2016 PLANSPONSOR Stock Plan Administration Buyer’s Guide.” The results indicate that the players in this niche market appear to offer similar core services.
“The participating providers service almost every stock plan type and allow for almost every plan exercise type,” says Brian O’Keefe, director of research and surveys at Asset International in Boston, and researcher of this buyer’s guide. “Additionally, the providers are pretty evenly represented in terms of participants among domestic stock plans.”
However, that being said, five areas of differentiation between providers appeared.

  1. Service quality. All providers that responded received high customer satisfaction results according to the “2015 Stock Plan Administration Benchmarking Study” conducted by Group Five, an industry leader for shareholder and plan participant satisfaction research.
  2. Service bundling. Several providers emphasized their ability to bundle defined contribution (DC) recordkeeping and stock plan administration, while others promoted unbundled solutions that offer sponsors the ability to choose any provider for their DC plan.
  3. Need for service partners. Some providers use only in-house staff for common compliance and financial reporting areas, while others largely rely on third parties. Some providers offer the flexibility of supplying sponsors with a choice of in-house or third-party options.
  4. Role of executive servicing. Financial service firms provide wealth management as part of their complementary offerings.
  5. Full or partial outsourcing. All providers now offer both full and partial outsourcing arrangements. “Full outsourcing” means that the client has outsourced the tracking of awards and execution of trades associated with the awards; “partial” means the provider does one or the other.

Art by JooHee Yoon

Art by JooHee Yoon