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SESSION 9.2
Affordable Global Equity Compliance: How to Manage Your Company’s Risk on a Tight Budget
Kelly Geerts (US) – Apple, Inc.Mike Pewton (UK) – GlobalSharePlans
Peter Vassallo (UK) – BP plcJewon Wee (US) – ISP Advisors, LLC
Affordable Global Equity Compliance:
How to Manage Your Company’s Risk on a Tight Budget
Mike Pewton (UK) GlobalSharePlans
Peter Vassallo (UK) BP plc
Kelly Geerts (US) Apple, Inc.
Jewon Wee (US) ISP Advisors, LLC
Today’s Panelists
Agenda
• Global equity compliance risks, tasks, costs
• Plan sponsor case studies: Apple & BP
• Tips as to how to do this going forward
What are the risks?
Monetary Risks
• Fines for failure to comply • Late tax payment penalties &
interest • Legal expenses defending
criminal sanctions • Business interests
Other Risks
• Criminal sanctions on company and/or employees
• Disgruntled employees • Reputational risks • Business interests
Compliance costs
Internal Costs
• Maintaining a knowledgeable, internal team (may make sense to hire an experienced professional to lead)
• Develop & maintain global payroll procedures
• Develop & maintain other informational and transactional procedures
External Costs
• Educational conferences and training costs
• Professional fees to obtain general regulatory & tax advice
• Professional fees to handle local country filings
• Professional fees to handle local country tax services
• Translation and delivery of participant education materials
Compliance Tasks & Costs
Type Tasks Internal Cost External Cost
General Develop & maintain sufficient internal knowledge of Global Compliance Tasks
Moderate to High
Low to Moderate
Regulatory Securities law filings (country-specific and regional filings)
Low to Moderate
Moderate to High
Labor laws including works counsel Low to Moderate
Low to Moderate
Data privacy Low Low
Tax Payroll (employer reporting, withholding, remittance)
Low to Moderate
Moderate to High
Individual tax reporting & remittance Low Low to Moderate
Communications Inform participants of personal obligations (tax, foreign exchange, etc.)
Low to Moderate
Low to Moderate
Regulatory compliance
• Compliance can seem more difficult/diverse: • Securities laws compliance • Exchange control compliance • Data Privacy • Employment law issues
• Compliance may seem less “risky” • Penalties may not seem as real but:
• Large fines • Potential criminal sanctions • Reputational risk
Regulatory compliance – Are there alternatives?
Country Compliance issue
Filings Compliance alternative
How
Australia Securi-es Yes Yes Less than 20 persons, senior execs
China Exchange control
Yes Yes Cash plans; non-nationals
EU for non-listed companies
Securities Yes Yes RSUs, non transferable exemptions
Italy Securities Yes (must appoint financial intermediary)
Yes Cashless exercise/Rsu’s
Japan Securities Yes – Options Yes Rsu’s, wholly owned subsidiary
Malaysia Securities Yes Yes Don’t advertise the plan
Philippines Securities Yes ?? May not be required for less than 20 employees
Saudi Arabia
Securities Yes Yes Cash Plan
Regulatory compliance – How do we do it?
Know the issues: • Securities filing triggers for each equity type (options, RSAs,
RSUs, etc.) • Exchange control issues for equity types (and regions)
Build in compliance: • Data Privacy • Exclusion clauses
Flexibility in rules • Changes to take into account foreign legislation
Tax compliance
• Compliance can seem more straightforward • Tax information is clearer • Issues are more tangible • Information more readily available • More local/administrator assistance
• Risks more tangible: • Non compliance is more “obvious • Fines are “obvious”
• But what about mobiles? • Tax compliance is absolute but don’t forget regulatory
Tax compliance - Are there alternatives?
Country Compliance issue
Filings Compliance alternative
How
All countries Tax Yes NO N/A
Tax compliance – How do we do it?
Know the rules: • Taxable events (grant, vesting, exercise, etc.) for each equity
type (options, RSAs, RSUs, etc.) • Payroll withholding & reporting obligations • Tax withholding rates (income & social)
Know the dates: • Withholding & remittance due dates • Reporting (year-round and at year-end)
Know your employees • Local nationals vs. mobile employees
Global Equity Compliance Knowledge Development
• Develop and maintain sufficient “internal” knowledge of the key compliance tasks
• A global “lead” to facilitate knowledge transfer, monitor & coordinate compliance activities
• Supported by a cross-functional/country team
• Global lead/team should be aware of & drive compliance activities • Regional and local country filing requirements • Exchange control permits (employee’s responsibility) • Payroll wage reporting, withholding & tax remittance • Employees personal tax obligations
Global Equity Compliance Knowledge Development (continued)
• Internal lead/team should also be assist in structuring plans carefully to ensure correct international clauses for • Data Protection compliance • Exclusion clauses. • Translating (only) where required
• You cant know everything everywhere all the time…but should have a framework to:
• Stay informed of regulatory changes that affect your company programs
• Efficiently perform impact analyses • Determine practical next steps, including seeking
professional help when warranted.
Compliance tools & resources for “Do-It-Yourself” research
Tools & Resources Source Cost What you get…
GEO website GEO FREE! Offers webinars, presentations from previous conferences, country regulatory alerts, articles, etc.
GEOnews Weekly (emailed weekly)
GEO FREE! Great source of articles on global and country specific topics affecting equity compensation.
GEO Global Updates (emailed monthly)
GEO FREE! Consolidated list of alerts posted by service providers who are GEO members.
GEO webinars, podcasts, local chapter meetings
GEO Generally FREE
Presentations on timely topics. Local chapter meetings are given by speakers from local firms.
GEO Annual Conference
GEO Inexpensive Rare occasion to access over 45 presentations and network with your peers and industry leading advisors.
NASPP website NASPP FREE for members
Offers a global portal and an online discussion forum dedicated to global equity plan issues.
Compliance tools & resources for “Do-It-Yourself” research
Tools & Resources Source Cost What you get…
NCEO website NCEO FREE for members
Offers free articles and books for equity compensation professionals and provides research findings on employee ownership.
Periodic newsletters & publications by Advisor Firms
Various advisor firms
FREE! Most will let non-clients sign up for emailed versions of their client newsletters. Country-specific reports are updated infrequently.
Websites by regulatory bodies (e.g., www.irs.gov)
Various government bodies
FREE! Tax rates and rules and regulations written by the regulators themselves! Information and usefulness can be spotty. Not always available in preferred language.
Subscription-based online country-specific knowledge databases
Various Varies (can be pricey)
Web-based databases that house country-specific tax and regulatory rules affecting share-based pay programs.
Case Studies: Apple & BP
Apple, Inc. • 43,000 employees in 34
countries • Over 33,000 outstanding
grants and 19,000 ESPP participants
• Top 3 global equity compliance priorities
1. Accurate local tax withholding and reporting
2. Timely statutory reporting where required
3. Employee education
BP, plc • 92,000 employees in more
than 80 countries • Global share purchase plan
with matching element, RSUs, (some) options locals and expats
• Top 3 global equity compliance priorities
1. Regulatory compliance 2. Tax compliance 3. Mobile tracking
Approach to Global Equity Compliance
Apple • Regular meetings with cross-
functional team including Compensation, Legal, Tax, Finance and Stock Plan Ops
• Changes in legislation • Expansion into new countries • Changes in Comp policy
• Established relationship with global law firm
• Twice a year updates on country rules
• Partial automation of mobile compliance
BP • Regular compliance cycle
• Know when & how often you are going this and do it consistently
• Consistent contacts locally • BP Local • Known law firms
• Use country-by-country knowledge database to keep updated all year
• Specifically addressing mobile compliance
Approach to buying external advice and compliance services
Apple • Employ strong internal team
members with global experience
• Engaged Finance and Tax teams place importance on audits and compliance
• Daily audits • Monthly reconciliations • Quarterly reviews
• Outside law firm has broad distribution globally
BP • Internal global equity expertise
• Database • Annual trawls • Experience (centrally and
locally) • Consistent annual procedures
• Regular filings • P of A where required • Specific Cash countries
How have you reduced overall cost to Global Equity Compliance?
Apple • Developed audit tool for Stock
Plan Ops team to use on a daily basis to identify exceptions
• Used country-specific details from outside law firm to build spreadsheet for mobility calculations
• Monthly meeting of core partners ensures no risk is overlooked
BP • Perform feasibility internally
using subscription-based knowledge database
• Confirm issues with local lawyers directly
• Consider country-specific alternatives wherever possible to eliminate costly plan features
What plan design & operational alternatives have you considered to lower local country compliance costs?
Apple
• Discontinuation of plans in specific countries with expensive filing requirements
• Cash-based plans vs. shares
• Forced sale requirements
BP • Share delivery
• Treasury shares • Newly issued shares
• Share delivery • Share plans • Cash alternatives
• Share Delivery • Direct ownership • Holding accounts • Power of Attorneys
Tips
1. Internalize global equity compliance knowledge – Be mindful that the appropriate level of internalized expertise will vary based on your company’s needs
2. Establish a practical framework for global equity compliance that makes sense for your company and apply it “year-round” (not just once a year!)
3. Learn to do some or all of initial “due diligence” internally using free and inexpensive country-specific knowledge resources.
4. Learn how to recognize situations that warrant consulting with external advisors (get external advisor sign off in the “difficult” countries)
5. Structure your plans to avoid expensive filings
Tips (continued)
6. Maintain a global calendar of all key deadlines for filing, reporting, tax remittance and check with local country contacts periodically to make sure the deadlines are being met.
7. Consider the per-participant compliance cost (set a per-participant budget and stick to it!).
8. Utilize web-based solutions for educating employees of their personal responsibilities to comply.
Thank you!
Kelly Geerts, [email protected] Mike Pewton, [email protected] Peter Vassallo, [email protected] Jewon Wee, [email protected]
