Q&A With Equity Advisory Services

​Computershare's own ​Robyn Shutak offers you direct guidance from our advisory services practice on recent industry develo​pments, best practices, and more. In this issue, we cover the following topics: 

• Fractional Share Purchases and ESPP Programs
• Proxy Reporting and Section 16 Filing Amendments
• Financial Wellness Programs
• Decline in ESPP Participation
• ESPP Automatic Enrollment​

Fractional Share Purchases​ and ESPP Programs

I’ve been hearing a lot lately about ESPP programs and fractional share purchases. Do you have any clients that allow fractional share purchases under their plans, and if so, can you tell me why we might want to consider doing the same?

We recently discussed this very topic in the article, Overlooked and Underrated: Why Fractional Shares Matter, but are glad to address the question further here. The buzz you are hearing is real; we are in fact seeing more companies introducing fractional share purchases into their plans. In fact, Computershare manages over 240 stock purchase programs for companies of all sizes and, of those, many provide for fractional share purchases under their plans.

By way of background, many companies designed their stock purchase programs to limit purchases to whole shares only. At the time of purchase, residual contributions are either carried forward to the next purchase or refunded through company payroll. However, with more and more companies realizing the tremendous value that fractional shares offer together with stock purchase programs going through a new era of appreciation (and plenty of employees out there who want to participate in them), companies are starting to think about introducing fractional share purchases into their plans.

Among other things, the benefits of fractional shares include:

• Maximizing the number of shares delivered and value recognized by your participants
• Reducing the amount of cash needed to pay out refunds
• Streamlining administrative processes / reducing payroll processing
• Simplifying communications to participants
• Increasing employee ownership

The article, Overlooked and Underrated: Why Fractional Shares Matter​, more thoroughly outlines the benefits of fractional share purchases. You can also find out more about the topic in a write-up from the roundtable discussion at our most recent ESPP Day, a one-day conference that provides comprehensive education on all aspects of ESPPs. Do be sure to make plans now to join us at our next ESPP Day in Boston, MA, on May 16th to discuss fractional share purchases and other related topics.

Proxy Reporting and Section 16 Filing Amendments

We recently needed to amend a Section 16 filing for one of our insiders after the deadline for submitting the original filing passed. Would this be considered a delinquent filing that needs to reported in our proxy statement?

Unfortunately, when an amendment to a previously reported Section 16 filing is required and the deadline for submitting the original filing has passed, the amendment is considered a delinquent filing for proxy reporting purposes unless it is a minor correction. Minor corrections include correcting the date of a transaction, changing a transaction code, or correcting the vesting or expiration date of a derivative security. You are, however, allowed to take a default position to report all amendments filed after the original deadline in the annual meeting proxy statement, even for minor amendments. If you aren’t currently using Computershare’s Section 16 Manager™ platform to track your insiders, holdings, transactions, footnotes and balances, you might consider it to assist with your Section 16 reporting requirements, such as this. Section 16 Manager™ automates the creation, management and submission of SEC corporate insider forms to help in compliance, reduce risk, lower program costs and save time.

Financial Wellness Programs

Our company is thinking about implementing a financial wellness program for employees and would like to better understand how we can best help them achieve greater financial wellness through our equity compensation programs?

There is no better time to be thinking about financial wellness in the workplace as companies everywhere are introducing workplace wellness programs into their benefits structure, with a focus on financial wellness, and we expect this trend to continue as more employees turn to their employers for solutions that can help them achieve and maintain financial wellness.

Research indicates that an employees’ financial wellness has an impact on a company’s productivity and on its bottom line financials. Further, statistics show that nearly half of the American work force is stressed out and that they take that stress to the office every day. Below are some figures that show the challenges we are facing in the US to this end.

• 54% of works say they’re stressed about finances (PwC)
• 2/3 of workers would fail a financial literacy test (FINRA Foundation)
• 53% of employees have skipped or postponed a healthcare issue to save money (BenefitsPro)
• 78% of Americans work paycheck to paycheck (CareerBuilder)
• 50% of workers spend an average of 45 minutes a day at work dealing with personal finances (BenefitsPro)

A comprehensive financial wellness program can empower employees, improve productivity and retain talent. Computershare recognizes the importance of programs like this as it relates to understanding equity-based employee benefits and more broad financial considerations. To this end, in 2017, we implemented a financial wellness program for our clients located in the US and their employees with the goal of shifting employee behavior as it relates to their finances, e.g., keeping employees from making bad financial decisions, like selling their awards at the market bottom, or making good decisions, like contributing to their ESPP or saving for retirement. Clients have access to help managing and planning for their equity awards and that includes helping them on the decision support process, like how they are going to pay taxes, when they should sell and what to do with the proceeds and access to quarterly financial wellness webinars covering stock options and restricted stock vestings (with sessions for both beginners and advanced level participants).

With marketplace studies revealing that only 50% of stock plan participants are confident in their ability to make the right decisions about their awards on their own and only 24% of stock plan participants have exercised options or sold shares that are part of their equity compensation, helping participants understand where their true benefit can be in terms of how their equity awards helps them towards their financial goals and security is a leading workplace trend that will likely continue and eventually become a best practice.

Your plan participants have access to a wealth of financial education through the Participant Education section on Employee Online (participant account required for access). Additionally, we offer regular webinars on financial wellness to plan participants with an upcoming vesting event. Talk to your relationship manager to learn more.

Decline in ESPP Participation

We have seen participation in our ESPP decline over the past 12 to 18 months and are looking for some ways to renew interest in the plan. Do you have any recommendations to this end?

A decline in plan participation can stem from several factors, including ease of enrollment, lack of knowledge about the plan and an overall understanding of it. Regardless of cause, if you want to achieve different (better) results under your ESPP, you’ll need to think about new ways of doing things / ways to do things differently. To start, understand which existing communication channels are the most effective; are they measurable; what impact are they having; who’s reading them; are readership rates different depending upon location; job function; or demographics? Do you need a mix of formats to suit different content to get the message through and if so, consider segmenting your communications? Most large companies today have employees spanning four or five generations. Each of these groups will have preferences for communication formats. Find out what the communication needs are of your employees and tailor your communications accordingly. For more low or no cost recommendations on how to raise and/or renew interest in your program, check out the article, Five Techniques to Turbocharge Your ESPP Education and Increase ESPP Participation at Your Company.

Computershare can help you devise strategies to increase participation in your plans, including support with online ESPP enrollment, and we offer fully customized communications programs that have proven successful for many of our clients and tailored data management solutions.

ESPP Automatic Enrollment

From what I understand, automatically enrolling employees in a 401(k) retirement plan seems to really increase participation and has become a best practice. What are your thoughts about automatic enrollment as a strategy to prompt participation under an ESPP program?

It is true that automatic enrollment is widely seen as a best practice in 401(k) plans and has been an extremely effective plan design feature to boost plan participation and employees’ savings. While companies haven’t yet embraced ESPP automatic enrollment, there is powerful evidence that this strategy is working with 401(k) plans.

In the November-December 2018 issue of The NASPP Advisor, we discuss ESPP automatic enrollment as a design strategy. The article, Opening the Door for Participation in an ESPP with Automatic Enrollment, provides that with few exceptions, participating in an ESPP is something employees should welcome, and automatic enrollment can be an ideal strategy to prompt participation. With automatic enrollment, joining the plan becomes that much easier. Rather than having to take steps to participate, employees are automatically signed up and can opt out thereafter if they want to, or can easily confirm their participation without having to self-enroll in the plan. Most employees, however, do nothing or decide to remain in the plan once their participation commences. As a result, participation in the plan naturally increases, and at the same time, you are helping employees to enjoy the benefits of acquiring stock at a discounted price. To avoid losses if the stock price drops, and minimize the risk of employee claims, the automatic enrollment feature can be designed so that the shares acquired are immediately sold and the employee receives the net cash proceeds, at least in cases where the employee does not ultimately affirmatively confirm participation in the ESPP.

There are certain instances, however, where the use of ESPP automatic enrollment can be more advantageous than others, as mentioned by David Outlaw of Equity Methods in our recent webcast, Bang for your ESPP Buck. These include the following:

• When the company is likely to have minimal withdrawals, e.g., a small group of participants and a savvy culture
• A major inflection point in the business, e.g., change in control
• A special buying opportunity, e.g., starting the offering at the IPO price to kick-start a sense of ownership

These unique instances are particularly opportune times to make use of this design feature; however, before making any spontaneous decisions on ESPP automatic enrollment, careful consideration should be given to understanding the related legal and accounting consequences.​​

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