Get direct guidance from our equity plans experts on recent industry developments, best practices, and more. In this issue, we cover:


Communications in a Work-From-Home Environment

As the pandemic persists, we continue to look for ideas to improve our share plan communications strategy in a work-from-home environment. What do you recommend to this end to ensure the sizeable investment we make in our employee share plan offering pays off, especially with the added challenge of a heavy remote workforce and varying employee needs/circumstances?

Whether your workforce is 5% remote or 95% remote, you need a share plans communication strategy that effectively bridges location gaps, engages employees, and increases plan interest. The pandemic has only reinforced this. The powerful learnings from a recent Computershare CommsX study, described in the article and webcast, How to Effectively Communicate with Employees During a Pandemic, show that personalization is a cornerstone to creating great content and employee engagement.

Remember when seeing your name in an email subject line seemed like a revolutionary advancement in digital marketing? Today, personalization—offering tailored experiences that keep employees engaged—requires a far more robust and strategic approach, and is an essential way for employers to contextualize their messages according to their employees unique profile. Through personalization, companies can capture the attention of employees based on their unique needs and cover topics that are most important to them about their share plan offerings, e.g., how to reduce ESPP contributions due to a reduction in pay.

Employees expect you to understand their needs and provide relevant information to build trust and understanding. Making sure that personalization is built-in to your communications at all levels and for every interaction shows that you are taking extra steps to interacting with them. We recommend segmenting communications by worker or regional persona type to ensure messaging is appropriate and include imagery—realistic photo stock based on your industry or visuals employees can relate to, to reinforce personas and strengthen trust.



Pennsylvania State Tax for Tax-Qualified Programs

We are aware that Pennsylvania does not follow the US federal tax treatment of ESPPs and ISOs for state income tax purposes; however, where state tax is paid upon purchase/exercise, how is this income excluded when a disqualifying disposition is reported upon sale?

While most states follow the federal tax treatment of ESPP or ISO stock, it is true that Pennsylvania does not recognize ESPP or ISO stock as tax-qualified. In that case, for employees who reside in Pennsylvania, at the time of purchase or exercise, the company is required to withhold Pennsylvania income taxes from compensation income recognized upon the purchase of an ESPP or exercise of an ISO for PA tax purposes, e.g, when an employee exercises an ISO, it will be taxed as an NSO at the time of exercise. See Pa. Dept of Reve, PIT-03-037 (Dec 30, 2003).

In practice, where the participant has a disqualifying disposition, the process to exclude state income tax so it is not recorded a second time in taxable compensation is a manual one. Most companies follow this approach 1) At purchase or exercise, payroll receives a list of employees who reside in Pennsylvania with the amount of gain to be reported so that proper withholding can be made from the employees next paycheck 2) At sale (disqualifying disposition), payroll is notified to code these sales differently and impacted participants are informed that they should review their paycheck for accuracy and reporting to the state. There are situations where it may be possible to work with your payroll vendor to set up a different income line which will not report in box 16 of the W-2; however, most stock administration systems don’t currently have the ability to identify this for administration upon sale.



Components of a Competitive Benefits Offering

We understand that what motivates one employee many hinder another. How can we build a competitive benefits program that caters to the individual needs of our workforce?

Companies should support their staff by implementing strategies that work to nurture each employee's intrinsic desire to do well. The end goal is to provide opportunities for all to succeed in the workplace, while recognizing that each person may have individualized career goals. Depending on your workforce, a mix of motivational techniques may be helpful. Career development plans, a supportive corporate culture, and compensation strategies can be some of the most important types of motivation; however, compensation is a basic motivation for virtually all employees.

When choosing between jobs, candidates often list salary and benefits among their top decision factors. Making sure your employees are paid fairly and provided with the benefits they need can help build a foundation upon which higher levels of motivation can flourish. To add further motivation, design compensation strategies that include equity compensation. Equity compensation continues to be a popular strategy for companies to boost employee engagement. When implemented well, equity compensation can create a workplace with engaged, talented employees while providing cost-savings for employers.

Check out our recent interview with Human Resources Director.



Understanding the Participation Decision

I’m curious to understand what determines ESPP participation and contributions? More specifically, how long does it take for employees to decide to participate in their share plans—what is their deliberation process?

Within the total rewards space, the fastest growing type of plan is the ESPP. Participation is voluntary, and employees as well as employers can make post-tax contributions, which means a substantial portion of the burden for providing financial wellbeing is on the employee: the employee decides whether or not to participate, how much to contribute, and what to do with the assets. Since a growing proportion of workers rely on their ESPP, and since payments from these plans are essential for financial wellbeing, employees' participation and contribution decisions are extremely important.

The goal of these plans is to ensure that those who are eligible to participate choose to do so and that those who participate contribute as much as possible. Computershare, in partnership with the University of Melbourne, recently explored the factors that influence employee participation in company share plans in the study, Understanding the Participation Decision. The research found that the single most important influence on employees who accept an invitation to the plan is previous participation. This is welcome news as it means that once employees choose to participate in their companies share plan, they are highly likely to stay in it/enroll in future years. The study also shows that almost 70% of all employees make their participation decision within the first day of receiving the share plan invitation. This means that companies would be wise to create a ‘pre-offer’ communications campaign to allow employees adequate time to research and educate themselves about the benefits of participation, e.g., consider introducing a pre-enrolment feature to your program to enable new starters to join the plan on contract acceptance with designated contribution amounts to be deducted from their first salary, as it could lead increased participation levels over time.

This insightful study sheds new light on the process by which employees make their participation decision and on the reasons for not participating. Download a copy of the research here, and be sure to check out our recent webinar on the topic.



Stock Options in Canada

Special thanks to Mike Fantin, Computershare Canadian Client Relationship Manager, for his contribution to the response to this question.

We are aware that there will be changes to the treatment of stock options in Canada. Do these changes apply to all employees and are there any exemptions?

In its Fall 2020 Economic Statement, the Canadian federal government announced that it will move ahead with new rules for the taxation of employee stock options, which will be effective for stock options granted after June 30, 2021.

Currently, income from exercising stock options is eligible for a tax deduction and taxed at half the normal personal tax rate – the same rate as capital gains. The federal government is introducing a cap on the annual value of stock options that are eligible for special tax treatment. Employees can claim a “stock option deduction” on the first $200,000 worth of stock options that vest, becoming available to exercise, in a calendar year. Income earned on stock options over that threshold would be taxed at the normal tax rate.

The majority of employees receiving stock option benefits will not be affected by these changes. Recent data has shown that high-income earners (over $1 million) accounted for 2/3 of the entire cost of stock option deductions yet represented only 6% of stock option claims.

There are some exemptions to these new rules however. Employee stock options are often incorporated into a company’s compensation strategy in an effort to attract and retain talent. This is a common practice, especially among startups and emerging businesses. Therefore, the government has deemed that Canadian-controlled private corporations (CCPCs) or non-CCPC employers with consolidated group revenue of $500 million or less would be exempt from these new rules.


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About the Auth​or​​​

Ro​​byn Shutak leads our equity advisory consulting services t​o help our clients get the most value out of their plans. She is available to discuss trends in plan ​design, enhancing your employee communications, outsourcing opportunities, and a whole lot more. Use the form at the bottom of the page to contact Robyn and find out how she can help improve the value of your plans.​​​​​​​​​​​​