Remote Compensation – What About Equity?
So far, we have just scratched the surface of compensating people in the new “remote” world. We have had some discussions about pay adjustments, geographic differentials, adjusting goals, and communicating changes. Each of these requires more work and bigger changes than most people want to believe. In this post we open up our Remote Compensation Master Class (it sounds more important that way.) In this first advanced session, we will delve into the always opaque world of equity compensation (Hooray, my favorite!)
Equity compensation is an area where many compensation professionals lack confidence on even the most standard of programs. ISOs, Non-Quals, PSUs, RSUs, ESPPs are pretty much the extent of most programs in the U.S. From a management perspective these programs are a bit like computer worms or viruses. They have tentacles that stretch in securities law, employment law, corporate governance, valuation, accounting issues, monetary rules, and tax concerns. A simple change of employee venue can change any, and sometimes all, of these.
Some companies, like Twitter, have announced that their employees will be able to work “remotely forever.” Two months into the COVID-19 pandemic most people interpreted “remote” to mean home. For most “home” meant where you lived when the pandemic started. Then people started pointing out that they could move back to where they grew up around the country. This has led to people discussing moving to different countries. Now things are starting to get fun!
An employee moving to a new state usually means new taxation. But most compensation professionals don’t realize that if your company is not publicly-traded, a move to a new state likely means new securities laws. Public companies are covered by our nationwide SEC rules, private companies have to follow unique “Blue Sky Laws’ that exist in the majority of states. These rules dictate disclosure information, shareholder rights, and much more. If your employees move home, you may find that the cost is more than it’s worth for their happiness.
Everything is magnified when someone moves to a new country. As it turns out, pretty much every country has its own laws and regulations! Who knew?!? Beyond immigration issues are money transfer issues, tax rules, works councils and so much more. While your employee CAN work from anywhere you may not want them to work from anywhere. The international component extends to a wide array of other elements of total rewards. Hopefully, we will get to those in later posts.
Now consider the time your employees spend working while they are in. multiple states. Many states require that time worked in the state is allocated to a portion of the employee income. For many, this rule extends to compensation from equity plans. Big consulting firms built system years ago to track the movement of their employees and determine the pay and tax consequences. The cost of creating and managing these types of systems is not inconsequential. The average small or mid-sized firm will be hard-pressed to justify this cost. The process is also arcane and requires oversight and discipline.
And once again I am running out of space so I will pause here and look forward to my next post. The world outside the traditional office is a wonderful, productive, frustrating, and sometimes infuriating place. I’d love to hear your thoughts, questions, and concerns on the move to remote work.
Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He is a “Compensation Futurist” who works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including the only resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, , “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.
