Equity Unpacked®: The Stock Plan Administrator's Podcast

Equity compensation can be complex for both participants and stock plan administrators. Amy Reback, Managing Director of Stock Plan Services at Charles Schwab, talks candidly with guests from the stock plan world to untangle how it all works, so you can make more empowered decisions.

Listen on Apple Podcasts Listen on Google Podcasts Listen on Spotify

Episode 20: Who Should Make Equity Plan Decisions? Part 2

We're back for part two of our conversation around who should make equity plan decisions. HR, legal, tax, and accounting all have a hand in equity compensation administration, and it's not always clear how to get the decisions and provisions needed to move forward. Amy Reback is joined by Stacy Fox, Equity Administration Lead at Confluent; Christine Zwerling, Head of Stock Administration at Asana; and Georgina Lai, Director of Global Equity Programs at Alation, to finish the discussion.

Brand music plays.

An orange box appears on a navy background. The Equity Unpacked logo is in the bottom right corner of the screen. 

Onscreen text:
Episode 20: Who Should Make Equity Plan Decisions? Part 2

Amy Reback appears on screen in front of a blurry blue background.

Amy Reback:        Hello, listeners, and welcome back to another episode of Equity Unpacked®. I'm your host, Amy Reback, from the Workplace Financial Services Team at Charles Schwab. On today's episode, our travels take us back to the heart of the equity administrator's role, for part two of our "who makes equity plan decisions?" episode. 

Amy and the three panelists are sitting around a dark wood table.

Amy:         And of course, the queens of the moment. I have our guests, Stacy Fox, 

Onscreen text:
Stacy Fox, Equity Administration Lead, Confluent

Stacy smiles.

Amy: Christine Zwerling,

Onscreen text: 
Christine Zwirling, Head of Stock Administration, Asana

Christine looks at the camera and smiles.

Amy:         and Georgina Lai to answer all of your burning questions. 

Onscreen text: 
Georgina Lai, Director of Global Equity Programs, Alation

Georgina smiles and nods at Amy.

Amy:        So, as we move into the legal side, I'm curious to know, for M&A, have any of you had a situation where there's M&A going on, you're put under NDA, and they come back and they say, "Well, this is what's happening, and we're granting these awards to the acquisition target. We're going to make these grants to them. It's part of the deal"? And it's actually something you can't do for some reason. Have you had that experience?

Christine and Georgina point at Stacy, who raises her hand.

Christine:        Yeah, I had a great one. Oh, you go. [Pointing at Stacy.] You go.

Stacy Fox:        Yeah. I've had a couple of these where the deal has not closed yet, and they add more shares to the company that's being acquired. 

Onscreen text:
Stacy Fox, Equity Administration Lead, Confluent

Stacy:         And they grant out of that company plan, and then we assume those shares. So I've seen it all. Don't ask. But I've seen things happen before the deal closes on the company-that's-being-acquired side because it's easier to do, because they're still private. And then that doesn't offset or burn into our plan. And then we assume the plan, and then we register the share. I've seen it done. Yeah, it depends.

Christine:        Yeah, and I have on the acquisition side, too. 

Onscreen text: 
Christine Zwirling, Head of Stock Administration, Asana

Christine:         Usually, I've been able to get a seat at the table when there's negotiating, so I know what's going on. I know what I'm going to be getting because I've had those bad situations where . . . I had one—I don't know if I've told you guys about this. It was many, many years ago. This is where I learned that you have to have a seat at the table—where I think it was 10% or 15%. It doesn't even matter. 10% of each exercise for the next year had to go into escrow.

Stacy:        Ugh.

Georgina:        Oh, yeah.

Christine:        That meant if you did a cash exercise and got 1,000 shares, I had to pull 100 shares off, put it in escrow. If you did a same-day sale, I had to pull 10% of the dollars out.

Stacy:        Oh, wow.

Christine:        Yeah. No, very painful. And that's where I learned you got to sit at the table. But I've also had some situations, and this is a lot of times when you are the only expert in the room on how you're going to administer it. I had one where we were going through the acquisition, and they wanted to cash out the grants in a certain country [Stacy and Georgina nod.] because they had a qualified plan. Or it was like an EMI plan in the UK or something. Instead of just converting it to a non-qual, they wanted to cash them out. But to cash them out in a fully vested RSA on the date of acquisition.
        That's when you pull out all the, like, there's going to be tax ramifications, it's compensated. One, we're going to approve it on the day of the acquisition. How are we going to process all of this? I was sitting there with our lawyers and the outside counsel who was advising us to do this program. And I said, "You know what? It's a really small industry that we have for stock admin." Because they were telling me, "Everybody does this." I was like, "Great. Give me the name of just one company. I'll find the administrator and how they did it, and I will make that happen." It was crickets. [Stacy laughs and nods in knowing agreement.]

Amy:        Right.

Christine:        So we didn't do that. But it is really getting that seat at the table.
        There was another acquisition where they hadn't done grants for six months because they were shopping their company. They didn't have a good valuation. They said, "Well, these people have been waiting. Can we make them a grant now? How do we do that?" And so pulled our comp team in and the lawyers, and one of the things I suggested was, "What if you . . ." They were doing options because they were a private company. "What if, instead, you figure out what that value is and you grant them an RSU in that value? And by the way, here's our vesting schedule. Since I'm going to inherit that, have it be on our vesting schedule."

        There is a really, really fine line of what you can advise them to do and not before you acquire them, so it was a lot of more suggesting. 

Amy:        Sure.

Christine:         And then they can take with it and run with what they want. And pointing out, "Here's our SEC docs of what we use. Maybe we use something similar to that." But it's a very interesting dance because you can't tell them what to do.

Georgina:        Not only that. M&As are tricky. They're never alike. They're always different. 

Onscreen text: 
Georgina Lai, Director of Global Equity Programs, Alation

Georgina:         I think as stock administrators, we have to have the expectation, "Yes, I do need a seat at the table, and I should be able to advise or suggest how to handle the equity portion." But also, expect, especially in tech out here in Silicon Valley, things move very quickly. I've had situations where it's sort of like, "You're going to want to do this." And the lawyers are on board. "Yeah. Yeah, we're going to suggest that." And then they come back, "Okay, that didn't happen. This is what happened."
        So you do have to be flexible and find your network. See how other people have handled it because M&As are hard. You definitely need a seat at the table and be in close contact with all the parties because you don't want to be taken by surprise. Because that . . . my God, if that deal went through with "We're paying people out on the day the thing closed, and we're withholding tax," it's like, "What's going on here?" Yeah.

Christine:        Yeah. Yeah.

Amy:        Yeah. It sounds a lot like you have so much time invested in going to your stakeholders, but it's not always reciprocal.

Stacy:        No.

Georgina:        No.

Amy:        Right? There's a lot of decisions made on their own, in a vacuum, that affect the equity plan or would require involvement from the equity plan. But you don't always get the heads-up on those things, right?

Christine:        I find it's a lot of education and a lot of just reaching across the aisle and making friends with them. And doing things where you've pulled them into decision making so that hopefully they will reciprocate when decision making's coming and include you in the room, too. I've found that works. And then the few times when it doesn't, when somebody makes a decision, they learn that that's not how it . . . And then it grows naturally that way. 
        But I think it's hard, especially at private companies where people haven't had a lot of experience with equity comp. Getting people on board and not just making snap decisions because their company that they've worked at before did it this way. Yeah. Finding the people to make those decisions to help back you up, so that it's not just stock admin saying, "No, you can't do that."

Georgina:        Right. Exactly. I think the biggest lesson that I've learned about M&A, though, is certainly—having reported into the legal department multiple times—is don't let lawyers do math. Well, I'm not saying that they can't do math, but when it comes to equity, they like to do crazy things like, "Oh, this person exercised in three separate years, but we're just going to bundle everything together and then do a conversion." I'm like, "No. No. No. No. How do you report on taxes then? Because they each have different cost basis." That is, I think, where things get really, really painful, are those snap [snaps her fingers] decisions. Yes, make friends, especially with the lawyers, especially if your company is big on M&A activity.

Christine:        Because at the end of the day, it does become their decision. They're the ones that are doing the instructions. But we need to give them guidance on, "Here's what you need to do."

Georgina:        Exactly.

Christine:        We'll get off M&A in a second, but on some of those, I've also given them things that I can push on. Like, "I want this, this, this, and this." This one, if they don't want to do it, you can get rid of that one. So they have their negotiating points. I found that helps too because they'll always say no to something. And it's like, "Well, I have to have these three, but this one can go away."

Georgina:        Yeah, that's a really great suggestion. Yeah.

Amy:        Okay. Well, on to a much lighter topic. Let's talk about insider trading.

Christine:        Okay.

Amy:        Yeah. Insider trading, obviously a legal issue. What happens when you get a violation or someone has . . . gone astray?

Stacy:        It's never happened on my watch. [All laugh.]

Amy:        Not ever.

Georgina:        I do remember once, a while back, I had somebody—I think we were newly public at the time—and one of the people in finance was just like, "Georgina, can I talk to you in this conference room? I swear I didn't realize it. My mom said this, and then she sold the shares. And am I going to get in trouble?" It's like, "Oh, gosh." It's sort of like, "Oh." It's totally inadvertent, but I was just like, "I can't tell you it's going to be fine, don't worry about it." Those are definitely decisions where you need to kind of, well, not kind of, you do loop in your legal team to have them assess what the path going forward is.
        In anything on insider trading, I just go straight to the attorneys. "Hey, this is what's going on. This is what happened. How do you want to handle it?" Even when it's something to do with, you're in a blackout, but there's always some weird scenario where a sale needs to happen during a blackout. It's not part of a 10b5-1. It's a rank-and-file employee. "How do we handle this? What do you want to do?" Again, it's a legal decision to be made, not the stock administrator to go, "Oh, it's fine. Just go ahead and process the transaction."

Christine:        We had a similar—it was a 10b5-1 transaction—but we had carved out, we learned the hard way again, to carve out in our 10b5-1 plans for our Section 16 officers and directors that their trades cannot execute within a few days of our earnings release. We didn't have that on certain plans until we learned we should do that. And we did have a trade that was going to execute on the day of earnings release. I think as the pandemic, we had moved the schedule, the earning release dates out, because I think we had done them manually. Like, "Oh, earnings is always on the third Thursday," or whatever. So as long as the trades are here, it's not going to impact. But we moved the date and a trade was going to execute from one of our Section 16 officers on the day.

        Technically, it's fine, but is it my decision to say we pull the plan and we stop? No. That was where I went out to their general counsel, and then we went out to outside counsel with, "What's our risk here? We do have an out that we could pull the plan." And then the outside counsel said, "It's safer for you just to let it go. It was crafted. He's not manipulating anything." But definitely not my decision to say we let it go or we don't. 

        I've had situations also where the broker forgot to execute something. 

Stacy:        Ooh. Ouch.

Christine:        Yeah, that was a problem, too. We stopped using them. But when the broker's then looking back—or they executed the wrong number of shares or something like that—when they're correcting it, it's not my decision on how to correct it.
        I can say, "Here are some things that we can do. Can you do that?" And then go out to counsel, and the lawyers make that decision of, here's how we can correct that or not correct it or what we do.

Amy:        What about Section 16 reporting?

Stacy:        Ew. Well, to the 10b5-1, too. Obviously, insider trading policy is helpful for insider trading. 10b5-1s are helpful. Section 16, everyone should be on a 10b5-1. Period. At least that's my experience. And then the reporting that, it is coordination with whoever is responsible for doing the forms. For us, it's an outside law office and then the corporate attorney making sure we understand when the trades are happening. Put it on a calendar, and so we're all aligned. But it's a lot of work to make sure that we are protecting the insiders from themselves, the Section 16 officers and the board.

        Yeah. It's a lot of work as far as I'm concerned, making sure that they don't flub. And making sure that whatever is in their plan, let's say, is aligned with the policy. To your point, if it's close to earnings and such. It's a dance, but it's not . . . Again, I'm not finalizing those documents. I'm just taking the signed information and then making sure that we know it's coming for the forms.

Amy:        Yeah.

Georgina:        Yeah. Equity's involvement in Section 16 and whatnot . . . I've often had to file the form fours, so I have to be very in close connection with the legal team. Then it's not my decision of like, "Oh, well, we can file it on day two" or what have you. It's, I go to the corporate legal team and say, "Okay. How do we want to do this? Do we file during market hours or not? What is the cadence in which we want to do this?" If, for whatever reason, I'm late because . . . whatever, . . . I always have to notify the legal team, just to let them know, keep them in the loop so that they can say, "You know what? Why don't we just pause and then file everything on this day," or what have you.

        So it's not my decision. It's definitely the corporate legal team because they will have to deal with whatever outside forces that say, "Oh, you filed this later," what have you. They're going to deal with it. So certainly, I always loop them in when filing form fours or setting up the cadence for a form four filing.

Christine:        And I think it's documenting all of those things because they're so routine of, "This is how we do it. We always file after market. We do this, we do that." But it's also other things like, for RSUs, do you report them in table one or table two? I have my preference, but at the end of the day, it's the corporate legal's decision if we do it the right way—my way [laughter]—or the other way.

Georgina:        Right.

Christine:        Yeah.

Georgina:        Footnotes. How do you want to footnote things?

Christine:        Yeah.

Georgina:        Yeah. Again, yes, table one, table two. Also, I remember at one point, they wanted everything day of. So we would report the release on one day and then the sale for taxes on the next day. I was just like—well, you can maybe suggest—"Well, maybe if we just do it on one form on the second day, that might be great." But again, that's not my decision to make. So I just allow the legal team to take the lead and follow and document.

Amy:        Yeah, "Let me help you." Right?

Georgina:        Yeah. Exactly.

Christine:        Yeah.

Amy:        HR. We're going to end on a light note.

Christine:        HR.

Stacy:        They're awesome.

Amy:        Oh, the HR. There's a lot of things that can get really complicated. Termination dates can change. "Gardening leave." Since I've just come back from the U.K., "Gardening leave." Unfortunately, employees pass away. These are primarily HR decisions because they involve HR data, right?

Georgina:        Mm-hmm.

Christine:        Yeah.

Amy:        Is there anyone else that's involved? And is HR the only one that you would go to?

Stacy:        In my world, there's HR when it comes to HRIS, and there's HR when it comes to comp. From the termination side, leave side, when an employee passes away, absolutely 100% it's going to be, hopefully, in the system of record for HR. But in those one-offs, especially with death, you have to have coordination. The difficulty I have with these types of things—where there's termination date, leaves, et cetera—is if there's a self-service model where a manager is responsible for inputting this information into the system, it's very difficult, and sometimes you get termination dates months later. It impacts financials, and it makes it look like you are not knowing what you're doing, which is difficult.

        It really is a matter of setting expectations up front. And if you do have anything that is, let's say, late termination, who did it? Why did it happen? And let's go to that business and make them feel it, especially if you have to unwind exercises or buy back shares that were sold. That should not be on the shoulders of myself. It should impact the person that impacted the financials. I've learned a lot of lessons with this type of stuff. And hopefully you have an amazing HR team, where you don't have these bubbles, if you will, these issues.

        Leaves also. If you have a provision in your plan that says you have to stop vesting. What's happening in Italy? If someone's in prison, they still vest. That's the law. [Amy registers surprise and then nods.] All these types of things when it comes to leaves and what they think should happen—HR thinks should happen with vesting—they might not actually understand globally what the impact is. So it's a lot of work.

Georgina:        I have a question.

Stacy:        Yes.

Georgina:        How did you find out that people continue to vest in Italy when they're in prison? [general laughter]

Stacy:        Yeah. I don't know if that exists now.

Georgina:        Maybe that's a story for another day.

Stacy:        No. No. What it was is that when I was at Sun Microsystems, we were trying to convince HR that you cannot totally go to the agreement language, even if the agreement says, "Hey, after 30 days, you stop vesting." We did an analysis with Baker, and they gave us this litany of issues in certain countries where you just couldn't stop vesting. And Italy came up with the prison terms.

Georgina:        Interesting.

Stacy:        Yeah. We were able to only deal with ceasing vesting in the U.S. because globally, it was just too painful. That was just one example. Yeah, that's how we had people pay. We got the information to help us, actually.

Christine:        We had similar issues with HR and wanting to . . . Not even HR. It really came more from our board wanting to pull vesting when, basically, if somebody's not working and they're not making money, they shouldn't be earning their equity. So how do we apply that? And that was really working with our comp team to, how do you want this applied? And then them and us working with the HRIS team for, how do we record this and properly track it? Working with the legal team to make sure that we had the policies drafted correctly, that we could actually do it in the countries that we were in. And then what happened is, a couple times it was a very manual process on the HR side. When they missed some leaves, and we let people vest, and we had to unwind it, those had to go back to the comp committee for approval.

Stacy:        Ooh. Ouch.

Christine:        So that meant that the comp team was very encouraged to make sure that the HR team—that was the HR ops team—was doing it properly and not having to constantly go back to the comp team with errors and different things. But definitely a place where we have input, and we can do it. Again, we are administering your program. But what do you want your program to be?

Georgina:        Yeah.

Amy:        Right. Okay, I have a rogue question for you before we end. Something that's come up, and we'll see it in about a year from now: T+1 settlement. [All groan and laugh.]

Stacy:        Ugh.

Georgina:        Ooh.

Amy:        I told you it was a good one. Rogue. Yeah. So pretty complex on both sides, whether you're a provider or an issuer. I think when we went from three to two a few years ago, there was still a little bit of a cushion. And then now, we're getting closer and closer. And now that it'll be T+1, there's not a lot of room for reporting, sign-offs . . .

Stacy:        Selling shares.

Amy:        . . . Selling shares. It has impact even on when you price your shares. If you price your shares at the end of the day, you might have to rethink that in order to get them settled at the right time and be in compliance. So who does that belong to on the issuer side?

Stacy:        It's funny you've mentioned this. Right now where I'm at, we are using the previous day close for RSU release gain, and that's wonderful. Our hope was that we would be able to then sell shares on day one and have them settled day one. The unfortunate thing is that our payroll team needs time to analyze the release. And so we are still at T+2 because of the time that they need to do their work, and that needs to change. They know that. So we are now trying to figure out, how do we streamline this? Will it be a Workday project? Who's going to pay the budget? But they know that it is on their shoulders.
        Right now, we are adding a day to settle shares because of them. So it's my decision to say, "You guys got to get this done." I'm under legal. They're under finance. But we all roll up under finance. So it's not a matter of getting the budget. It has to happen because we are going to be out of compliance because they're taking too long. Yeah, I'm scared.

Amy:        Right, and it pushes everything else out. It messes up your X dates, dividend dates, everything. It goes really deep.

Christine:        Yeah, we have a similar issue right now. We use the day of, fair market value, so we need to change that. But also, it's the payroll—waiting for them to run it through their system. So we're working on a more automated system between our system and the Workday system, to get the transactions over more quickly, so they're not rebuilding the wheel each time. But it is a challenge to get that data in.

Stacy:        Yeah, thanks for reminding me.

Christine:        Yeah.

Amy:        Sorry.

Georgina:        I have the luxury, as a private company, to not really have to worry about this. But it's exciting times to redo this whole thing. We went from T+3 to T+2, and we adjusted. And that seemed reasonable.

Stacy:        Right.

Georgina:        T+1 sounds like a bit of a challenge for everyone involved.

Christine:        Mobility.

Georgina:        Mobility. That's a real tough one, so I don't know. I really don't know where this push to T+1 came from, but it's going to be a challenge. I will be standing on the sidelines, watching you guys, and hopefully learning.

Amy:        Cheering everyone on.

Georgina:        Cheering everyone on. Yes.

Christine:        But I was at a private company when PVP came out, and I was like, "Oh, no PVP! Whoo!" And then now, I'm at a public company, and the first meeting I had with comp was, "How are we going to do PVP?"

Georgina:        Well, it's coming. So I'm going to prepare myself. Yeah, for sure.

Amy:        Not to be a downer, but the day will come where it's same day settlement.

Stacy:        Yeah. I'll be retired.

Amy:        We don't have to worry about that today.

Georgina:        Yeah. Exactly. Just plan on being retired.

Amy:        She's just going to be retired. Yeah. Exactly. I hear you. All right. Well, there it is. You should be well-equipped to partner with your stakeholders on some of the biggest decisions that impact you and your teams. And from us to you, we hope it makes your equity journey a smoother ride. 

        For my amazing guests, Georgina Lai, Christine Zwerling, and Stacy Fox, thank you so much for being here. It has been such a huge treat to have you on Equity Unpacked®. And I hope you'll come back again soon. It was really fantastic to have you here in the studio today.

        For more details on today's episode, please visit schwab.com/equityunpacked, or connect with myself and today's guests on LinkedIn. And, of course, subscribe to Equity Unpacked and receive some alerts when new episodes drop. Thanks again for joining us today on another equity journey. And as always, safe travels, everyone.

Brand music plays.

An orange box appears on a navy background. The Equity Unpacked logo is in the bottom right corner of the screen. 

Onscreen text:
Episode 20: Who Should Make Equity Plan Decisions? Part 2

Female speaker [off screen]    For important disclosures, see the show notes, or visit schwab.com/equityunpacked. 

White screen fills in with blue Schwab logo in center of screen. 

Onscreen text:
Own your tomorrow®

Investing involves risk, including loss of principal

Schwab Stock Plan Services provides equity plan services and other financial services to corporations and employees through Charles Schwab and Co., Inc. ("Schwab"). Schwab, a registered broker-dealer, offers brokerage and custody services to its customers.

©2023 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (0923-3D67)

Episode 19: Who Should Make Equity Plan Decisions? Part 1

Complexity is part of the job of a stock plan administrator—they work at the intersection of HR, legal, tax, and accounting. But they don't always have a clear map of where to go to get the decisions and provisions they need to move forward. Amy sits down (in person!) with Stacy Fox, Equity Administration Lead at Confluent, Christine Zwerling, Head of Stock Administration at Asana, and Georgina Lai, Director of Global Equity Programs at Alation to answer the question, who should make equity plan decisions?

Brand music plays.

An orange box appears on a navy background. The Equity Unpacked logo is in the bottom right corner of the screen.

Onscreen text

Episode 19: Who Should Make Equity Plan Decisions? Part 1

Amy appears on screen in front of a blurry blue background.

Amy Reback: Hello, listeners, and welcome back to another episode of Equity Unpacked®. I'm your host, Amy Reback, from the Workplace Financial Services Team at Charles Schwab.

Onscreen text

Amy Reback, Managing Director, Stock Plan Services, Charles Schwab

Amy: On today's episode, our travels take us straight to the heart of the equity administrator's role, that complex intersection of HR, legal, tax, and accounting. Now, keep those in mind because those themes will become a guide for our discussion later today.

That complexity is something we all love about the equity business, at least most of the time. But we don't always have a map that clearly indicates which direction we should go to get the decisions and provisions we need to move forward. For our listeners, how many times a day do you and your teams encounter an issue that requires a decision that involves your stakeholders, and how often are you 100% clear on exactly who you should consult?

If you attended the 2022 NASPP Conference last October, you may recall a packed breakout session that focused on exactly that: Who makes equity plan decisions? And in fact, the audience was so engaged with that subject matter and the amazing panelists, one-third of that material was left untouched, and it's fantastic stuff. Together, we've planned a reprise, and I'm so fortunate to have the same panel of exceptional and very well-known experts with me today to unpack the rest of the dilemma of who should make equity plan decisions. Without further ado, let's meet who we have on board today.

Camera zooms out to show Amy and the four panelists seated around a dark wood table.

First, the incredible Stacy Fox, Equity Administration Lead at Confluent.

Stacy smiles and nods.

Onscreen text:

Stacy Fox, Equity Administration Lead, Confluent

Amy: The amazing Christine Zwirling, Head of Stock Administration at Asana. Welcome back.

Onscreen text:

Christine Zwirling, Head of Stock Administration, Asana

Christine: Thank you.

Amy: And the one and only Georgina Lai, who leads Global Equity Programs at Alation.

Onscreen text:

Georgina Lai, Director of Global Equity Programs, Alation

Amy: Now, ladies, we're thrilled to have you with us today, and welcome to the show.

What I'd like to do for our episode today is to have you provide a little bit more detail about your bio, because you're amazing. Just for street cred. You need no introduction on your own. But let's go through a little bit of that. And then when you're done, I'll ask each of you a question before we dig into the material. Is that okay?

Stacy Fox: Yep.

Georgina Lai: Yep.

Amy: 0240 All right. Stacy Fox, we'll start with you.

Stacy: 0242 All right. I'm Stacy Fox. I work at Confluent. We went public in June of 2021. I was there January 2021.

Onscreen text:

Stacy Fox, Equity Administration Lead, Confluent

We are in 26 countries, and it was my first company I took public, which was amazing. I've been in the business way too long. So I'll leave it there.

Amy: Pretty amazing. Stuff of legends.

Stacy: That's what they say.

Amy: Stuff of legends. Yeah.

Stacy: That's what they say.

Amy: Best name ever, by the way.

Stacy: Thank you.

Amy: Stacy Fox.

Stacy: Thank you very much.

Amy: I love it. Okay. My question for you is, pay for performance.

Stacy: Yes.

Amy: Not new, but more urgent than it was when you first initiated this panel back in October. Tell me a little bit about, where do you think the majority of decisions for pay for performance live?

Stacy: Yeah. I actually got scared out of my mind at NASPP because I learned a ton about it, and there was a lot of things, [clears throat] excuse me, that happened with the SEC right before the conference. I went back to my company and freaked out, first, to legal, because they were actually going to be drafting the proxy and obviously, they were going to need help, not with the narrative, but with the actual inputs. So then we partnered with our technical accounting team. And then we also had to partner with a provider outside of the company, obviously, for the calc. It was definitely a shared lift for the proxy. We filed our proxy last week. So we did it. [Georgina claps.] Thank you very much. But it was a lot of people and a lot of effort.

Amy: Yeah. Okay. Awesome. Thank you.

Stacy: Thank you.

Amy: And Christine Zwirling?

Onscreen text:

Christine Zwirling, Head of Stock Administration, Asana

Christine: Hi. I, like Stacy, have been in this industry a really long time. I think it's over 25 years at this point. I've worked at small companies, large companies, private, public, everything in between, and I'm currently the Head of Stock Administration for Asana. We're based here in San Francisco. We have just about 2,000 employees. We're in about a dozen countries. They did a direct stock listing for their IPO event about two years ago. I've been here for about three years and here to take us to the next level and get everything streamlined.

Georgina: Three years or ...

Stacy: Three months.

Georgina: . . . three months?

Christine: Three months. [Smiling.] Thank you for that correction.

Georgina: You're welcome.

Christine: It feels like years, but it is months. It is months.

Amy: Yeah. My question for you is, when is it a good idea to make equity plan decisions on your own?

Christine: Never. Never. That is my answer, and we'll dig into it more. But I think as you alluded to in the introduction, this touches so many different people and areas. What you do in one thing can drastically affect how it rolls out to other departments or teams or unintended consequences. So it's always a good idea to have your team with you when making decisions, big or small.

Amy: Awesome. Thank you. And Georgina Lai, we're here together on what is very likely your favorite day of the year, birthdays and holidays notwithstanding. May the 4th be with you.

Georgina: And also with you.

Onscreen text:

Georgina Lai, Director of Global Equity Programs, Alation


Hi, I'm Georgina Lai. I am a newbie at Alation. We do data intelligence. And it's a really exciting area to be in. I'm not going to share too much about Alation. We are a private company, but my history with stock administration has been, like Christine, small companies, large companies, private and public. But I do like the private companies and helping them transition to life as a public company. That's my sweet spot in the industry.

Amy: Yeah. IPOs are your jam, right?

Georgina: They are my jam.

Amy: Totally. Totally your jam. Georgina is my equity oracle.

Georgina: [Looking surprised.] Oh, okay.

Amy: Usually, you're the most enthusiastic person, regardless of what is going on. Even when we've had professional relationships in the past and something happens, and Georgina is like, "You guys, we're going to do it. We're going to do it together."

Georgina: Yeah, absolutely.

Amy: Question for you. As we are starting to look into who should make these decisions on certain aspects of a plan, when you go with your stakeholders, and you do the right thing and you ask them, what happens when they disagree?

Georgina: That's a really tough one, because the different departments often have their interests in play. They want certain things done specifically to make their lives easier. You don't always get them to agree, but what I like to employ is a shared document where we list out the issues and then give everybody an opportunity to weigh in. So that they can at least say, "Well, I disagree with this decision . . . blah, blah, blah, blah." But they feel secure in the fact that, "Well, I got my objection out on paper."

Everybody reviews it, everybody signs off on it and saying, "Yes, we read it, and we understand. But this is the decision we're moving forward with." That often helps grease the wheels in breaking stalemates and moving forward in a decision, and hopefully, you're picking the right person to help drive that decision. For an accounting issue, maybe talk to the technical accountant and not so much HR or legal. But you document it, allowing HR and legal to have their say, and then you move on. That usually helps people move forward.

Amy: Document it?

Georgina: Document it.

Amy: Document it.

Georgina: It's also great because you keep it, and then if you have turnover in your company, as you sometimes do, they'll go, "Who made this decision? What happened here?" It's like, "I have this document. It's all right here. This is how we came to this decision." It's a really great tool.

Amy: Yeah. And then you can go back and say, “This is what you said”?

Georgina: Yeah. I was like, "This is what you said. Not me. You said this." Yeah.

Amy: Exactly. Fantastic. All right. Well, welcome, again, all of you to the show. I'm so thrilled to have you here. We're ready to dig in. We have walked through the queendom of equity, and here they are. We've got four topics that we mentioned before: legal, HR, tax, and accounting. I'm going to start with accounting because you didn't quite get to that. You didn't have time. People were asking so many questions and it was such a lively show back in October. So let's start with accounting. Who should make decisions on the vest start date?

Stacy: From an accounting perspective, it usually is going to depend on what their philosophy is. The vesting commencement date is whatever date it is, but it may be different than the grant date. Depending on the philosophy of the company, they may want to have the expense start as the vest date, or they might want the grant date.

It depends. Obviously, it's around partnering with the technical accounting team, understanding when we have those breakdowns or discrepancies—if the vest date is before the grant date, how they want that to appear on the books—and then work with the system of record to make that happen.

From my perspective, it's a matter of understanding the reporting and how your system of record works to get the right result. And then make sure that after weighing in, sandbox, etc., that it's the day that they want to see. They tie it out, they approve of it, and then you move forward. That's my experience.

Amy: What about accounting methodology and how that relates to vest start date? One needs to be decided before the other, so there's some synchronization there, right?

Stacy: Usually, it depends, too. If the grant date is always going to be before the vesting commencement date, you're not going to have an issue. But for those scenarios where maybe someone was missed, you had a new hire that was hired in January and they didn't get a grant, and now it's May, the vesting is going to start back in January.

It really is just partnering with those individuals and showing them how the system works when you toggle the switches, if you will. And then going forward from there. It's going to depend almost case by case for those oddities, if you will. But hopefully, from the majority of the equity, there's not going to be an issue with the accounting perspective because that's already been vetted. It really is the one-offs that are tricky.

Amy: Yeah.

Stacy: Yeah.

Christine: But to add on to that, too, it is part of that partnering with your technical accounting team so they understand how your system's going to accrue that expense and not have it be a surprise to them when you do have that one-off where the vest start date was before the grant date, and they're trying to figure out why there's a true-up. If it's for legal purposes, the vest commencement date in the consent that approves the grant is this—that sets the vesting schedule. But if for accounting purposes, you need to change that to maybe the grant date in the system, so the accounting comes out correctly. It's really understanding what everybody wants and how to document what you're doing, so that if the auditors come back, and they want to know why the vest commencement date is different than what it is in the consent that was approved by the board, they understand what that is and any downstream impacts.

Stacy: Absolutely. Yep. Yeah. Yeah, you bring up a good point. In fact, on those oddities, our general counsel actually reviews the resolutions and really points at the oddities and wants to understand why it is this way—why are we having this one-off? And making sure it doesn't happen in the future. It hopefully gets you to more consistency going forward based on that, too.

Amy: Simple stuff.

Stacy: Yeah, it's easy.

Amy: Super simple stuff. Okay. SOX controls. Tell me a bit on that.

Stacy: In accounting or just in general?

Amy: Yes. Well, that's a whole three hours in its own. So let's talk specific to accounting.

Stacy: What's SOX? It really is somewhat of a benefit because it lays the structure down to get around these oddities, if you will. But let's say you have a situation where there's a vesting schedule that's going to be for a new SVP. SOX is not too structured to disallow those types of things, but you have to be prepared for the auditors when they do come and want to understand why is this this way.

I really do rely on SOX to potentially even get things to go in a different momentum—more consistency if you will. And use that as almost a crutch to say, "Look, if you don't want to have PwC coming at you, why don't we think about it this way?" Or, "Why do we have to go through so much rigamarole, if you will, just to accommodate this one grant?"

If they give a good defense, then maybe PwC is going to be fine with it. But sometimes it is a problem, so I always bring up SOX. Usually, it's technical accounting that's using the SOX perspective to maybe sway HR away from these one-offs, if you will. But we use it in defense of making sure that things are a little bit more consistent and not having the one-offs that are painful.

Georgina: I think the strategy there would also be because you have SOX. You say SOX and everybody's like, "Oh no, not SOX." It's a really great thing to leverage, but also alerting your technical accounting team that they can run it up the finance side. So it's not just stock admin going, "Stop doing these weird things," to HR. Now, you got stock admin and the finance org helping sway the decision-making to make sure that you have consistency in your program.

Amy: Right. Nobody wants to mess that up.

Georgina: No.

Amy: You don't want to be on the wrong side of that situation. No. Tell me about, I'm particularly interested in this one, changes to service providers. Not self-surveys.

Stacy: Georgina?

Amy: This is a hot topic. This is a hot topic.

Stacy: I haven't lived it for some time, but just going from an IPO, private to public, we moved from one provider to another. They were under the same umbrella, so it wasn't too painful. But the “under one umbrella” was soon after an acquisition, and so it felt that it was almost on our shoulders to make it work. We weren't going to be able to have the provider help us. So it was a little bit tricky changing providers in that realm to make sure that we were prepared for our IPO, where we had to do the grunt work. We really couldn't leverage the provider, if you will, the broker if you will, to make it happen for us.

The good news is, we knew what we were doing. I have people on my team that worked at this particular provider before, but we had to do all of the legwork. It wasn't that fun, but we got it done. We had to, back to accounting, tie to the penny because we're dealing with accountants that were in a private pre-IPO, if you will, and that's what they were used to. We made it happen, but it was tedious. I'll just leave it there. But accounting really was the most painful part of moving from one platform, if you will, to another. Everything else was not that bad. It's simple math. Accounting is different.

Christine: To add on to that, I also did a migration from one provider to another as a public company. And on the accounting side, it was complicated. The particular provider I went with had an accounting team for us to help us through that. But there's always differences in all the systems and how they account for equity. At the end of the day, what we had to do is, do all of our audits with the accounting team to show the before and after, and then to show, this is what the differences are and this is where they're coming from. Put that stake in the ground, they take a one-time charge.

But getting the accounting team—if they've not gone through a conversion to understand this is what that charge is, and this is how it's calculated, this is why we do the one-time charge and true it up, and then we move forward under the new system—can be a little challenging. But definitely, we ran into that also of just the very tedious to-the-share, to-the-penny of tying everything out to prove that what was in one system is now in the other system. Even the mistakes that we found, as I'm sure you found that too, when you're converting, you're like, "Oh, that was not supposed to be that way."

Stacy: That's wrong.

Christine: But you have to show those too and what you did to fix it. Definitely, a very interesting migration.

Georgina: Changing providers is never just on the stock administrator's shoulders. You do have a number of stakeholders, and accounting is such, I think, a critical piece in converting to a different platform. Because they rely on the reporting of your system to do all the stuff that they have to do. Aside from HR, I'm sure has a stake, they want to make sure that employees are happy with the switch. Legal, not so much, unless you report into legal, I would say. But accounting is such a huge part in that decision-making process. So really make sure that they have a seat at the table. And get them familiar with the reporting for financial reporting.

Amy: Right, that's really crucial.

Georgina: Exactly.

Christine: In the vein of who makes the decision, we also decided to actually outsource our accounting to a third party, because our accounting was just very complicated with a lot of acquisitions. Just getting that all into one of the off-the-shelf systems—they will usually cover like 80% of it. But it's that extra 20% that's done in a spreadsheet that just has room for error, with SOX, with all of that. We worked with the accounting team to, "Do we want to go to a third party that's going to be able to handle 100% of this?"

But it was a decision together. It wasn't just stock admin saying, "Oh, well, it's too hard. Let's do this." It was, "Do you guys want to do this, take this on? And it's going to be a lot of work on you because you're going to have to retie out the numbers from one system to the other, understand how the new system works." But definitely, it was not me making the decision, but helping to guide to make things more efficient.

Amy: I won't bring up, what if the decimal points are different?

Stacy: They get there.

Amy: Yeah. Eventually, we can get there, but that's a painful point. Let's move on to some tax decisions, and then we'll come back to a couple of things in accounting. On tax, mobile employees—the hot potato.

Christine: That is my favorite.

Stacy: You're lying.

Christine: It is. I did try to implement a policy that if you move from tax jurisdiction to a different jurisdiction, you just get fired [with mock seriousness].

Amy: You're out.

Christine: That fixes the problem, right there.

Amy: You're done right there.

Georgina: You forfeit it. You're done.

Amy: Yep, just delete.

Christine: Yep, you forfeit it. You're done. Nobody agreed with me on that one.

But it is something that, especially as companies grow, and you see when you're a smaller, private company versus a larger, multinational company, people start moving around. The ability to track, one, who's moving and where they're moving, and are we doing this for just people that move, or is it travelers, all of that. There can be such big consequences for all of that. It's not on the stock administrator to make the decision, "Do we do that or not?"

And then around that, there's also, each country's tax system is very different, as we know. And it's coming up with the policies around, can we 100% follow what their tax rule is? If we can't, where can we get and why? And who's going to make that decision that this is what we do? What are the consequences? Some consequences, if you don't follow it 100%, you can't do business in that country anymore if you get caught. Others, it's a slap on the wrist, or they're not going to ever catch it. It's that type of thing. But that's not on me to make that decision. That is on . . . I usually will loop in the head of tax to make those decisions, but also including our payroll team, because they're the ones who are processing it. Tax might say, "Yes, we want to do this 100%," but when you get to payroll, who's actually pushing it through the system, you find that you can't report a different reportable versus taxable income. So we can't actually comply because it's not going to work. What I do is get everybody in a room with an outside provider, and we go through each country and make the decisions.

A lot of times VPs of tax or head of tax—I don't know if you've found this—they are corporate tax, and they don't think that they are payroll tax. They don't want to own that piece, but I'm very good at “tax is in your name, so this is your decision. I will help guide you and will provide you the experts to do that, but at the end of the day, this is tax policy and that is in your jurisdiction.” I've gotten to the point with some, not at Asana, where I have sent an email and said, "Here are the decisions that we are going to make. Please let me know by Friday if you agree. If you don't respond, I'll assume you agree." And that gets responses.

But definitely, that's one of those, "We don't make the decision." It needs to be somebody with an expertise in that particular field.

Georgina: I will also say though, to your point about corporate tax, some VPs of tax are like, "Whoa, whoa, whoa," to your point, "this is payroll tax. I deal with the corporate side." I do think you present it in such a way to help them see their ownership in this as like, "Well, yeah, from the corporate side, how will this affect you, what taxes we're withholding? You might have some sort of social match or something like that, or a deduction that you can take. So, how would you like to see this? What strategy are we using here to help build our mobility policy here at our company?" Make sure that they have a stake in the decision-making.

Amy: How quickly do they come around to, "Okay, we have to do this”?

Stacy: Well, you have to be firm and say, "We have to protect the company from risk. So are you in or are you out?" It isn't a matter of sitting on it and not making a decision. It's like, we are going to get audited if we don't make the right choices here. That usually also forces the hand to say, "Oh, gosh. Yeah, we don't want to get audited."

Christine: Yeah.

Amy: Yeah.

Georgina: Or a financial exposure. We can be fined. This is a potential fine we're facing here, and sometimes that helps speed the decision-making along.

Amy: Sure. Sure. Yeah. Nothing like a fine.

Georgina: Exactly.

Amy: Right? Yeah.

Stacy: Or a threat of audit.

Christine: You're also throwing it back to them with, "Well, if not you making the decision, who should make the decision?"

Georgina: Right.

Amy: You choose.

Stacy: Not me.

Christine: Yeah.

Georgina: Well, the other thing is, I've worked at a few companies where it was like, do you want to be in the local newspaper for not paying taxes or avoiding taxes? And that really also gets the ball rolling. They don't want to risk that kind of headline of "X Company refuses to pay taxes in this jurisdiction." So that also helps.

Amy: Sure. Sure. No one wants that.

Georgina: Yeah.

Amy: No one wants that.

Christine: I usually sometimes also will tell horror stories of when taxes have gone wrong because we've been doing this long enough. We've all had that experience where in one country we just weren't doing it, and it can be expensive and embarrassing, depending on what the error is. The employees can be mad. That's just an example of why you need to do it right.

Amy: That's a perfect segue onto withholding issues. Violations. Let's talk about that.

Christine: Oh, I've had that.

Amy: International locations. And it's ever-changing.

Christine: I had a big one of those a few years ago.

Amy: Oh, do tell.

Christine: Can't talk too much. Not at Asana. But we had a particular country that we thought—it was France—we thought we had qualified awards. Turned out we did not. And so we, marching along, happily processing our transactions. We were withholding some tax, but not enough. And then by the time we would do an annual review with our tax provider for what rules have changed or whatever, and they happened to casually say, "Oh, but you're doing X, Y, Z for France." I was like, "Oh. Oh, no."

Amy: Sacré bleu.

Christine: 100%. They said, "No problem. We'll help you calculate what the difference is. You'll just go back to the employees and see if they have the shares and you can sell them." Well, our stock had gone from about 400 to around 100 dollars a share. Yeah, so we couldn't just sell additional shares. They would sell all of their shares, plus they'd still owe more. I had to reach out to the head of tax, the corporate controller, the general counsel, everybody who touched this, to explain what happened, how it was never going to happen again, how we were going to fix it, and what were the different fixes. And also looping the employees in and how we were going to explain it to the employees.

As we all know, when the stock tanked at your companies, they were not happy anyway. Now, you're explaining to them that they have this tax bill. And how are you going to fix it? What's the right thing to do by employees and all of that? But again, none of that was my decision. It was really coordinating between the parties—where do we stand? How do we want to treat the employees? What do we want to do? It was looping in the comp team, because this is affecting their compensation. It was really just that—keeping everybody in and coming up with, what do we think is the right thing to do for employees? And then making sure each person that had a stake in that signed off on their piece of it. For corporate controller, if we're going to need to spend money on this. The tax teams, we're going to need to update things, or we have things that we know are not compliant for HR and comp. This is going to affect their compensation. All of that.

Georgina: Here's a hint.

Amy: Uh-oh.[SS1]

Georgina: A decision doc would be perfect in this scenario.

Amy: Document it.

Georgina: Document it.

Amy: Document it.

Georgina: Get everybody to weigh in on what their viewpoint is, so they can feel heard, and everybody signs off in it.

Amy: There you go.

Georgina: And you know how you moved forward. In case you're audited, you're like, "This is what we did. This is the advice we got." Yeah.

Amy: Okay.

Christine: Yeah, I love it.

Amy: Excellent.

Christine: I should have done that.

Amy: Tell me about qualified versus nonqualified plan issue. Tracking, reporting, dispositions.

Stacy: For ESPP or for options?

Amy: Well, options for 400. I don't know. Which is more interesting?

Stacy: Well, for qualified programs, instead of stock options, it's usually more of a private-held thing, company thing. And the education on those is just really difficult. I'm way more nonqualified stock options versus qualified stock options. But ESPP, I'm the reverse: qualified ESPP. So I think it just depends. But on those decisions, especially moving from private to a public, just moving from ISOs to RSUs, which definitely you are taxed right away, was huge and wonderful. I think it just depends on the company and what they're going for.

I've heard of great nonqualified ESPP programs that are way beneficial, like 40% match from employer, which I just heard from a different conference. I was like, "What?!" I think it just depends, and if you can actually roll it out, if the employer can afford it. But ISOs? No, from my perspective. They're just difficult to explain. Employees don't really understand what they have to do to qualify. And the reporting is also challenging. If they move employees, terminate. It's like, did they sell the shares? Did they not sell the shares? Yeah, it just depends for me. What about you?

Christine: Yeah. Well, looking at that, also it's working really closely with the comp team, because at the end of the day, it's their decision. I always make it very clear when I'm working with a new comp person—these are your programs, I'm just administering it. Think of me as payroll. Payroll is not making the decisions on what kind of compensation programs you have. They're administering it. I'm doing the same. Yes, our programs are more complicated, and I may know more, or know different things that we can do with it, but at the end of the day, it's going to be your program. So what do you want to do with it?

Stacy: What's the benefit?

Christine: But a lot of it, again, it's so complicated. We are usually the only experts in equity compensation in our company. So it's helping them understand: Here are the options. Here's what I see. Here's what our competitors do, or our peer group. I always tell, when I talk to stock administrators, "Find out who your peer group is, and find out what they do, because that's what your comp team's going to want to know." And they're the ones at the end of the day that make the decision.

We just changed our ESPP plan. We have a great Cadillac ESPP plan, but when it was implemented, it was one of those . . . at the time of the IPO, they wanted to have more employee ownership, so they put a one-year hold on it. We had this great two-year offering period with the look-back and the 15% discount. But then you had this hold. So we didn't have as much enrollment, because people were like, "Well, I can't take that risk, it's expensive," especially if they're outside the U.S. and it doesn't have a tax benefit.

That was then, me working with the comp team and the accounting team, too, because it's going to affect your expense because you're going to have more people enrolled. Expense is going to go up. But at the end of the day, it was the comp team, and they're the ones that are going to move it forward with the comp committee and the board to get that approved to make those changes. But it's definitely, I think, we can have input into it. But at the end of the day, the comp team is the one making the decision on what type of program.

[Turning to Georgina.] Which I think it's interesting for you because you work at a lot of smaller companies that maybe you only have one comp person, and they're doing everything. To expect them to also be an equity compensation expert to know these are the right programs, that must be a challenge for you, too. So, how do you make those decisions?

Georgina: I really like to use that opportunity to flex my stock admin muscles and just put my two cents in. I partner with the comp manager or the director of comp and say, "Hey, have you thought of this? Wouldn't this be really interesting if we tried something like this?" Or "Maybe instead of your traditional qualified plan, let's think more globally and do a nonqualified plan so that everybody's even-Steven as far as benefit." That's where I like to partner, often with the comp team, and try to influence as much as I can to see a program that I would like to see as an employee of the company, but also from the administration side. We don't want to overcomplicate and make our lives really hard, and then by extension, the accounting team and whatnot.

And then an interesting thing though, with a qualified/nonqualified, like an ESPP, the other thing I want to just check in is the tax team, since I do work at smaller companies. "Have you guys had experience with this?" Because sometimes they haven't. And it's like, "Oh, no." And it's like, "Well, you might want to start reading up on it. You might want to start ramping up on this because this might be possible in the future." It's also, make sure that they have a seat at the table to weigh in. Because can they actually take a deduction, or can they actually administer their side of the tax obligation for your program?

Amy: Yeah. Yeah.

Georgina: Yeah.

Amy: Does legal weigh in on any of those when it comes to comp? They must at some point.

Stacy: Usually, they're at the table too, but they might not have the understanding of what they're hearing or the ramifications if the stock price goes down and how ESPP is not really that sexy any longer. It's like, well, now we have to go to the shareholders who want to change the ESPP. They didn't think that through two years ago. Yeah, legal's usually there. They're at the comp committee meetings as well. But do they really understand the ramifications of what they're providing to the comp committee before you go public? And then now, with the stock price being low, now ESPP is not even popular any longer. It's like, what are you going to do?

Amy: Right.

Stacy: Yeah.

Christine: I think it depends on the company, too. This company and my prior company, I actually reported up through legal, and I found that the corporate legal team did take a big stand in the programs. Not necessarily the decision-making around it, but making sure that we had everything documented properly and was presented to the board properly and that they understood how it was going to roll out when it actually happened. Maybe not necessarily as one of the decision-makers, but usually they have a seat at the table because some things that you do with your [unclear] programs, you have to have approved by shareholders, or you have to disclose in your 10K or publish a copy of the agreement, that type of thing. But other things you don't. And they're really the only ones that have that expertise in, "Oh, did we change our grant agreement? That, we need to publish that again." Or, "No, we don't need to publish anything."

But that's the worst is to like, "Oh, we've been using this grant agreement for the last two years. Oh, we never published it." That's great. That's a problem. We punt that over the wall to them, and they have to fix it.

Amy: Well that's all the time that we have together today. But we will have part two of this episode. So for more information or details on Part 1, please visit schwab.com/equityunpacked. Or connect with myself and today's guests on LinkedIn. And of course, subscribe to Equity Unpacked® and receive alerts when new episodes drop.

Thanks again for joining us today on another equity journey, and as always, safe travels everyone.

Brand music plays.

An orange box appears on a navy background. The Equity Unpacked logo is in the bottom right corner of the screen.

Onscreen text:

Episode 19: Who Should Make Equity Plan Decisions? Part 1

Female speaker [off screen]: For important disclosures, see the show notes, or visit schwab.com/equityunpacked.


Episode 18: Quick Takes—Protecting your participants from insider trading

There are new rules and regulations for 10b5-1 plans, and Amy unpacks what stock plan administrators should consider to protect participants from the negative market impacts of insider trading. She takes a hard look at the specifics that stock plan administrators and vendors need to be aware of.

Amy Reback: 00:05 Hello, listeners, and welcome back to Equity Unpacked®. I'm your host, Amy Reback, from the Workplace Financial Services team at Charles Schwab.

So today's Quick Takes episode is focused on [whispering] insider trading. We don't like to say that out loud because it's a very bad, terrible, illegal thing that people go to jail for. And I'm not joking around. I'm not making light. This is serious stuff. Lots and lots of notable names have found themselves in a heap of trouble and behind bars.

So instead, let's talk about the newly amended SEC rules to help prevent that very bad, terrible thing. That's going to be SEC Rule 10b5-1, which is part of the Securities Exchange Act of 1934. The updates involve changes to 10b5-1, which went into effect late February of this year. And just to refresh, in case we have any non-SPA listeners, a 10b5-1 contract gives a reporting officer the ability to say, "Let's trade these . . ." They enter into a contract, and they say, "Let's trade these shares at this date in a certain period of time. And I have no nonpublic information that could benefit me in any way."

01:15 "So it's so far into the future that I have no idea what is going to happen."

And that provides them the ability to defend themselves against insider trading liability or accusations. And it's under Section 10b or Rule 10b5-1 of the Securities Exchange Act of 1934. Otherwise, you'd have officers or executives at companies that were never allowed to trade their shares today or tomorrow or the next day because just by nature of their roles, they're probably going to have some kind of insider information. But they can't tell you what's going to happen a year from now or 18 months from now.

It also has new disclosure requirements for Section 16 officers, which aim to further protect the average investor from negative market impacts of insider trading. And it provides transparency on when those insiders are trading securities.

02:06 So why only Section 16 officers? Well, it does apply to others if they have nonpublic information. But just as I mentioned before, by nature of those in the executive or other high-ranking, C-suite roles, they're more likely to have nonpublic information. 

So here are the facts: The changes alter things like a cooling-off period before trading can begin under a new or modified plan. Now, there are legacy plans that were in place before this rule happened that can play themselves out, but if they are modified or a new one is created, they have to adhere to the new rules.

For directors and officers, that means the later of 90 days after plan adoption or modification or two business days following any disclosure of the company's financial results on a 10K or a 10Q for the fiscal quarter in which the plan is adopted or modified. That maximum cooling-off period is 120 days after the plan adoption date. Insiders or other employees that are considered insiders or deemed to have insider information—they have 30 days after the plan adoption or modification.

03:12 It also requires those officers to sign and affirm a personal certification stating they're entering into the contract in good faith and have no public information. Reporting officers and issuers are both required to comply by April 1st of 2023.

It also prohibits multiple overlapping plans. So before, you could have several plans going at the same time, which could potentially allow you to hedge. What it does now is, it limits only one single trading plan within a 12-month period. It requires enhanced reporting requirements on Form 4 and 5. And it states that companies or issuers themselves can use a plan to buy back stock. And it also stipulates when insiders can make donations of their stock to potentially get beneficial tax treatment. And there's new reporting timelines for those gifts and also a switch to reporting on Form 4 instead of Form 5, which I'm sure you know.

04:08 Lastly, if you're a very small reporting company, you do get a six-month grace period to become compliant with all of those things. Regarding these changes, SEC Chairman Gary Gensler says, and I quote, "The goal here is to prevent insiders from getting a better deal than the Main Street investor." And if we go back to what the SEC actually does, their whole purpose for being is to make sure that the everyday investor has the same benefit and the same ability to trade and participate in our public markets as anyone else.

So, for you SPAs out there, you get the joy of informing your Section 16 officers of these changes, which has likely already happened, and you're still standing. So that's awesome. Whether we agree with them or not, no one can deny that there have been significant changes to the amount of information we have access to on a daily basis and how quickly we can get to it thanks to those tiny but very powerful little computers we carry around in our pockets every day.

05:07 Meanwhile, the rules on preventing insider trading and the tools we allow executives to trade pursuant to 10b5-1 plans have not changed in 23 years, since they were first adopted. So this was really overdue.

So a few things for you and/or your legal counsel to consider: How comfortable are you with these changes, and how have they affected your procedures? On the broker-dealer side, we really create the 10b5-1 contracts, mostly from a boilerplate document that everybody agrees on, and it will be a boilerplate document. There will be no differences here. There's very, very little room to move around. Whereas before, there were special exceptions based on what the legal counsel of any individual firm wanted to do. But those definitely need to be updated, and they should be very consistent across the industry now. Takes the guesswork out of it. As a provider, we just really execute those instructions we're given and rely on affirmation from your corporate counsel that the reporting officer entering that contract does not possess any nonpublic information.

06:10 The legal requirement is really bearing on the issuer here, although your broker-dealer or your provider does have a requirement to do due diligence—perform due diligence, I guess I should say. We definitely have to make sure that that's upheld. But I couldn't tell you, if someone called, if a legal counsel called and said, "This person has no access to public information." Short of spying on them, we're not going to know that. So we do have to rely mostly on the declarations from your corporate counsel. 

If you have blackout windows in place, does the scheduled open trading window meet that minimum holding period? And that may not have happened yet, but some of you, maybe it hasn't. Are you a SPA at a private company that intends to go public soon? Were you or are you planning an early lockup release or Day One trading by anyone at the firm?

07:05 And do you need to change that? You might need to reconsider, depending on what your chosen path to public is. How is the disclosure process going? It's really early. They may have existing contracts in place that are legacy contracts. So it's possible there's no new activity. But for really large firms, how confident are you with that process that's in place to meet the requirements? And what does your testing look like? This is going to be a big audit item this year. Have you coordinated with your equity plan provider and their executive services or 10b5-1 trading team to ensure the contract language has been amended and is consistent both with your firm and theirs? And what type of reporting can they provide you to help you document your compliance as an issuer?

07:50 Gensler says, and again I quote, "Anytime we can increase investor confidence in the markets, that's a good thing. It helps investors decide where to put their money. It lowers the cost of capital for businesses seeking to raise capital, grow, and innovate, and thus facilitates capital formation." Smart guy.

And that's a wrap everybody. It's good practice to circle back and review what has changed to ensure you, your team, and all your stakeholders are confident about meeting these new requirements. 

So I hope you enjoyed our Quick Takes episode today. You're welcome to visit the show notes at schwab.com/equityunpacked for links to the SEC announcement defining the updates to rule 10b5-1 and the disclosure requirements. And while you're at it, subscribe to our podcast so we can meet again. Thanks for joining us today, and safe travels everyone.

Female Speaker: 08:49 For important disclosures, see the show notes or visit schwab.com/equityunpacked.

Episode 17: Quick Takes—Protecting Your Wealth

We've covered why equity compensation should be part of your financial plan. But the strongest plans address how to protect equity. Amy outlines three common scenarios that put participants at risk of losing the wealth they've worked hard to gain—and of course, how to avoid them.

Amy Reback: 00:06 Hello again, listeners, and welcome back to Equity Unpacked®. I'm your host, Amy Reback, from the Stock Plan Services team at Charles Schwab. In the past episodes of our show, we've addressed supporting the long-term financial needs of participants from the perspective of both the plan administrator and the participant. And I'd like to build on that in our time together today.

00:26 Now, we know that participants really should engage in a personal financial plan to make the most of their equity comp. And any financial plan worth its salt will also address how to protect it. So today I'll be covering the three most common scenarios where participants and investors are at risk of losing the wealth they've worked so hard to gain. And those three things are: concentrated positions, that's the most obvious one; being underinsured—not uninsured, but underinsured; and the third is both the most difficult to address and the most overlooked risk, and that's the need to have really difficult or realistic conversations with some of your family members.

01:10 So let's do the easy one first: accumulating a concentrated position. This one's pretty well recognized, so I'll be pretty brief here. When you amass a large concentrated position in any one stock, it creates a single point of failure in your portfolio. It's like putting all your eggs in one basket. Asset allocation or diversification in your investments or your equity comp is the cure. And all you really have to do is pay attention to it every once in a while. Now, if you intended to create a large holding for some reason, just do your research and be aware of the risks.

01:42 Number two is being underinsured. When was the last time you reviewed your insurance coverage? And is it enough to shield you from financial ruin? When you have assets, such as equity comp, you also have liabilities. They go hand in hand. And that means you are at risk of losing them. Insurance, by definition, is just a means of transferring the risk of those liabilities, ergo, protecting your assets from legal actions as a result of harm to others that you somehow created or are found to be liable for.

02:16 Did you know that the most common liability coverage for auto insurance for individuals is about $250,000? Now, I want you to tally up the total value of your assets. Your home, real estate, vehicles, valuable investment, and those investments include your equity compensation. Is the total more than 250,000? If that's your level of coverage and your assets are worth more, then insurance is not going to cover the whole bill if you end up being liable for something. And you'll end up having to liquidate investments, maybe have your wages garnished, or even have a lien placed against your holdings until you've met that obligation.

02:53 Now, additionally, most people have homeowner's insurance as well, and that's a great start. But if you haven't evaluated your coverage lately, you probably don't have an umbrella policy to cover losses that don't fall under homeowners or auto insurance or just are beyond your coverage. A solid financial plan will always recommend a periodic review of your insurance to make sure you're adequately insured to protect your assets.

03:18 Now number three. And this is the really tough one. Number three is the need to have difficult conversations—with your family members, with those who you support or are responsible for. And first and foremost, it's the right thing to do for your family and your community. I think we all know that. But it's also a really important means to protect your financial future. That's really hard to talk about. This is really tough stuff. But I know it's probably a really familiar situation to our audience. So let me frame this in just a little bit of a different way just to give you some perspective.

03:54 So let's say you have a 15 year old. They're learning to drive, and they've got their permit. Basically, it says you are not licensed to drive, it's just provisional, and there's a lot of restrictions. Now let's say you go out of town for a few days, and your 15 year old decides to go for a drive without an adult. Let's say that 15 year old then causes an accident, completely unintentional, and there's others in that accident that are gravely injured. Now, I want you to think about what you would do. How do you handle this situation with your teenager? What would be your reaction? Do you just not say anything because it's uncomfortable or it's a hard conversation? Or do you give them a pretty serious reprimand, maybe ground them without devices until they're 30, and make it really clear that their actions were so completely irresponsible and negligent, and they became a detriment to themselves and clearly to other people in your community.

04:49 Now, I'm guessing that with your 15 year old, it's the latter. Having a teen driver and weathering the risks that go along with it is not for the faint of heart. But as parents, we know ultimately we're liable for the actions of our children. So this one, it's just really the obvious example.

05:05 Now let's talk about the seemingly hidden risk, or the one that's often overlooked. Let's take the same exact scenario, play it all the way out to the accident where you cause grave injury to other people. But in this case, the driver is an elderly parent or a family member or someone you're responsible for. Maybe you know they shouldn't be driving, whether that's been recommended by a medical authority or not. An accident ensues, and there's significant harm that's done. Which approach would you take with them? That's where the really tough stuff comes in. We all recommend our teenagers. We all expect to have those learning lessons. But what about our own parents or the people that taught us those lessons? And I know for myself, very often I've avoided that. "I don't know that you should really be driving anymore or doing this on your own." It's really tough to approach that because making the transition from a child to a parent or your parents is really, really hard. And most of us put it off, because we just don't know what to say, and we don't want to take anything away from them.

06:13 And on the financial advisor side, I've heard every excuse from "Well, she passed her driver's license," or "The doctor didn't say she couldn't drive." But if you're responsible for that person and their welfare, and you know based on your own experience that they really shouldn't be driving, avoiding that conversation or not taking action could create a pretty significant risk to the safety of your community, of your family member, and to your own financial future. Now, that scenario, again, could happen from a 15 year old or it could be an elderly parent, but we don't tend to address it directly when it comes to a parent.

06:48 Now, I'm going to be clear: I am not an attorney. I don't pretend to be one. But I will share a scenario from my own experience that I'm currently watching unfold right in front of me. So here's the backstory. There's a sweet little elderly woman. She's been experiencing some noticeable mental capacity and physical limitation issues. And her family's just . . . they're well aware of her struggles. She's got a current driver's license, and no medical authority has suggested that she shouldn't be driving. She helps out at her son's small business, and she's there one Saturday morning and decided she was pretty tired. So she asked to go home. Super busy day in the shop—her son couldn't spare the time to drive. Home is really close by, and the weather's completely clear, so he just says, "You know what, Mom? Here. Here's the keys. Take my truck, and drive herself home." So he hands her the keys, and she leaves.

07:38 Ten minutes earlier, a dear, dear friend of ours was out training for an Iron Man, riding his bicycle to prepare for an upcoming race. He passes the aforementioned shop and proceeds riding out on this beautiful, wide-open country road. Weather's perfectly clear, beautiful day for training. Five minutes after the woman leaves her son's business, she hit a cyclist with that truck. She shouldn't have been driving, but she was given permission to do so by her son. She never even saw the cyclist and never even hit the brakes. She was traveling at 65 miles an hour, and that cyclist did not survive.

08:17 Now, you're probably putting together by now that the cyclist she hit and killed was that dear friend of ours. And I've watched this legal battle that this situation left behind unfold over the last 10 months, and this was just a chain of unintentionally poor decisions that literally any of us could have made. And it ended in tragedy for the community. It ended in devastation for both of those families and this ongoing legal battle that's likely going to result in financial ruin for the family of this frail and vulnerable woman, who asked the first responders upon arriving, "Why did he let me drive?"

08:58 This kind of tragedy could just as easily have been caused by an inexperienced teen driver. But we know, we know that that's a risk. We see it. Very few of us recognize the risk presented by our aging family members, but it's just as real and even more likely to happen. So whether it's a teenager who's maybe not quite as responsible or maybe a little absent-minded, or an elderly parent, avoiding that "you really shouldn't be driving, at least on your own, or anymore" conversation has in this case resulted in wrongful death litigation. Not against the elderly mother who was driving the vehicle, but against the son as a defendant for negligence.

09:39 So here's the point. You can work your whole life to build a comfortable nest egg. For our SPAs [stock plan administrators], our audience out here, whether you're a participant or an administrator, you can grant all the equity or earn all the equity that you deserve or that you are given. You take part in your community. You make all the right decisions along the way. But when you get to this really tough transitional generational point where, on one hand, you're raising kids and sending them off to college and trying to parent your own family members or people you're responsible for, making those decisions on what they should or shouldn't do, no matter which end of the age spectrum they're at, you're making a decision one way or the other.

10:22 You're either choosing to ignore it or to address it. And when we choose to ignore it and allow folks that maybe aren't quite as capable, young or old, to do things on their own, you're no longer bearing the risk of their actions. You're creating it. Now, depending on any of your state laws, any of us could be liable for negligence in these situations, and no one is emotionally prepared to handle such an awful outcome. But are you financially prepared?

10:52 The best way to avoid it in the first place is to recognize the risk. Recognize that someone in your scope of responsibility shouldn't be doing something on their own—particularly driving, where the stakes are pretty high. We owe it all to our communities and to each other to do the right thing. And if you just stop and take all the titles and subjects away from it and just ask yourself in any situation, "Do I want to build a future, or do I want to build a tower of risk?"

11:22 Okay, that was super uplifting. I'm really sorry for being a downer today, everybody, but I know this is an applicable scenario for so many of our listeners, for our SPAs, our participants, and our peers. And I just had to raise the flag and create some awareness. We help people build wealth through equity. Shouldn't we also help them avoid creating unnecessary risks that could sweep it away? Tragedies happen. And there are plenty of scenarios where nothing, and I mean nothing, we could have done could have prevented them. But we owe it to ourselves, our families, our communities, and our own financial futures to prevent the ones we can. Sometimes that means reducing a concentrated position or being adequately insured. Sometimes it means making really, really tough decisions. Let's care enough about each other to prevent the rack and ruin that could be lurking in the depths of indecision.

12:23 So thanks for joining us on our slightly unusual journey today. And I hope you learned a little something you can consider for the emotional and financial futures of your participants, your friends, and your family. Thanks again for listening, everyone. Be brave and safe. Safe travels everyone.

Female Speaker:12:50 For important disclosures, see the show notes, or visit schwab.com/equityunpacked.

Episode 16: Unpacking the Role of the SPA

The responsibilities of a SPA are sometimes vaguely defined and can vary from company to company, putting a lot of opportunity in the hands of the admin to make equity meaningful for their employees and their company's bottom line. Amy sits down with Lamont Walker, Director of Equity Programs at Lyft, to talk about what drew him to the role, where he thinks it's headed, and how he makes sense of the nebulous world of equity management.

Amy Reback (00:06):
Well hello listeners, and welcome back to Equity Unpacked. I'm your host, Amy Reback, from the Stock Plan Services team at Charles Schwab. Our journey today will take us deep into the profession of the equity plan or equity compensation administrator, and we'll take a day-to-day look and debunk a few myths about what this role entails, the career opportunities and exposure it offers, and even some tips on how to promote the plan administrator role to attract new talent. Here to help us unpack it all is none other than Lamont Walker, who leads the equity compensation team at Lyft. Lamont is a well-known entity in the equity comp industry, thanks to his impressive career history, his passion for creating more awareness for the profession, and of course, because he's just that person that everybody wants to know or is glad that they already do, myself included.

And yes. Are you blushing? Are you blushing. Lamont?

Lamont Walker (00:57):
Just a little bit. Just a little bit.

Amy Reback (01:00):
Now, I think everybody knows I'm pretty excited, and I've been looking forward to this day for a really, really long time. And it's finally Lamont Walker day on Equity Unpacked. Lamont, welcome to the show.

Lamont Walker (01:11):
Oh, wow. Thank you for having me, Amy. This is great. And you really have... That's an awesome intro. I'm ready to roll now. I don't know.

Amy Reback (01:18):
I could follow you around. We could do that all the time. It'd be great. All right. So Lamont, let's start with your background, understanding that the equity comp administrator role is not very widely known. I know our listeners would love to hear about your career path in your own words, so let's hear the story of how you got here.

Lamont Walker (01:37):
Oh, wow. I could really make this a Netflix special, but I'll keep it nice and short and sweet for you. I'll say this: grew up in Alabama on a farm. My mom is a aerospace engineer, so I wanted to go into computers and things like that, cause I saw her doing those things when I was really little. When I was in high school, I saw a movie that I probably shouldn't have been watching. It was called Trading Places with Eddie Murphy and Dan Aykroyd. And I just want to know how did somebody . . .these two guys that were super rich go broke, while these other two guys became super rich that fast. And of course, it was exaggerated, but that's what made me want to learn more about stocks and commodities in the market, not necessarily frozen orange juice, but other things that . . .

Amy Reback (02:28):

Lamont Walker (02:29):
. . . you could definitely invest in. So I kept that in the back of my mind. And when I graduated college, I was a computer engineer, had a job . . . but I did have, in the back of my mind: "I still want to learn more about equity and stock and things like that." So fast forward, I did get my broker's licenses and things like that, and I was working on the phones in a call center for a broker and helping people out, and I was doing fairly well and got the opportunity to go through a promotional track, whether I could be a power trader, a options trader route, or, as the person told me, "Or you can go into stock administration." That's exactly how they said it.

Amy Reback

Lamont Walker
Exactly. And so I was doing my research, but as I read more about stock administration, I realized it was a field that was growing. There weren't many stock administrators out there, and there were a lot of companies who were issuing equity to their employees. And I was thinking to myself: basic supply and demand. This may be the best route for me to go to, even though everybody around me was telling me to go different routes, don't go this route. And so when I went this route, then that's when I realized, after getting my CEP and those things and going through the weeds of what this really entailed, I realized this is something that's really awesome; I really like what I'm doing, and I get to interact with people, which none of those is what I was doing when I was in my computer programming days in Atlanta.

It was pretty much: Office space. Cubicle. I didn't have a pocket protector, but I felt like I had one. And you know, you just code, code, code, code; go home. And that's not who I am. And so as I continued to go down the stock administrator route, that's when I realized there was a lot more from stock administrators, well, that stock administrators were asked to do than what I was told when I first started. And so that took me to the route where I am today, where I was in Phoenix with a company; that company's doing great. Went to another company, who decided they weren't going to issue equity to all employees anymore. So that's the first time I had ever been laid off. But that's when I also learned the power of the role, because after I was laid off, there were so many opportunities and jobs available for me.

So, I was only without a job for a couple of weeks while trying to find out what my next job was going to be. That brought me to the Bay area, where I am now—and where I said I would never live when I was in Alabama. Nobody from Alabama wants to live in California—I'm just going to tell you that right now. But I'm here, and I do love it. And now, it's like I want to do whatever I can to educate more people about this role and my path and the opportunities that this role provides. So, that's the short part, but if you want to do a Netflix special, I'm all for it.

Amy Reback (05:33):
All for it.

Lamont Walker (05:34):
We could put it together.

Amy Reback (05:34):
You know, it's interesting what you said, there's such a juxtaposition between the way the role was represented to you, like, "Hey, you could be a trader, you could be a commodity trader, or, behind door #3, you can be an equity administrator, but let's not talk about that." Highly misrepresented, but at the same time, highly in demand. So, there's a huge disconnect there, would you agree? That it's a very well-known job within our industry, but the day-to-day of what it entails and the kind of opportunities it offers—not very well known, even by recruiters?

Lamont Walker (06:10):
Oh, that's such a good point. Even when it was my interest, everything that I learned was from my own research, because who you asked, you may get different responses. And I think also the term "administrator" also threw people off of what the day-to-day entails, and I'm sure we'll dive deep into that a little bit later. But, as I continued to learn more about it, and then saw what goes into it from the finance aspect, the legal aspect, the planning, partnering with compensation, all these different groups, I started to learn more about what these groups did as well, but I also had to educate them about the importance of what they did and how it fed into the stock administration role.

And so in doing that, that's when people start to realize, "wait a second, this person doesn't just push a button and transactions happen, or they just administrating and push numbers through. They're actually doing some complex work that requires my complex involvement." And from a recruiter standpoint, oh my goodness! Yes! It's funny when you start to try to build your team ,and you tell them what you need. And they put together the job rec for you, and you read it, you're like, "Wait, what . . . what is this? This is not happening. Oh, and is this the money you're trying to offer?" [Laughs.]

Amy Reback (07:40):

Lamont Walker (07:40):
Oh, we have problems.

Amy Reback (07:42):

Lamont Walker (07:42):
So, definitely it's from a top down of the misunderstanding of what we do in our roles.

Amy Reback (07:48):
Yeah, I think I've seen that a million times, where it gets bucketed into the general administration role, which is really, a lot of times, that's kind of an entry-level role that doesn't require a ton of specialized skill. But this role in particular does require specialized knowledge and specialized skill, particularly to be a lead stock plan administrator. Tell us about the professional designation that's involved.

Lamont Walker (08:14):
Oh, definitely. The CEP to me is probably—I'm not going to say probably—I think it should be held in the standard upwards with CPAs, even CLEs—so that's get your continuous degrees, education from a legal standpoint. And it's funny that certain people who understand a CEP, they know the work that goes into it, and they understand that you coming with the CEP designation means that you are a subject matter expert, and they rely on you to provide that insight from that level. On the other side, what seems to be happening is there are a lot of executives or leadership and people who know they need a stock administrator because they hear other companies have it. And another person may say, "Get you one with a CEP." And that sounds great, but when you get into the role, you realize that they don't know what they have.

We see things happening. You have a professional right there, and all these decisions are being made without consulting the professional. And you see them going down the path, and you're in a meeting, you say, "Hey, wait a second, this is not something that we want to do," and they keep going. Like, "Okay, you need to slow down. We don't want to make this decision," and then they keep going and they roll right through the stop sign. But then they get in a crash, and now they look at me and say, "Hey, let's fix it." And I'm thinking to myself, we shouldn't have to fix it. If you just listen to us telling you to slow down and hit that stop sign, we'd be fine, but now you want to come in on the back end.

And I think that's what a lot of the executives or professionals who hire us who don't understand what the CEP is, they just see it as letters and think, "Oh, they must know what they're doing. That's what I need. Let's bring them in," but then don't know how to utilize us once we're there. But without that designation, I tell you that there are plenty of my colleagues who are in roles, and they tell me about the battles of not being at the table, their voices aren't heard. They provide recommendations, and people just kind of look over and glaze over them because all they see, like you said before, is a general administrator type of role.

Amy Reback (10:32):
So CEP, when you said it's highly misunderstood and people don't know what goes into it, what do you think should be done? What would you recommend? How do you approach that with other people?

Lamont Walker (10:46):
Thinking about when I was in college, it seems like everybody knew what they wanted to do. And then you realize when you get out of college, nobody really knew what they wanted to do. Probably a handful of people, but that's it. But a lot of the roles that were, let's say, promoted in some of the different fields, once you go into those roles, there's not much crossover, but different areas and different ways that you can develop, like the CEP gives you or being a stock administrator gives you.

So when you talk to people and let them know, if you're interested in going into HR, interested in going into compensation, legal, finance, accounting, all these things, stock administration has a touch on each and every one of those. And you can be a stock administrator also while you figure these things out. And I give them that little hook, because I know once they get into it, that a lot of times they'll be interested in the role they have themselves because they can now dip their toes in each one of them, without fully having to commit to any of these other types of roles. So, I say that all into circling back into, going back to the full promotion of the CEP overall, I think that it's great that obtaining a CEP is difficult.

Amy Reback (12:12):
Yeah, it is.

Lamont Walker (12:14):
Right? Because if it was something easy, to me, the respect that it garners wouldn't be there, or everybody could just jump in and say, "I'm a CEP now." No disrespect to some of our awesome realtors in the industry, but I have probably 500 friends who are realtors and probably two of them know what they're really doing. I'm just going to be honest. But everybody just jumped into it because they thought it was something that was easy, they could obtain a license and do it and make easy money. But some of these things garner respect and hard work. And once people obtain that designation, it kind of tells everybody else in the industry, "Oh, this person's serious. They know what they're doing. They're driven and dedicated to this role. We got to give them a try. Let's listen to what they have to say." And yeah, I just want to keep pushing that narrative of showing the strength behind the CEP. Definitely.

Amy Reback (13:08):
There's also a ton of job security that goes with it. Right? There're so few CEPs out there. You can go to any job search or recruiting site, and you type in CEP, and a ton of things will come up all over the country. So, it is definitely high in demand, and the roles pay really good money because of that. I mean, they pay a premium for the CEP. And so some of the roles that you've talked about, the exposure that you get—legal, HR, finance—it's not just exposure to internal at the company that you're working for. I'm constantly on calls with stock plan administrators at various companies, and the third-party attorneys will come in, and we're talking about building their lockup release or et cetera, et cetera. And then you're really deep into and exposed and need to brush up on your securities law, and what are the examples of potential litigation, so that everybody can come to the table and really understand what the topic of the day is and how you solve that problem.

There's so many things you learn in this role, and it's so highly misunderstood. When you have a CEP and it's so scarce, you not only have job security, but you really have the pick of the litter. You can go where you want and do what you want. As my dad would say, you could write your own ticket. So, highly, highly in demand and something that I think is really attractive to people, especially these days, and especially folks that grew up in the financial crisis. Job security is a really, really big thing. So great path to go down from a career perspective. Let's talk a little bit about the industry. I'm not a big one for lots of statistics and throwing things out, because nobody ever remembers them, but I think it's one thing to note when we talk about job security, that the industry itself, meaning the number of plans that are out there and available to have these roles or that are being created each year for the last five years, has been growing at just shy of 20%.

And that's really big growth rate when you look at a lot of other types of roles or types of professions. If the number of plans is growing by just shy of 20% every year, that means all those plans need administrators.

Lamont Walker (15:25):

Amy Reback (15:26):
Especially if they're going public.

Lamont Walker (15:29):
[Laughs.] Yes. Yes.

Amy Reback (15:30):
Do you want to unpack that for us a little bit? What did you learn when you went public as a stock plan administrator? What's the number one thing that you learned—you can not only do hard things, but maybe go without some sleep for a few days?

Lamont Walker (15:41):
One of the biggest things I've learned really during the IPO, and this really helped me in my career development, is that regardless of a title or a role or the person in their background, no one knows everything. And you get into these situations where there's a lot of complex things going around. You're listening and they're discussing things, and you assume that this person's the CFO or this person is the general counsel, they know this or that about equity. And that's not true. They do not know. And there's been times where I've partnered with the external counsel and helped them with some things. There's been times I've partnered with my CFO, and we became best friends, and he's emailing me at two or three in the morning just to confirm these different numbers. And I'm thinking to myself, "Wow, I'm glad that you entrusted me in this. That's pretty awesome." Because a lot of times, people just didn't come to me, even though they should have.

And you start to learn more and more that these people really need us, as stock plan administrators, 
to . . . take over. And when I say "take over," it's like our voice is there, and if we don't speak up, then they'll never know. And so one of the things that, because you said something great about the amount of money that are being put into these plans and the amount of people . . . 

Amy Reback (17:19):

Lamont Walker (17:19):

Amy Reback (17:21):
Trillions of dollars.

Lamont Walker (17:22):
It's ridiculous. And to think about that, us as stock plan administrators, really have the key to driving the value in those plans. Because I've seen some of the most awesome thought-out things from some of our people in comp and HR, and I'm thinking to myself, "that sounds great and awesome, but if you do that, the IRS will be in front of us in 24 hours, and our plan will be gone, and everything have to start from scratch, but I like your idea." Some of these ideas are just great. I have to be the one to tell them that I liked them, but we can't do that.

Amy Reback (18:10):
Right. Right.

Lamont Walker (18:11):
It's those types of things where we have to step up and exude our voice.

Amy Reback (18:18):
The number one thing that I always try and keep in mind—and the time shuffle thing is one thing, but I will have to say that whenever I meet with folks that are new, I always do a new employee meeting when people have joined the team. And I just had one the other day, and it really is my favorite way to spend my time, and it's my most impactful way that I can spend my time as well. And I always tell them, "Listen, when everybody thinks you're busy and important, guess what happens? Nobody ever calls you. Right? My calendar will fill up with stuff I probably don't want to do. But I'd much rather hang out with you guys and learn, what am I not seeing? What are you seeing on the ground? What's weird? What's awesome?" That's the kind of feedback that I need to get to lead a large organization, because otherwise I get put in the big tower, and people are too afraid to talk to me.

So, I do my best to be honest, be authentic. Sometimes we know that's a good thing or not a good thing, just saying. And the other thing that I make it widely known, and I have zero ego about, and it's a 100% true, is I routinely say, I am the least important person in this organization. If I walk out the door, they might be like, "Well, she was nice. That was a good time. Oh well." But if my teams who help folks like you and your teams that work with our customers, work with our clients, that answer the phones and help our participants, the education, all of that, if they walk out the door, the lights go off.

Lamont Walker (19:58):

Amy Reback (19:59):
If I walk out the door, the lights do not go off. And that means, by default, I am the least important person on that team.

Lamont Walker (20:05):
That's a good point.

Amy Reback (20:07):
And it is a 100% true. Nobody should have an ego about that. And because of that, you really have to work to make an impact and create the right environment, and also have a really good understanding of top to bottom, side to side, bottom up. You have to have a really good understanding of what you're there to do. So, Lyft has a mission and purpose. How does your organization contribute to that? Schwab has a mission and purpose—a story that the company was built around. And you have to not only believe in it, you have to really understand what you do on a daily basis, how that supports that mission and purpose. And if you believe in it and then know how you contribute to it, that just by itself creates great engagement, and it gives people something to get out of bed for in the morning.

And I gotta tell you, the last two and a half years, that's not really always been super obvious. So, kind of keeps people together that way. But honestly, the time shuffle is . . . . like I said, my calendar will fill up with a bunch of stuff I probably don't want to do, but I would gladly trade that to talk with people, mentor people, help people kind of get over that . . . "here's who I think I should be," versus allowing yourself to be who you are, in the best possible way, to benefit your firm, your clients, your employees, your teams, and build a really great future. And I think the potential for doing that in the equity comp industry is so huge, because of the demand and the growth that we're seeing. So, it's such an exciting place to be. I wish we could talk about this ad nauseum. We could be here for five hours, don't you think?

Lamont Walker (21:51):
Oh, definitely.

Amy Reback (21:52):
But I tell everybody that I've worked with, whether it's in the branches, my niece and my nephew, I say, if I had to do it all over again, knowing what I know now, I would get my CEP, and I would go down that road, because everybody that I've talked to that didn't know about it that then got into it, like your story, most people stumbled into it.

Lamont Walker (22:13):

Amy Reback (22:14):
I've never heard anybody that said in first grade, "I want to be an equity comp administrator." Right?

Lamont Walker (22:18):
Definitely not.

Amy Reback (22:20):
Speaking of that, since we're on a mission now to change that, if you could rename it . . . I know that we have to have very professional names, like "equity programs manager," and very important sounding things that don't sound like administrator. But if you could name the role anything, what would you name it?

Lamont Walker (22:40):
Oh my goodness.

Amy Reback (22:42):
Santa Claus. Free money heroes. There's so many.

Lamont Walker (22:47):
Free money heroes. [Laughs.]Yeah.

Amy Reback (22:51):
[Laughs.] I like that, right?

Lamont Walker (22:51):
I love that.

Amy Reback (22:54):
People perk up. People perk up. What? You do what?

Lamont Walker (22:58):
Free money hero, come on down. Oh my goodness, I really have to think about that, because I was really . . . I do. I'm not going to say "I was." I'm really into equity programs, because I feel like that's what we do and that's what we manage, because everybody has equity programs. And they could be different of course for each company, but then you can also structure titles around that name. So for instance, there's a person on the team who's like equity programs developer. I call him a developer because he actually builds stuff. He saved us so much money by building literal systems and reports and things like that. He sees something, I give him the free runway: Build it. Let's see it. And then it works, and we use it. The equity programs manager, people who manage our equity programs and things of that nature. But there is still a confusion with those people who are in equity, diversity, and inclusion. And those are equity programs people as well, or they kind of have that title.

Amy Reback (24:15):

Lamont Walker (24:16):
I have seen some people use shareholder services. I do like that. I feel like I don't know what that all entails because I feel like shareholder services could also be part of investor relations, because I have seen that before as well, which is fine. I just would like to know what all goes in that, but I like that title. I would have to... Oh my goodness, I'd have to get a glass of wine and really sit back one evening and think that one through.

Amy Reback (24:43):
Yes, please. 

Lamont Walker 

Amy Reback
That sounds like a terrible idea. What time? Oh my goodness. What about, do you ever talk about the theme of ownership?

Lamont Walker (24:58):
Yes. Yes.

Amy Reback (24:59):
Because that's really what equity is, right? It's really giving employees . . . I mean, at Schwab, we've said for years that we turn earners into owners, and that's really what you do. So, we're creating ownership of your own firm. And there's already a club of employees. These are people that you see and work with every day, and then you're all becoming owners of that as well. And you're more invested. So, maybe there's something there along the lines of ownership.

Lamont Walker (25:29):
I think that's a big term that's not used enough. I'm glad you mentioned that, too, because personally, I'll say this: I think that when you go back to—and a lot of people that's coming on a team now don't realize what happened, when you think back towards Enron and things of those situations, right? And it's always been a thin line for me to explain, "These are your vests, and you now own these shares. These are yours. You've worked for these." Right? And some people say free. And I do like free money. I do like that [inaudible 00:26:11].

Amy Reback (26:11):
Free money heroes.

Lamont Walker (26:12):
Free money heroes. But then I do tell some people when I explain the rugged taxes, right? Ugh, we're not going to talk about that. But I let them know, "You didn't pay for them with money per se, but they weren't free. You worked hard to earn these. So, you own these. You should feel pride in achieving whatever you had to achieve to gain ownership of these shares, which makes you also an owner in this company." However, when I flip my hand over, I also feel that from a financial wellness perspective, you also want people not to feel guilty for selling the shares or diversifying, or doing whatever their plans they may feel like may be best for them, let's say that.

Amy Reback (27:05):

Lamont Walker (27:08):
But I do feel like I need to work in ownership more, because especially some of the new hires that come in who've never had equity before, they hear so many terms, but I think "ownership" is probably one of the least that they've heard when it comes to their actual equity, which should be one of the biggest. So, I'm glad you said that. I need to incorporate that. That's a good point.

Amy Reback (27:32):
And impressing that upon your participants is really important to help them understand the value that the company sees in them. So, there's broad-based plans, but there's still economies of scale at play there, and it truly is an investment in the future that every company is making. So it's a terrific thing to highlight from a benefits perspective, or depending, benefits .  . . compensation, depending on where it lives with your company. So, tell me one more thing; I'm going to ask you one more question. We've already talked about the breadth and depth of the role. It's truly misunderstood and often misrepresented, but it's commonly described as mostly an accounting role. And I think you referenced something about office space where people hear it and they think they're just going to be spinning out spreadsheets in a broom closet with a red stapler somewhere. I mean, no offense, accounting, but you should take that up with the recruiting folks because that's how they talk about you.

So, understanding that you, Mr. Lamont Walker, are not the broom closet kind of guy, in case anybody was wondering, what really keeps you engaged in this profession? Why do you do what you do every day? What's made the most impact on you?

Lamont Walker (28:44):
Oh, wow. That is an awesome question. And as you were reading it or saying it to me, I just had so many things go across my mind, just of my whole career of things that people have told me or said to me about equity and things they've learned, or how things have been impacted and changed and things of that nature. I'll say that what keeps me here, as opposed to drifting into another role that equity ties into, because the opportunity has definitely been there, is seeing firsthand how employee-based equity has impacted people outside of the office.

Amy Reback (29:35):
In what way?

Lamont Walker (29:35):
I'm glad you said that. So, for example . . . 

Amy Reback (29:37):
Wait for it. Wait for it.

Lamont Walker (29:38):
Exactly right. In doing some of these IPOs, I've heard some crazy things. There was this one guy, I'll never forget this ,ever! He had a picture of  the DeLorean from Back to the Future at his workspace, and he was like, "At IPO, I'm buying a DeLorean."

Amy Reback (30:04):
Can you still buy a DeLorean? Is that a thing?

Lamont Walker (30:08):
I don't know. I just thought to myself, of all the things that you want to do, that's it? Well, go do it. But that's your thing. Go do it. Right? But on the flip side, I was talking to this other person, who had wanted to get married, and situations in his past, financially, put him in a situation where getting married, he said, would financially cripple his wife if they were to get married. Because I guess he made some bad financial decisions—I don't know what he was talking about. I didn't ask. I didn't want to go that deep. But, as all the stock plan people who may be out there listening know, we become unofficial psychiatrists. When we have one-on-ones, we hear so many things that people want to share with us when it comes to equity, and they really open up, which is fantastic.

And that's one of the things that really keep me drawn to this role. So, as I begin to educate him on just the basics of what he has and how, if we IPO, this is what could be expected—we talk to a tax advisor and get you a financial planner and these things—you could see him opening up because the things he had heard about equity, from his uncle or cousin or whoever, just was totally out of left field, just wasn't right at all. So, fast forward, probably a year, I saw him in the office. This was after IPO, because once you're in IPO, it's like you're [an] ostrich—your head is in the sand. You don't see many people when you're running around like that. He told me that he got married, he bought a house, he wiped out his financial . . . his debts, and things like that.

And I'm thinking to myself, "whoa!"And he was like, "I went out and got a financial planner, I got a tax advisor, and I also referred my financial planner and my tax advisor to my uncle". . . or his cousin, I can't remember. It was somebody in his family. But he was telling me all the things, now showing me pictures of his newborn son and things of that nature. And I'm thinking to myself, man, just like a year and some change ago, he was all nervous not knowing what he was going to be able to do and things of that nature. And I had to be real with him, because I told him, "If we don't have an IPO, then this is just paper. You got to plan. Be smart with it. Plan accordingly." And hearing him say all these things, that's what keeps me drawn into what I do.

It's those types of conversations I have with people. When I hear somebody tell me that they were the first to graduate college in their family; now they have an IPO, and they're going back home and helping pay their parents' bills off and things like that, and fixing their house up. It's just those types of stories that keeps me driving. So even though hearing the DeLorean stories are fun, but it's those other ones that I hear quite often that really keep me dialed in. It's like you said also, I really want to stay in touch with the people. I get so busy sometimes on higher-level things, but I always try to make myself available to the people, just so I can hear what's going on and help educate them and put them in a position where they can make some good decisions with some of the things they've been earning. So as long as that keeps happening, I'm going to keep doing what I'm doing.

Amy Reback (33:58):
Super gratifying, isn't it?

Lamont Walker (33:59):
Oh, 100%.

Amy Reback (34:00):
Super gratifying. Yeah. No, I'm really glad that you pulled that out, because I think most people feel like it's numbers, it's accounting, it's debits on the left, credits on the right. And I don't think most people truly understand or appreciate the people-centric nature of that. At the end of the day, it's such a unique opportunity to make a huge impact on people's lives and their financial futures. And I know that's where my heart lies. I know what joy there is in being able to make that kind of contribution to someone. And they never forget it. They never forget that turning point in their lives, where things became easier and they were able to do those things—pay off their parents' debt, wipe out their own, have a family, buy a house—all of the things that were untouchable to them. And you and your teams do that every day.

Lamont Walker (34:54):

Amy Reback (34:55):
You do it every day, and it's not a very widely appreciated aspect of the role. I've talked about that a number of times, that the work you do is so important, and I don't think that our administrators hear that often enough.

Lamont Walker (35:10):

Amy Reback (35:10):
You probably don't really hear that from your employees at the time, but every now and then, you get that spark and you say, "Yeah, this is why I do this." This is really unique. It's really, really special." It's such an exceptionally fulfilling way to spend your time and spend your days and build a really meaningful career path. And at the end of the day, equity comp really is the business of investing in your employees. And man, if we could all do a little bit more of that and then see the effects of it . . .

Lamont Walker (35:40):

Amy Reback (35:41):
. . . what a great world we'd live in, right?

Lamont Walker (35:43):

Amy Reback (35:44):
Let's do it, Lamont. We can do it together. We can do it together.

Lamont Walker (35:48):
All for it,  I'm all for it.

Amy Reback (35:49):
Oh, Lamont, it has been such a joy to have you on the show today. I knew we'd have a great conversation, but this completely exceeded even my own expectations.

Lamont Walker (35:59):
Wait, wait, wait, wait, it's an hour? Are you serious? We're done?

Amy Reback (36:02):
It's an hour. Yeah, it's an hour already. I know. Time flies when you're having fun.

Lamont Walker (36:07):
Oh my goodness.

Amy Reback (36:07):
That's all I can say.

Lamont Walker (36:08):
Yes. Yes.

Amy Reback (36:09):
And we always have fun on Equity Unpacked® so I'm so glad you were here today. Thank you so much for spending some time with us. It was a really great conversation, great information for our listeners, and would love to have you on the show again sometime soon. I know, again, we could talk about this for like five hours.

Lamont Walker (36:25):
[Laughs.] Definitely.

Amy Reback (36:27):
We have reached our limit. So, thank you, thank you so much for the conversation, thanks for the camaraderie, loved your insights, and we hope to see you again.

Lamont Walker (36:34):
Thank you for having me. It's been awesome. Thanks.

Amy Reback (36:36):
Absolutely. And for our listeners, I hope you enjoyed our episode today with Lamont Walker from Lyft. He is a great resource. On LinkedIn, you can reach out to him if you'd like to have more information or be able to ask him questions directly. That's all we have for you today. I hope everybody enjoyed our journey. Lamont, thank you again, and safe travels everyone.

If you enjoyed this episode, feel free to leave us a review and subscribe to the show to get updates on new episodes.

Speaker 3 (37:14):
For important disclosures, see the show notes or visit schwab.com/equityunpacked.

Episode 15: The supply chain's impact on equity compensation

It all starts with equity compensation. Really. Equity is not just compensation, it's a key player in the global economy. Amy unpacks the chain reaction between corporate metrics and equity and shares how equity compensation plays a role in the economic cycle in ways you may not have thought of before.

Amy Reback: Welcome back, listeners. Happy to have you with us on Equity Unpacked® today. I'm Amy Reback, your host from the Stock Plan Services Team at Charles Schwab.

Can you believe it's already year three of our show? We owe all of that to you. Really pleased to have you with us any day, anytime, especially today. Some of the journeys we're looking forward to are delving into pay for performance, tips for conversion and onboarding or going private, some tech and some trends, and many, many others. And of course, if there's a trip you'd like to take with us to explore a specific topic or if you'd like to be a guest on the show, please email us at equityunpackedideas@schwab.com. Really looking forward to your suggestion, and thanks again for listening.

Now, today we're going to do a Quick Takes episode on, drum roll please, the supply chain. It's something that we've been hearing about for a long, long time. Just about every time you turn on the news or if you listen to Marketplace or any of the other news podcasts about the economy, you're going to hear about the supply chain. And the story continues to evolve. At first, it was shortages. And now, with inflation, it's too much inventory of some things. So how does all of that work, and where does equity comp play a role?

So what I'm going to do today is give you a scenario. I'm not going to talk in big terms. Just let's take one scenario and then play it out. I'm not going to, by any means, get all of the points that probably should be from one step to the next, but you'll get the idea.

So, in general, for every action, there is a reaction, which creates a chain of events that is almost never-ending. And if you were able to find an endpoint, it would be so distant from the initial action or cause that they probably seem completely unrelated. Now, that applies to just about any scenario you can think of, but to avoid an existential crisis, let's take a look at how this applies strictly to the global supply chain and equity compensation.

So let's start with technology firms. The evolving role that technology plays in our lives means that just about everything we use or consume involves chips. And not the kind we eat, but silicon chips. And if you look at cars, devices, toys, ovens, locks, thermostats, watches, even our pets, they all have chips in them. Now, for tech firms that build hardware, they couldn't keep up with demand, and they ran out of goods to sell. There's that new car shortage, scarcity of services and running the world, failure to deliver on the next version of their products. So if they have fewer products to sell, they can't meet the rising demand, and prices start to go up to record levels. It prices out a lot of buyers and increasing costs for those who still remain in the market. Then there's fewer sales for hardware producers and increased cost for their service provider customers. And that means a decrease in revenue for both. And when that revenue drops significantly, the stock price for those company drops. And for tech firms, it drops fast.

So that brings us to the point where equity compensation enters the supply chain equation. Now, companies, particularly big tech companies, grant equity to a broad base of their employees for talent retention and acquisition, also for performance and a significant component of their overall compensation. When the stock price of their employer drops, the value of those equity awards drops as well. And suddenly, their equity plan is not meeting the goals it was intended to address. Compensation drops, ESPP shares are underwater, vested options are out of the money. Employees start to leave. And the firm has rising costs associated with turnover, onboarding, and training, accelerated rising costs, further impacting productivity and potential to sell additional products and services when they're already behind. And the stock price drops further. Reacting to rising costs and reduced revenue, the firm starts to initiate layoffs.

And you've seen the headlines. There were lots of Silicon Valley firms recently laid off somewhere between 10 and 15% of their workforce, numbering in the hundreds of thousands across the board. Most, not all, but most of those employees immediately lost any unvested equity awards.

Now, backing up just a little bit, while companies are laying off part of their workforce, they're likely to be changing their granting practices and plan documents in an effort to retain other populations. And that means granting more shares at a lower price. Typically, that results in significantly more outstanding shares of the stock, depending on the size of the firm. Now, think about whether or not that could have a long-term impact on the stock price as well and its recovery. So you can really start to see how equity compensation plays a huge role in the economic cycle in a way that you may not have thought of before.

So there it is, folks. When a butterfly flaps its wings in Tokyo . . . well, you know what I mean. The global supply chain and equity compensation are directly linked in that action-reaction paradigm. Equity is not just a part of someone's compensation; it's really a player in the global economy. And big shifts in mechanisms like the global supply chain can impact the financial futures of your participants, their families, and your entire workforce—in ways you may never have considered or even seen coming. And that, fellow travelers, is how it's all connected.

Thanks for joining us today. Really happy to have you with us, as always, on Equity Unpacked®. Until next time, safe travels, everyone.

Female speaker: For important disclosures, see the show notes or visit schwab.com/equityunpacked.

Episode 14: Equity markets and the global economy

With strong economic winds blowing, Amy and her guest Liz Ann Sonders, our Chief Investment Strategist at Schwab, bust some myths about these economic forces, clarify what’s going on in right now with equity markets, and discuss what to watch for that could signal some stability.

Amy Reback: Well, welcome back to all of our listeners and subscribers. Thanks for joining us today on another journey for Equity Unpacked®. I'm your host, Amy Reback, and I'm the stock plan services rep from the team here at Charles Schwab. And, since you're tuning in, I'll wager that you already know we have a very special guest along for our ride today. And the team and I have been really looking forward to this particular trip for quite a while, especially since there's been a whole lot of turbulence since our last episode and since the last time you came and had a listen at Equity Unpacked.


There's been inflation, interest rate increases, big swings in the financial markets, war in Ukraine, rumblings of military action in Asia, and, you know, some elections. And all of these things are tied to the economy in one way or the other. There's a push and a pull that happens. And in the equity comp world, we know that employers are experiencing a lot of attrition as their stock values start to sink or have sunk, or sometimes are diving into territory that their executive leaders haven't seen in over a decade. And for the vast majority of the workforce, in particular the big tech sectors, we're seeing a significant depreciation in the value of their awards.


What brings all of this together? What influences all of this? It's the global economy. It's big. It's complicated. And understanding it, at least for me, I know, it feels like trying to capture lightning in a jar. So we have asked the one and only Liz Ann Sonders, the chief investment strategist here at Charles Schwab, to help us unpack what's going on in the economy and how the equity markets would react. Liz Ann, welcome to the show. We're so thrilled to have you.


Liz Ann Sonders: Hi, Amy. Thanks for having me. I'm looking forward to our conversation.


Amy Reback: Me too, me too. We all are. For our listeners, Liz Ann is the number one fan favorite the entire time that I've been at Schwab. She's been here 23 years—I've been here almost 19—and packed rooms, sold out every single time. And you've also probably seen one of her regular appearances on any one of the big, nationally-syndicated cable finance network shows. I'm sure she just blew them off today to come here and be at Equity Unpacked, of course. There's just too many to list, but we're going to try really hard to add Equity Unpacked to that roster today. All right, maybe not nationally syndicated, but a girl can dream, Liz Ann. A girl can dream. Really, really honored to have you with us today.


Let's level-set on our itinerary, so you know where we're headed. And I'd really like to do three things today. Let's do a little myth-busting about financial markets and economy. That's always fun. And, Liz Ann, we really want to hear from you on the overall economic forces: What is going on? If anyone can explain that in plain language, it's you. We also appreciate that. And then, lastly, we'd love to hear what you're watching for—what do you look for in the economy as those economic winds are blowing around and changing in a way that, to you, signals some kind of positive sustainability where the equity markets are likely to follow? Those are the things that I'd like to do today, as long as we have you. How does that sound?


Liz Ann Sonders: That sounds great.


Amy Reback: So myth-busting. For our listeners, anybody that's watching TV, especially if you watch any political talk shows, it's really easy to forget that the economy and the equity markets are not the same thing. Liz Ann, I have to ask you, because I have seen this happen before: How often do you get questions in your presentations where it's very obvious that they're mixing up the two?


Liz Ann Sonders: No question about it. I think there is that connectivity that people feel is maybe more tight than what is actually the case. Of course, they're related. But, in general, the stock market leads the economy. And that, I think, is what, in particular, throws investors off because we're so attuned to economic data points because they impact all of us. What goes on a day-to-day basis in the stock market may not impact everybody. Let's hope people aren't obsessing and looking at statements every single day. But, in general, we're very attuned to economic data.


But there's two problems. One, the stock market tends to lead the economy. It anticipates, in particular, turning point. The stock market almost takes a Wayne Gretzky approach, skates where the puck is going, not where the puck has been. And it's human nature for us to look at economic data and think in good versus bad or strong versus weak terms. But the stock market keys off more subtle changes. And that's why I always say better or worse matters more than good or bad. Sometimes data can be abysmal, but the fact that it has stopped getting worse and just starting to get better, that's often a trigger for the stock market well in advance of when the data, whatever it is, looks good or strong. And I think that's what trips a lot of investors up in trying to make that connection.


Amy Reback: It's a push and pull, and it's like the Pacific and the Atlantic meet at some point. Where does it start, where does it end. It's one or the other. It's hard to understand that, and nobody can see everything, right? We rely on you for that because you've got all that going on. The other thing that sometimes we hear is, and I'm sure you've heard this as well, is people cling to something, the jobs report, GDP. And they have an idea, for some reason, they've heard it at some point, that this is the thing that you look for. This is an indicator. And that means everything's going to be great. And then pack it away, don't listen again, and then they're surprised, a few weeks later, when something else happens. There's, number one, no guarantees. No crying in the stock market. And no guarantees that something's going to happen. When people ask you those questions about different types of indicators, what would you advise them to look at?


Liz Ann Sonders: I guess the first question back that I would have is whether you're looking for what are the most relevant indicators tied to the economy or the stock market? I'll throw that back at you, Amy, to see whether you have a bias in terms of how you want me to answer that question. Are we talking more about what are the most important variables to look at when trying to judge where we are in the economic cycle or where we are in the market cycle?


Amy Reback: I would say, first, market cycle, since we're talking about the market really leading the economy. And then also let's remind everyone that there's forward-looking and there's backward-looking indicators.


Liz Ann Sonders: That's a great way to set up what's the second part, which is the economy. Hopefully, I won't forget what just popped into my head. But, from a stock market perspective, I look at every variety of indicator and data point that covers monetary conditions, what the Fed is doing—that's a big driver of what the stock market does. Obviously, things like valuation and earnings. You've got technical indicators, overbought, oversold, breadth-type indicators. But I'd say probably the most impactful set of indicators, especially at extremes, at major inflection points, are, for the most part, sentiment related.


I was a huge fan of and had the great pleasure of meeting the late great Sir John Templeton of Templeton Funds, and probably the most famous thing he ever said, and it's quoted all the time, was, "Bull markets are born in despair. They grow on skepticism. They mature an optimism. And they die on euphoria." And I think there's nothing that details a full market cycle better than those four little sentences. And what you notice in there is there's no term in that phrase that has anything to do with the Fed funds rate or corporate earnings or valuation or technical conditions. It is all about sentiment. And I think, at extremes, that ultimately is what defines turning points. And it acts very much as a contrarian indicator.


I remember I worked for the late, great—sadly, another late, great—Marty Zweig in my first 13 years in the business, and he was an avid sentiment watcher. He invented the put/call ratio. He coined the phrase, "Don't fight the Fed." And a reporter asked him once, and this was before the days of the internet, a reporter asked him once, "If you had to throw out all the indicators you look at to judge where we are in a market cycle, and you had to pick only one," of the hundreds he tracked, he was always quick to answer, "Time and Newsweek cover stories—being jointly bulls on the cover or jointly bears on the cover." And this was, again, before the internet. This was when magazines were magazines. They were only in print. They were sold at the newsstand. And pretty much anytime, within a week, they each had some version of a bull on the cover. That was usually at or near the end of the bull market, and vice versa for bears.


That's just kind of a fun way to think about the power of extremes in sentiment as a contrarian indicator. Without a doubt, that's what I focus on, and I keep emphasizing at extremes. It doesn't mean sentiment's going to drive the market every wiggle. But when you get to an extreme of despair, that's usually the sign of a bottoming process, again, and vice versa. On the economy, your tee-up to the question had a very important component in how you worded it, which is some indicators are lagging in nature, some indicators are leading in nature. I think the first thing to do, if you're studying the economy, is understand which buckets an indicator falls into. Is it a leading indicator? Does it tend to move first? I call them heads-up indicators. Does it move in advance of the broad economy? A measure like GDP?


Then there's coincident indicators. They're moving right at the same pace as how we measure the economy. And then lagging indicators. The perfect example of a lagging indicator is the unemployment rate—not only a lagging indicator, one of the most lagging indicators of all. And that's another thing that trips people up, is they think, "I'm not gonna feel better," if you're at high unemployment rate, "until unemployment rate comes all the way back down.” You've probably missed most of the bull market, and vice versa, if you say, "Why should I be worried? The unemployment rate is low. Nothing to see here in terms of the recession or the market." Well, it tells you nothing about looking forward. It tells you everything about what already happened.


Amy Reback: You know what we would look for, when I was in the branches, on indicators? And this was widely known. We would look for when you started seeing those commercials for options, like trading options and making a million dollars, trading options. And then we would see this flood of people coming into the branch with emergency option applications. And we'd look at each other and say, "Market top. It's time to get out. Market top." And it was almost like clockwork every single time. A lot of it really is based on sentiment. That's so interesting.


And then this is a funny one. It may seem like this is a ridiculous myth to bust, but I hear this all the time, and I'm sure you've heard this quite often over the years. And I hear it more when the market is down or there's a lot of uncertainty. And that is, “Somebody has all the answers, and they're just not sharing. You guys know this. You guys know everything. Why don't you just tell us?" As if. If anybody has all the answers, number one, Liz Ann, it's you. But if that were the case, there would be no need to have financial markets. It would be game over. You'd have all the money, and I would be your very best friend. But none of those things are happening, right? No one has all of the answers and it is . . .


Liz Ann Sonders: No one. No one does.


Amy Reback: . . . fluid. It's always a fluid situation. It's really important to remember that.


Liz Ann Sonders: Yeah, no one has the answers. And, by the way, it's not what you know. You, me, our clients, investors. And by “know,” meaning about what the market's going to do. It's not what you know that matters. It's what you do along the way. 


Amy Reback: Exactly. Exactly.


Liz Ann Sonders: And there's just no one that knows. And they might make a bombastic bottom or top call, but they could just as easily be wrong as right. And investing should never be about moments in time. Investing should be a disciplined process over time. And trying to pick tops and bottoms are about moments in time. And nobody can do that consistently well. Nobody.


Amy Reback: Emergency options applications. Yep, that's a great way to put it. Okay. What's going on in the economy right now? And how is that push and pull happening with the equity markets?


Liz Ann Sonders: Yeah, I think this is a really, really unique cycle. And maybe that's the ultimate understatement But unique because of the nature of the pandemic. We know that when the pandemic erupted, the first couple months, the bottom basically fell out of the economy because the entire globe went into shutdown mode. That alone was distinct relative to the typical version of a recession. But thanks to the massive amount of stimulus, we came out of it equally quickly. But what happened was, courtesy of that stimulus, at a time when demand surged, at that time, all that demand, all that money, got funneled into the goods side of the economy for the simple reason that there was no access to the services side of the economy. We couldn't eat out. We couldn't take a trip. We couldn't go to a concert, et cetera, et cetera. And that demand was met with supply constraints, again, because of the pandemic. That became the breeding ground for the inflation problem with which we're still dealing.


However, what's happened is that we went through the goods surge in the economy and, in turn, within inflation metrics. That has already rolled over. That's where you have recession-type conditions in the economy. That's where you're already in disinflation within inflation metrics, declining rate of inflation. But we rolled the demand and the inflation on to the services side of the economy. That's the nature of this cycle. We have this, I call it, a rolling recession because there are parts of the economy that are, no question, in recession-type mode. Housing, CEO confidence, consumer confidence. But we've got that, for now anyway, offset on the services side. And I think, to some degree, that's been mirrored in the stock market.


Again, stock market's a leading indicator. Last year was a year where the indexes, the S&P, the Nasdaq, the Russell, all had very healthy years. Limited weakness. However, under the surface, at the individual stock level, you saw a lot more weakness and a lot more churn. It rolled through the stock market. But there were pockets of strength that offset pockets of weakness, such that you ended the year and you didn't have a major drawdown at the index level. The opposite, to some degree, has happened this year. Yes, you've seen weakness at the index level—we're in a bear market—but weakness has no longer been masked by the indexes hanging in there. The average stock's not doing well, but now the indexes are not doing well either. And I think that is somewhat a reflection of what we've seen in the economy.


And the stocks that have been hit the most are the ones that were tied into the earlier phase of the pandemic—the goods-oriented, the stay-at-home stocks—where the newly minted day traders were gambling, for lack of a better word and probably is the most appropriate word. Some of those speculation-driven segments of the market, like the meme stocks and crypto and specs. And we've seen that unwind in spectacular fashion. I think there has been a bit of that mirroring, but you've seen it embedded in what the stock market has done before you've noticed it more acutely in the economy. And that's quite often what happens.


Amy Reback: Let me ask you this. That a lot of our clients and some of the largest equity plans are technology companies, and there is a huge mix. Some of them are technology companies that don't produce any kind of service or good. It's just the platform itself. And there's value and connection and things like that. But there are some that mix into actual services. So the delivery services, whether it's a wide goods, almost like a global mall, or food delivery. There's a lot of those. So it is technology, and they consider themselves technology companies, but there also is a service attached to it. How are those stocks reacting to this market cycle, and why is technology getting hit so hard relative to the others?


Liz Ann Sonders: The first thing I'd say is that you're right. The term “tech” or “technology” is often applied quite widely. If we're talking specific to the definition of the technology sector as part of the S&P 500®—and it's one of 11 sectors that make up the entire S&P 500—a lot of the stocks and the bellwether behemoth names that are often lumped into this tech category, Big Tech, are actually not in the technology sector. Even what formally were the big five, the FANG+ names: Facebook now Meta, Apple, Amazon, Google, and . . . what am I forgetting? Microsoft.


Amy Reback: Microsoft.


Liz Ann Sonders: Amazon is actually—Amazon and Tesla, if you want to put that in there because it's come in and out of the top five, along with Meta going in and out of the top five—those are communication services company. I'm sorry, Amazon and Tesla are consumer discretionary. Meta/Facebook and Google or Alphabet, but they're communication services. Now Apple and Microsoft are in the actual technology sector. So some of it gets a little bit confusing because we use this moniker of “tech” when the reality is they represent a broader swath in terms of sectors.


But, to your point, I think what is defining how stocks are behaving, which ones have been more resilient in this broader, lowercase-T tech category, which ones haven't, is where you have sat in that pandemic-related cycle. Even some big companies that have a broad enough diversity in their offerings—and I'm going to go outside of some of the names you mentioned—but Disney reported earnings yesterday. And I'm not an individual stock person. I don't sit and listen to conference calls. But I pay attention to the headlines. And there is a company that clearly was deep in the heart of being a beneficiary of the stay-at-home trade with their streaming service. But at that time, their theme parks were closed. Now you're seeing the opposite impact in terms of what they reported in numbers. That's really where you're seeing these themes, is how much of your business was tied to what boomed in the early phase of the pandemic and now is on the opposite side of that move versus benefiting from this boom now on the services side.


And what's also happening within the broad market, but even within these bellwether groupings of names, is you cannot look at them monolithically anymore. They no longer act like subsets that all move in tandem. Even just looking at those FANG-type stocks, those five common names, five or six. Huge difference in terms of how they're performing. And it's tied to all those things: where you are in the goods to services part of the cycle; how well you've managed your business; how well you've contained costs, fixed costs versus variable costs; what are your labor costs; did you overbuild in anticipation of the demand that we saw continuing? We're now back to, imagine this, an environment where fundamentals matter. And it causes a big difference in how stocks are performing, even in groups that used to behave more monolithically.


Amy Reback: That's interesting. As they get more blended . . . things used to be simpler. If you're Proctor and Gamble, you made products for the home, consumer discretionary, but now it's starting to get a little bit blended and mixed. How do you see that impacting the overall economy, or vice versa? What's coming next that you see in this rolling economy?


Liz Ann Sonders: Well, one way I think about it ties into what I think is a really important message to your audience—and really any audience of investors—is the labels that we often apply to certain categories of the market, categories of the economy, and I think in simple terms like defensive versus cyclical or growth versus value. But the reality is there's always overlap. So examples are given.


It's part of the reason why I sit in the asset allocation working group at Schwab, and one of our jobs is to not just broadly provide advice and perspective for our investors, but, at times, we will make a tactical recommendation. We might overweight or underweight a broad asset class or sectors. But one area where we don't make tactical recommendations is growth versus value. And this is a broader discussion, but I think—when I give a couple of examples, that's usually when if I'm in front of a group of our clients—it's usually when the looks go from, "I'm not really sure I understand what she's talking about. Everyone talks about growth and value. I get it, but why is she saying that there needs to be this important distinction?" When I give the examples, you get the, "Oh, I totally get what you're talking about now." So two or three examples.


One, I'm going to take us all back to October of '02. We finally finished the tech bust, the bursting of the internet bubble, the dot-com bubble. The market had bottomed. S&P was down more than 50% at that point. Nasdaq 100 was down 83% over that two-and-a-half-year-plus period. You wanted, at that time, to buy deep value. But deep value, at that time, was found in many of the tech stocks. Ultimately, the ones that would survive. They weren't moved into the value indexes. They still, for the most part, lived in the growth indexes. But if you were looking for the characteristic of deep value, that's where you wanted to go. If, instead, I just said, "Oh, buy value at the low," and you said, "Oh, I guess I just buy the Russell value indexes." Well, you would've been loading up on utilities and energy, the classic value areas, and you wouldn't have taken advantage of where the actual value existed.


Fast-forward to today. Two examples: Utilities live in the value indexes. More expensive in relative terms to the S&P, actually more expensive, but, relative to history, close to a record premium above the S&P. Just because they're expensive doesn't mean they're growth stocks. They still live in the value indexes, but they don't offer a lot of value. Conversely, the energy stocks primarily live in the value indexes. There is no place where there is stronger earnings growth right now than in the energy sector. Probably, Russell should move them into the growth indexes, but they still generally live in the value indexes.


I think you have to be mindful of what the characteristics are. There are times where defensive stocks become really expensive, and they don't offer that kind of defense because you're paying too much for them. Another myth-buster, because I know you started with that, is oftentimes, when I'll talk about momentum being a factor that's working, in people's heads, they think, "Oh, it's the tech stocks. It's the high flyers." Momentum just means that the stocks that have been working are continuing to work. That can be in any area. You can have momentum in treasury bonds. You can have momentum in the most boring, mundane segment of the market. It just means that momentum feeds on itself and that what has been working is continuing to work. It doesn't define some type of stock. It's just a factor that comes into play. And all of these things, I think, are what can trip up investors.


Amy Reback: One of the things that really impacts our audience, in particular with equities and the type of really big equity plans that are out there today, is companies and employers grant equities primarily, there's lots of different reasons, but primarily for retention. Sometimes it's to incent performance. And I'm not going to trip on the whole pay-for-performance thing that we're all dealing with right now. But, if you have a workforce where 50+% has never seen this kind of market cycle and you've worked at X company for 12-ish years, you've never really seen a sustained downcycle or a sustained depression in your stock price. You've been receiving these grants. You're happy as a clam. "This is great. They treat me so well. It's like another paycheck." And then the value of that is really low. Completely impacts your financial plan, what you can afford to do, not to do. All of those plans that go into the individual investor's long-term plan and the role that equity plays in that.


And so what we're seeing is a lot of companies are changing their granting practices. They're going to grant more. They're going to completely rewrite their plan and allow for more either pay-for-performance, for reset, all of those. It's like having options that are never going to be in the money. They have to rewrite the plan to either negate them, let them ride out, or reissue them at a lower price. Or just issue more at a lower price so that there's value for their employees. And you have to think there is a chain reaction there, right? Companies are already, their stock price and their market cap is already depressed. There's a lot of attrition for a number of different reasons. The pandemic's not over, but we can't put that toothpaste back in the tube.


So people are going back to work, and they're saying, "I really liked a lot of that flexibility. I want to have a better lifestyle. Maybe I don't want the 8:00 to 5:00. Maybe I start my own business. Maybe I work for a delivery company. But maybe I don't want to do the high-pressure job anymore." There's attrition because of that. It's a whole new world. There's attrition because they don't necessarily have those golden handcuffs with their equity. And a lot of the regranting is in the executive compensation, not necessarily broader based. A lot of companies do broader based, but the majority of them do executive compensation. Then you have the attrition and the cost of searching for and replacing those employees. And those employees, then, it's a brain drain when they leave and maybe go to another employer because they have a better offer. And that impacts their value again and again and again and again. What role do you see, from a bigger-picture perspective, that playing in the economy, and how does it rectify itself? Because that, in itself, is a rolling issue.


Liz Ann Sonders: I think it's been a huge factor in a lot of the underlying trends that have been going on, particularly in the labor market. But I think there's multiple drivers of it. You said, absolutely, when you're dealing with a heavy portion of your compensation being in your company stock and it starts to go down, there's that incentive to look for where the grass is greener. That starts to diminish, especially in a broad area like tech, when that industry, broader sector, is under increasing pressure. And that's where layoff announcements have been most concentrated in this environment. You have this window, that I think was across the economy and across sectors, of, "There's still a labor shortage. There's still a skills gap. If I have the right skills, I can jump ship."


It's also the case that you've had, until the last couple of months, a record quits rate. Three percent of the workforce on a monthly basis was quitting their jobs. That's now down to about 2.7, so it's starting to ease. And, until very recently, job leavers—the wage increase, the compensation for job leavers—the growth in the compensation was significantly higher than for job stayers. It was this witches brew that caused a lot of jumping ship. Not to mention, "Hey, I can live somewhere else with more remote work. I can put my skill set out there and put myself out there as looking for opportunities all over the country or world because it doesn't require that I have to live in the proximity of headquarters." And I agree with you. You used the “can't put the toothpaste back in the tube.” I always say “genie in the bottle.” That genie, I think, is never going back in the bottle. That doesn't mean that there isn't going to continue to be a focus on trying to make things hybrid.


I think, for younger workers there's a benefit to being in person. But we're never going back fully to the way it was. But I do think we're already seeing signs of some downward pressure in many of those areas, just reflecting the weakness in the economy, the weakness in the stock market, the fact that we have four months in a row now of big year-over-year increases in layoff announcements. I think the bloom, to some degree, is coming off the labor market rose. You might not pick up on it if you just look at things like the payroll headline or the unemployment rate. But under the surface, there's a lot more weakness.


The last thing I'd say, of course, is one of the things that we do, in helping our clients that get compensation in their company stock, is make sure you have a broader plan and that you focus on efficiency around diversification so that you don't have so much of your net worth tied just in . . . so there are tax-related and diversification-related strategies that can help smooth that ride when you're in the downcycle in your company stock.


Amy Reback: I heard an analogy one time, years and years ago, about diversification, and it was hilarious because everybody relates to this, right? This woman said, "When I go to the grocery store, every time I stand in line, I'm in the longest line. Everything is going faster than me. I've decided that I should just bring friends and give them a list, and we should all get in a line. And somebody's going to come out ahead, and somebody's going to come out last." And she said, "That's all it is for diversification when you're investing."


Liz Ann Sonders: My husband and I do that all the time is, if we're together somewhere and there are lines, it's like, "You wait there. I'll wait there. Make eye contact, and whoever gets up there first, we reconnect."


Amy Reback: Who's got the winner? Who's got the winner? Yeah. Let me ask you this, just to illustrate for our listeners. If you think of—let's go back to the whole new world that we're living in—work environment, you can work anywhere, doesn't really matter. I think the time zones are really the biggest thing, although I did find out this past summer that Tahiti's in the same time zone as Hawaii. Did you know that? You don't have to cross the international dateline?


Liz Ann Sonders: Yeah, yeah, yeah. If I think about a globe, yeah, that doesn't surprise me.


Amy Reback: I thought it would be a 12 or a 13-hour time difference. It's the same as Hawaii. Little bit longer flight, but the same as Hawaii. It was pretty amazing. I have big plans for next summer. Big plans, yeah.


Liz Ann Sonders: Oh, there you go.


Amy Reback: Why not? Why not? If you're an employer and you're trying to retain and work with the expectations of your workforce, and they want a lot more flexibility, and so you have primarily, mostly, a remote workforce, then you're not going to be buying a whole lot of real estate. And this is across the world because you don't have to bring everybody together from Monday through Friday. That means there's not as much real estate being sold, not as much demand. And if there's not as much real estate being sold, there's not as many buildings being built. So that has a ripple effect into even all the way up to building, natural resources. When the demand for those things go down, do you think that this shift in the workforce that our employers are experiencing will have a significant effect all the way through to something like harvesting wood for building buildings and steel and those fundamental commodities that go into this that build the buildings that eventually we go and we work in? But we're not there anymore. Is it big enough to have a long, sustainable impact on the economy?


Liz Ann Sonders: It is big enough, but I think it's more complicated than just we're no longer all going to an office building to do our job. I think we're in a major transition point in our economy that may be akin to when we went from being an agricultural economy to an industrial economy, from an industrial economy to more of an innovation, tech-oriented economy, and so on. And each time, the thinking is, "There goes...whatever it is... farms and all the jobs associated with it." But we morph and adjust and change, and opportunities present themselves that we might not necessarily even think of. We're still, right now, in the ripples of the hybrid work structure, and not just things like commercial real estate and the buildings. And we're going through it now, with figuring out what percentage of our workforce, on a somewhat permanent basis, is going to be in a hybrid structure and re-stacking, as I just learned the term is, to make sure that when people are in, they're not one on one floor and two on another floor, and nobody's actually interacting.


I think there's a lot of that going on. There'll be changed usage for some of these buildings. I worry, in the near term, about the infrastructure around that traditional office environment. The food service, and, in a city, the restaurants and the transport. But I think one thing that, certainly, we as Americans and our economy has done extraordinarily well over hundreds of years is adapt and change. That's where I find, even though many would—who have been reading my work over the past year or listening to me—think, "Boy, Debbie Downer, here she is again." But I'm naturally an optimist. I have to call it like I see it when it comes to the economy and the market, but I'm a natural optimist. And one of the reasons why I'm always optimistic long term, about both our market and our economy, is just how we figure it out, to put it really bluntly, and just the innovative spirit, animal spirits, and adaptability.


And so I look at disruptions in the near term as inevitable, but I don't see it as some demise of our industry and our economy and our workforce. We're just going to have to adapt to the changes that the pandemic wrought, many of which I think are very good. I think that we all now realize that we can integrate our work and personal lives. It's not really a balance. People have been asking me, “How do you balance being a mom and working?” And I never thought of it as a balance because a balance, you give your all to one. If you're giving your all to one, the other's getting nothing. I've always thought of it as an integration. Maybe it's just semantics of the word, but I think more people are realizing, "I can integrate my work life and my home life. They don't have to be these distinct things defined by location and the clock."


Amy Reback: Yeah. It's a harder turn for those of us that have spent most of our lives on the clock because your life is defined by that cycle in so many ways. I'll digress for a minute and say I remember, a long time ago, I think I was a baby branch manager, and I was at my first big branch manager's meeting. And I was thinking, "How do you do this? How does somebody like Liz Ann or Lisa Hunt have a family and travel all over the world, and your shoes still match? I don't understand."


Yeah, I still wonder that sometimes.


Liz Ann Sonders: It's an integration. And I think the lovely thing too about the use of video like this and Zoom and WebEx, whatever platform you're talking about, is, we think about that as it's more impersonal than getting to know your colleagues or clients one on one. But in some ways, it's more personal. We know almost more about the people we interact with. We see what's on their bookshelves. We hear the dogs barking. We hear the doorbell ring. We hear babies crying or kids coming in the screen. And I think that's one of the most delightful things that's come about as a result of this. If you want to try to put a positive spin on what has been a pretty crappy almost three-year period of time, I think that's one of them. We almost get to know each other on a more personal level.


Amy Reback: Oh, yeah. I know so much more about my team after the last three years. I'm like, "Well, I can hear the dog again. How's he doing?" "He's snoring right down there." You really do get to know people in a different way, and it's been a lot of fun. Let me ask you this question. A lot of our folks are sitting there thinking, "Okay, our stock is really down. We're changing our granting practices. We're trying to retain our employees. And I want to be in the conversation." And one of the really unique things about equity comp is, depending on the employer, equity compensation might live in finance; it might live in HR; it might live in legal; and sometimes there's even crossover in between it . . . but some of the biggest departments or divisions in these huge companies.


And regardless of where you sit, it's this triad of “It might sit in legal, but I still have to deal a lot with HR. I still have to deal a lot with finance." They're constantly shifting their priorities of who they have to go to and who's responsible for what. So being able to be part of that conversation of what's going to happen—“Should we be changing our granting practices? How long do we think this is going on?”—I think it would be really helpful for our audience to understand, what do you look for? Being the eternal optimist that you are, what signals in the ever-changing winds of the economy and the markets, what do you look for that says, "Okay, there's the spark. This is the thing that I know is sustainable because it's linked to this, and these are all down the food chain, all the good indicators"? So what is it that you look for and that would be great for them to be able to interject into that conversation when they're sitting at the table?


Liz Ann Sonders: So from a stock market perspective, the most important thing is I nor anybody else can pick bottoms. And the most successful investors in the world haven't gotten there because they're making moment-in-time decisions, all in, all out, based on picking tops and bottoms. But there are indicators that give you a sense of when you're in the process, say, of bottoming, when the worst appears to be more in the rear view. Sentiment is a big, big part of that. Technical conditions. But then there's also the macro things that need to occur. This is where it morphs into the economic discussion. I think, specific to this cycle, what I'd say is, I think, from a sentiment standpoint, both in terms of the market investor sentiment, but also sentiment on the consumer side, consumer confidence, consumer sentiment, they both, at extremes, act as a contrarian indicator.


And once you get to the washout in one or both, it doesn't say, "Okay, bell is ringing. Bottom is in. We're off to the races." But it tells you that you're establishing some groundwork for better news to come. Absolutely have seen a washout both in investor sentiment and consumer sentiment. I'd say for both the market and the economy, we can already check those boxes. But, unique to this economic cycle tying to the market cycle, I think there are several other things that I think still need to happen that haven't yet. I think we need to see a stabilization in housing. I think we need to get a sense of when the Fed can take a breather and pause. They're not going to pivot anytime soon. They're not going to go from aggressive rate hikes to rate cuts. But just at least pull their foot off the economic brake and then assess what happens.


We're not there yet, but that's what I would be looking for. And in turn, just some stability in the bond market and in yields and the uncertainty tied with how much more do rates have to go up, and how much does that crimp activity? And notice I said stabilization in many of these things. I didn't say we need housing to bottom and soar again. We need earnings estimates to bottom and then soar again. We need to have the Fed be cutting interest rates. It's that the market has an incredible ability to sniff out inflection points, turning points. When I have my market hat on and I'm trying to get a sense of when the worst is past us and tying it into macro conditions around the economy, stabilization is the first thing that happens, and the market tends to key off of that.


A lot of investors say, "I'm going to wait until fill-in-the-blank gets strong again." And I can almost guarantee you've missed a lot of the opportunity on the upside. But the things to look for in each cycle are different. When you have housing having been a big driver of a cycle, you need to continue to focus on that to get a sense of when you're coming out the other side. There are other cycles where it's driven more by the stock market—the 2000 tech bust. I think we wouldn't even had a recession in 2001 if it weren't for the bear market in stocks. There was just so much of our net worth tied into the market that when the market fell, it took the economy down with it. Every cycle is a little bit different in terms of its drivers and, therefore, what to look for to get a sense of an inflection point.


Amy Reback: Right. Okay. Super helpful. I'm going to ask you one more question for our listeners because you explain things so well. I know you're on the national TVs, and you do a lot of live commentary. Are there resources where you are regularly appearing, like Schwab content or the daily live trading shows that you're appearing on regularly, where our listeners can tune in and hear what you have to say about what's going on?


Liz Ann Sonders: Absolutely. And, one, here's a cheat-sheet way to capture all of my output, regardless of whether it's something with regularity, which is follow me on Twitter. Because it's a constant stream of commentary, information, reaction to what's going on in the market, economic data points. But it's also where I post everything that I'm doing. I post the videos that I record. I post the written reports that I write. All of which is on Schwab.com, but it's sort of single-stop shopping on Twitter. Yes, I do Schwab Live daily, every Monday, a show called Liz Ann Live from 3:30 to 4:00 Eastern Time. That's a regular every week. Every other Monday, I write a written report that goes on Schwab.com. I appear on the TDA Network every Thursday morning at 9:15 a.m. But then the other stuff, CNBC or Bloomberg or CNN or CBS, that's more, not on the fly, but there's no, "Okay, you're on this day this time." But I post in advance everything that I'm doing. Everything I write, every video that I do, every podcast that I do goes on my Twitter feed.

Amy Reback: That's awesome. And that is amazingly different than it was 19, 20 years ago when I first started at the firm. You had to come and see Liz Ann in this ballroom in order to really be able to enjoy what you have to say and benefit from that. Isn't technology amazing? It's amazing.


Liz Ann Sonders: It is amazing. And I love being in person with my colleagues and with our clients, but this is also a very effective mean of communication. I've had days where I've done six full-blown client events via the camera . . .


Amy Reback: Wow.


Liz Ann Sonders: . . . talking to thousands of clients. Trying to do that in person . . .


Amy Reback: No way.


Liz Ann Sonders: . . . it just doesn't work as efficiently. I think a blend of both is great. And the reach is great, but there's also it's important to be with people in person. But I think it's a blend.


Amy Reback: Absolutely. Well, we'll look forward to the next time we have you out here. I think you were here last week for Impact in Denver. I didn't get to see you, but the next time you're here, I'll look forward to that. Thank you so much for joining us today. This has been really, really valuable.


Liz Ann Sonders: My pleasure.


Amy Reback: I know our listeners and our subscribers will benefit from it as well, as they go back to that table and talk about their granting practices. Thank you so much. Always, always a pleasure to see you.


Liz Ann Sonders: Thank you, Amy.


Amy Reback: Thanks so much for all of our listeners for joining us today. I hope you really enjoyed our session with Liz Ann. It's such a pleasure. I always learn something. What a special treat it was to have her on the show today. Thanks for being here today.


If you enjoyed this episode, feel free to leave us a review. And subscribe to the show to get updates on new episodes.


Female Speaker: For important disclosures, see the show notes or visit schwab.com/equityunpacked.

Episode 13: Quick Takes—Top 5 Participant Must-Knows

When your participants need help with their equity compensation, it can be hard to know where to begin. To help bring some clarity to the nebulous world of equity compensation, Amy shares five things your participants must know—a great place to start with any participant.




Amy Reback: Welcome back, listeners! And thanks for joining us for this Quick Takes episode of Equity Unpacked®. 


Tense, dramatic music begins softly and gets louder. A wolf howls.


And it’s fall, y’all—that means Halloween! It’s the spooooky season, and it’s upon us. 


As the dramatic music continues, someone cackles ominously.


Black cats you’ve never seen before on every corner. Cooler weather. Or was that the chill of a ghost passing by?


An intense piano chord is struck.


Creepy spiders with giant legs. Cauldrons of witch’s brew. And major sugar crashes. 


But what’s even scarier than the sound of a chainsaw [ghostly howling] in a corn maze—or the threat of cavities—is what can happen to participants if they don’t understand their equity awards.


Another voice screams piercingly.


Expiration dates. Taxation! How long should you hold?


Thunder crashes.


What are the rules? There’s only one way to protect yourself from equity horror: Turn up the volume, and find out.


Music gets louder and abruptly ends.


So here we go. Number one: What type of award is it, and what are the rules? 


So the question you should ask is, what do you actually have to do to get the award? The type of grant you receive will define your role in taking possession of it. There’s a lot of employees that think an equity award is theirs no matter what. But in reality, there are some you can, let’s say, take with you and some you can’t. Know what you’ve got. And know what the rules are.


Echoing notes.


Number two: How do you make the most of it? 


Well, ask yourself this question: What are you going to use it for? Do you need it for daily expenses, or could you hold onto it for a while and cash it in for a bigger purchase, like buying a home or adding to your retirement savings? 


Understanding what you’re going to use it for will really dictate [echoing notes] how you make the most of it. 


How will it impact your taxes when you sell? That’s a big one. And it really goes back to question number two. So what do you need it for?


There’s a couple of things that you absolutely have to know is that if you sell an equity award before you’ve owned those shares for less than a year, you’re gonna pay more taxes. And the proceeds of that sale will be counted as regular income. So whatever you earn in your paycheck, if you sell those shares before you own them for one year, that gets added to your total income. 


So you gotta watch out for the tax implications.


The second thing is, if you hold them for more than a year, the proceeds are gonna be treated as a capital gain. You’re just gonna pay less taxes on it, and you’re not in danger of adding to your total regular income or being pushed into that higher tax bracket.


So what are you gonna use it for?


Something that’s new in the last two years, with the pandemic, is if you’re working remotely or you’ve moved, your tax liability might be drastically different. So you have to keep your eye on how the needle moves.


Echoing notes.


Number four: What are the timelines related to number one?


The kind of award you received is gonna dictate a lot of things, such as the amount of time you have to take action on it. You’re likely subject to a vesting schedule for any and all awards you receive. But if you were granted options, you typically have a specific amount of time to exercise them. If you miss the window, they will expire worthless. So understanding the timelines for your awards and what you have is super important.


Echoing notes.


And number five, lastly: Where can you go for help? Well, whether you’re a high-ranking executive or a mid-level employee, understanding how your equity awards can be used to maximize your financial future is an imperative discussion that will have a significant impact on your outcomes. Your stock plan services provider should offer services to support every employee at every stage of their wealth journey. Reach out to yours today. 


And if the resources are limited for your level of sophistication or you aren’t getting the support you need, notify the stock plan team for your employer. And if all else fails, find a broker-dealer to do business with who offers the right level of support and guidance to suit your needs.


Brand music plays and continues.


So those are our top five. What do you have, and what are the rules? How do you make the most of it? How’s it gonna impact your taxes, and how’s that related to the first two? What are the timelines? And where can you go for help? 


So I hope that’s helpful today, for our participant top five. Thanks for joining us for this episode of Equity Unpacked. Make sure you stay tuned for our next episode, coming up relatively soon. We have a surprise special guest that everybody will be really excited about. That would be one Liz Ann Sonders from Charles Schwab. And we’ll talk about the impact of inflation on everyone’s equity compensation. 


Subscribe to our podcast. And visit schwab.com/equityunpacked.


Brand music ends.


Female speaker: For important disclosures, see the show notes. Or visit schwab.com/equityunpacked.

Episode 12: How to Make Metrics Matter

Most companies don’t know what story is hidden behind their data until they start to peel it back. But before you can begin to analyze any of it, you need to know what you’re trying to achieve. In this episode, Amy is joined by Wendy Jennings, Vice President of Shareholder Services at DataRobot, talk about the stories that are revealed by equity compensation data and how to be proactive about uncovering them.




Amy Reback: Welcome back to Equity Unpacked, everyone. I'm your host, Amy Reback, from the Stock Plan Services team at Charles Schwab. And today I'm thrilled to have a highly anticipated special guest with us on our equity adventure to unpack the art and science of creating metrics and measuring success of your equity program.


She's a celebrated expert in the equity compensation world, the one and only Wendy Jennings.


Wendy, welcome to the show! We are so excited, in case you couldn't tell, to have you today.


Wendy Jennings: I'm thrilled to be here, Amy. Thank you.


Amy: Absolutely. Okay, now, fellow travelers, let's just review our roadmap today and maybe retrace our steps for a moment.


A few months ago, we did a Quick Takes episode on measuring success, with "quick" being the operative word there. And in that short episode the overall message was you have to know what you're trying to achieve before you can actually create metrics and analyze data. So as a provider, we see a lot of requests for analysis but not really a ton of clarity on what really needs to be analyzed.


So, hopefully, since then you've all had a chance to get some perspective on that for your own programs. And now we have Wendy here to unpack some of the specifics, based on her tremendous experience.


Now, Wendy, as we start our journey, in my mind I'm imagining that I've, like, snuck into first class, and I'm gonna spend a little time with you. In case you couldn't tell, I'm having a bit of a fangirl moment. And, I mean, you are truly nothing short of royalty in the equity compensation world. So, before we start, I'd like to do a review of your achievements, your bio, to introduce you to our listeners. And while I do that I'll just try and keep breathing, if that's okay with you.


Alright, Wendy Jennings, you received your Certified Equity Professional designation, or CEP, as we say in the biz, in 1993. And you have over 25 years of equity compensation plan experience in literally every aspect of plan management, compliance—we have to breath when we say "compliance"—and administration of global equity plans in over 90 countries. I also happen to know that you're an expert in administering payments through the China SAFE program. I saw you speak on that a few years ago in such incredible detail. It was really impressive.


You're an expert on IPO prep, plan analysis, design, implementation, system conversion, Section 16 reporting, insider trading compliance—this is where we breathe—proxy prep filing, mergers and acquisitions, tender offers, stock options, RSUs and RSA programs, employee stock purchase plan compliance—breathing—and administration. Plus employee communication and education programs.


You've been honored for your contributions to the equity compensation industry with the NASPP Individual Achievement Award in 2005 and were appointed as a Fellow Global Equity by the Global Equity Organization, or again, GEO, in the inaugural class of fellows in 2019. In Amsterdam, no less.


And, I mean, you're just getting started, right? Wendy, this is just a few things. It’s like a . . .it's a taste. Right?


I'm wondering if maybe you have more than 24 hours in your day. And by the end of the show, if you could share that with me, what your secret is to unlock that, that would be awesome.


Okay, on to our topic—defining metrics and measuring success!


Wendy, are you ready to unpack?


Wendy: I am ready.


Amy: Okay, here we go.


Wendy: Let's do it.


Amy: Alright. So can we start with your perspective on how important it is to define metrics and then how you look at measuring the success of an equity program? What does that look like for you?


Wendy: Well, I think it's really important. And I think it's an area that has really been ignored. When you start to look at metrics around your equity plans, it starts to tell a story. And without doing that, you don't know what story your equity plan is telling you. And if you have a good story, you want to be able to tell that. But if your story is telling you that you have issues with your equity plan, you need to know that. You need to pivot. You need to figure it out. And I think it's really important. And I think every company should do it.


Now, most of us in the equity world are doing our day jobs, and we don’t have a lot of time for this. But once you start to get your head around it and start to do it and then start to update it, it gets easier. And then the stories start to develop.


So I think it's really important. I think it should be top of mind for leadership. And I don’t think it has been. But I think we're starting to see it.


Amy: So, how do you make the case for that with your leadership. Let's say you put in some time, and you're starting to see the story develop, and you’re not getting the attention or, really, the importance that you need from them. But you really want to be able to demonstrate that this is meaningful data about your employee population. How have you approached that in the past?


Wendy: Well, I think it depends on what the data tells you. If you’re not getting your leadership's buy-in, then you’re probably not giving them the metrics that matter to them.


So metrics that matter: Data-driven metrics that can lead to good decision-making or strategic initiatives. Finding out what’s working, what's not working. You might discover issues that affect other stakeholders within your organization: your HR team or your payroll team or your tax team or your legal team. And so, if you're finding that leadership doesn't think this matters, then maybe you need to . . . First of all, that hasn't been an issue for me, in my experience. Most leaders do want to know how things are going. In fact, I think it is becoming more top of mind for leaders in the finance departments and the HR departments and the legal departments of companies because they want to know what’s working. They want to know what needs work. And you can’t determine that unless you start to measure the metrics. And digging in and finding out what the story is that those metrics are telling you. And the people that manage these stock plans day to day, they're the ones that know the what and the why once they do look at the data. And so, I think this gives an opportunity to people in our field to highlight the wins, accept losses if you story's telling you that something’s not working. But then show that you’ve got the initiative to pivot and to make things better.


So I think they will be open to hearing this. And, again, it just depends on the story that you're seeing.


Amy: Based on your experience, your tremendously deep experience, what's the top reason that employers offer equity programs?


Wendy: Well, the main reason is to attract and retain. Right? And that's all in the data. Do you work at a company that's having success in attracting people? Or are you losing people to other firms? Well, maybe your grant practices aren't in line with industry standards. Or maybe your grant sizes are too low. Or your ESPP plan isn’t as good as the one down the street.


Or are people sticking around? Are they really praising what's happening? Are they getting the bang for the buck out of their equity awards? Well, good! Then maybe your plan design is working, and you want to keep it up. Don't make changes, cuz things are working. So I think that's really important.


Amy: So examples of other data or things that you could show leadership. Have you experienced situations in the past where there's money that can be saved within the plan? Are there taxes that the company is paying, that maybe if they changed the plan a little bit maybe they wouldn't have to do that? What else would you say based on your experience that you could do or show value to your leadership teams?


Wendy: The thing that comes to mind on that is international compliance. Because if you show that your compliance review is . . . or your filings that are due, if they're not on time that can cause penalties. If they're done incorrectly that can cause a problem. Or if you can find . . . I'll give you a good example—and you mentioned China before.

The last company I worked for, we had a ton of China filings that we had to do. And we had to do so many because we made so many grants in China. If they would have, instead of making multiple grants every month and did it every quarter or once a year, it would have saved a ton of money. So that's an example of how your metrics can lead to redesigning how you do things in order to save money while still being compliant.


Amy: That's a really good example. Although I did hear you say "compliance" like four times, and you didn't breathe, so I just want to make sure you're okay. You doing alright over there?


Wendy: Compliance doesn't scare me. Compliance is top of mind.


Amy: It is!


Wendy: If you're compliant, you don't have anything else to worry about.


Amy: That's right! It's just getting there sometimes . . . oy!


Wendy: That is true. That is true.


Amy: What do you think . . . when you look back, what do you think are the most effective metrics that every plan should have?


Wendy: Well, I think the most impactful ones are the ones that look for problems. Because you want to identify if there are any problems and fix them. So is everything on time? The filings that you’re doing. Do you have any need to make corrections? If so, why are you making those corrections? Was it because you had bad tax data? Or was it because you had bad HR data, and somebody terminated the company, but nobody told you? Or it just didn't get put in in time. And then maybe you issued some equity to somebody, and they had an RSU that vested, and shouldn't have.


Look for the things that can cause problems. That's the most critical. Cuz, again, you want to be compliant. And if you have those problems, you’re not going to be compliant.


And then on the other side, it's like . . . I think the other things that are important are the metrics that can tell you how well people understand your plan. And are they getting the most bang for the buck? So your ESPP percentages. Participation percentages, for sure. If you have a great plan, but your percentage is low, there's probably a story about why it’s low. Is it because they don't understand it, and they didn't have education around it? And typically, that's what I have found. If you dig into the data, your systems as a vendor will help you figure this out pretty easily. You can determine what those metrics are and what needs work. At my last company, I dug into the data around this, and I was able to target those education sessions and get percentages up for people participating, which gives you the bigger bang for the buck, which then goes back to the retention aspect: People are more happy, right? Because they're getting more bang for their buck on the benefits.


And then there's a ton of metrics that you can capture. But I think those are the most important ones—the ones that can look for a problem or the ones that can show you how well things are operating.


Amy: When you think about those things, and you've got the data. But there’s also feedback that you should probably solicit from people who are buying those ESPP plans or the employees that you’re granting to. So how would you go about getting feedback and/or other information for your plan, outside of the data part?


Wendy: Surveys, of course. And then also, when I was at my prior company, I really dug into the HR support questions that were coming in. And what are people saying? What are they asking? A lot of times their questions can either tell you that they really appreciate your plan, but maybe they don’t understand it completely. So, okay, let's do some more education there. Are they confused? The questions that those participants are asking really tell you where they're at—with their sophistication level, with their understanding, with their appreciation of the plan. So, I think if you can dig into that, that's great data to get. I know for a lot of companies, they don't have the resources for that. But if you can get it somehow, you’re going to learn a lot. If you can do surveys, you’re really going to learn a lot.


At my prior company we did, for example, when we had an M&A deal and we were bringing in acquired employees, we always did a survey: How well did you understand our equity plan that we just told you about? They provided feedback to us, and we were able to use that to make our program better or to make our education session better. So I think surveys, if you can get it in a case volume and subject matters that they’re asking about, for sure.  


Amy: Do you typically use different methods of communication, as well—like sessions, emails, texts—whatever the different options are for you, just understanding people learn and absorb information at different times. They miss emails! I see that all the time: People miss emails!


Wendy: It's a combination. I think FAQs go a long way. My current company, we're doing a ton of FAQs. In my experience, I've had the opportunity to build out FAQs on every topic you can imagine.


Amy: I can imagine, yeh.


Wendy: But they're really, really helpful. And I when I create an FAQ, I try to put my mind in the mind of a participant that knows nothing about equity. And I ask myself a question, and then I answer it. I try not to get too technical. I try to speak to them in a way that's easily understandable and try not to use too much legal speak or stock lingo. But I think FAQs, sessions . . . I do an education session—I've done this at many of my companies I've been at—where I present the fundamentals of all of our programs, but I open it up to anything stock related. You could ask a question, "How's the stock market work?" It can be anything stick related. So I think you need to do a combination of things. And every company’s different—what people like and how they absorb information.


Amy: Mmhmm. Now it's super interesting, just the number of people that are in the workforce right now. And I think it’s like 55% of them are younger, maybe millennials or even starting to get Gen Z in there. And we had our intern class, here at Schwab, from last summer create kind of an approach of what they would like to see for people specifically their age, on education for benefits and stock plan and things like that. And one of the things they said—we always think, well it has to be easy, and it has to be computer-based or phone-based because they grew up with these iPhones in their hand, which was not my experience. But they took it a little further—and I thought this was a super interesting perspective—that it’s not just because we grew up with phones in our hands, they said. It's because at this stage in life everything is new. Everything is hard. And if I look at something that's hard, or it's new to me and it looks hard, I just can't. Everything I've done today is hard. And everybody that I'm around seems to know more than I do. And I'm just kind of done with that for the day. I only take so much, people! (Laughs.)


So I thought that was a really interesting perspective on making things easier just because it's so overwhelming to be that age and have every single thing you do—paying rent, paying your bills for the first time, owning a car, your mom's not getting you up to brush your teeth and do your laundry. It’s a lot!


And I thought it was really interesting from our perspective on what we need to do for those . . . education . . . there's such a different generation. And people in general absorb differently, but particularly it's important to pay attention to what people’s experiences are at a certain stage of life to make sure you're providing the right channel and the right information at the right time. So . . .


Wendy: Totally agree. I was at another company where we did these very short videos. Something that somebody could just click on and learn a little bit about how the ESPP worked or a little bit about how RSUs worked or little bit about how to open up your brokerage account. Short, sweet, to the point. That's what you need for employees that want to learn that way. But then, Amy, I've had other people who want to dig in so deep to the tax aspect of equity transactions that I've had to almost pull it back. They want to just get into the weeds. And I can do that. And I've done that. So you have this balance of people—the group you just talked about—and then the other group, who really want to be able to understand the minutia.


Amy: Mmhmm. Oh, I know, yeh.


Wendy: So there is a balance. There is a balance.


Amy: Yeh. I really hope you didn't give them my phone number when they said they want to dig into the minutia of the tax stuff. I have to change my name, if you did.


Wendy: I will next time!


Amy: Okay. Okay, great! That'll be great. Thanks.


Okay, let's talk about once you get the data and you get the indicators back, have you ever seen anything that contradicts itself? And if you have, what do you do?


Wendy: Oh, that's an interesting question. Contradict itself.


I don't really think I have because when I’ve looked at the data, things do end up making sense to me.


In stock, it's pretty black and white, as far as, if you do X, you can expect Y. And so I don't think I've seen anything that contradicts. But I guess if you did, if you had something that didn't make sense, it's probably an issue that you need to uncover. Because in my equity world, things typically do make sense. Like, when you see a metric—I'll use ESPP again as an example—if you see a country that doesn't have a high percentage, oh, well it makes sense. They never had an education session, so they don't understand it. Or if there's a lot of questions coming up on an RSU vesting . . . oh, and your company just started granting them six months ago, so no one’s experienced a transaction going through that before, that would make sense.


So I guess if somebody did see something that contradicted itself, there's probably an issue. You need to uncover it and dig a little deeper.


Amy: Hmm. Numbers don't lie.


Wendy: They don't! And they usually do make sense.


Amy: You have to be kind of a sleuth, though, to really dig into that and say, "Okay, that's . . ."—if it's something you didn't expect, and then you have to look layer by layer and see where it's coming from.


Wendy: That's right. Yup. For sure.


Amy: So you've talked about what would you do going in, and you can't really compare it to something unless you start to see that data year over year, quarter over quarter, and it starts to tell a story. So that sort of leads me to believe that there’s different levels of that. Is there an elementary school version of what you should be looking for? A middle school version, where you have information and you have it to compare it to, and you're starting to really build out the reporting and maybe change some aspects of your plan, based on what you’re seeing. And then is there PhD, Wendy Jennings eightsque level of metrics that we would be looking for?


Wendy: Well, I think yes. I think there are basic metrics, and there are the more strategic metrics that you can look at. And you've got to start somewhere. For me, I kind of look at it with the . . . what are the metrics related to employee impact? Those are the metrics that can tell you what you need to do to get more people to participate or improve their education so they understand it.


Then you've got the board's impact. What do they want to know? What do they want to see? And maybe that’s the PhD version—the burn rate, how's it going, are you totally out of whack, are you [unclear] budgets, are you continually over budget? If so, why? Your grant practices need to change if that’s the case. Your grant ranges need to change if that’s the case. Or maybe your recruiting team needs to be reeled in, and say, "Hey, stop making these offer letters with these numbers. They’re too high, cuz we keep going over budget." Or getting ready to get new shares into your plan.


Those are all definitely the more higher strategic compensation–committee-type of metrics that you want to keep your eye on. But all of the others, I guess the middle school version, those are really the operations of your plan.

How are things going? And how many corrections do you have? Are your participation rates in your plan what you expect? Or are they declining? If so, why? Are they losing faith in your plan? What’s happened? Maybe you have a plan that's kind of out of date? That has kind of the old-fashioned terms and conditions. And maybe you need to bump it up a bit. Because that’s quite frankly, that's going to help with retention, too. Cuz, again, they're gonna go down the street if they see something better, if your benefits start to get out of whack with new industry norms.


So I think if using the analogy of middle school and PhD, I think that’s how I would categorize it. And looking at the more strategic metrics, that can really help elevate your career, too. If you're bringing all this to your leadership and saying, "Hey, look, I'm noticing X, Y, and Z," or "Let me prepare the board materials," and give them these metrics that they're looking for every quarter or every month, to start building your own career out, if you haven't done that before.


Amy: Mmhmm. Yeh, absolutely. Delivering value for the company. That's great.


Wendy: For sure.


Amy: Can you help us unpack the ideal state for getting that data that you’re looking for? Is all the info data exactly as it came from your vendor—understanding that we'll give vendors a little bit of grace because there's no system that's perfect? Everybody has their own way of wanting to do things, and there's no system that does everything 100% according to everybody's preferences. But what do you look for and think, "This is a really, really good setup"?


Wendy: Well, what I did at my prior company worked pretty well. We got some of the data from our recordkeeping system, from our equity system. And if there was something that you have that you don't think you can get from your system, work with your vendor because they may know of a way to get it. But I don't think there's a one-stop shop for all of these metrics. You need to work with your HR team. You need to work with your other internal partners. You also need to measure yourself against your own budget: Are you even keeping in line with your budget quarter over quarter or year over year?


So there's a lot of different spokes to the wheel of these metrics that you need to pull information from. You put it all together. That tells your story.


But you do need to have a partnership with your stakeholders in order to get all these metrics in place and then to work back with them to make these metrics improve, if they need improvement. Or to say, "Hey, these are great! Let’s keep it up. Our partnership is going well. We're doing it right."


So, again, that just depends on the story that it’s showing. But you do need internal partners. You need your external vendors. You need your systems. And if you have a team, you need the buy-in from your team to help you put all this together.


Amy: And when you do start putting it all together, do you and your teams have a preferred way of doing that? It's a lot of information coming through the funnel. Are they all masters at Excel? Or what do you do to consolidate it?


Wendy: Yeah, it's a combination of things. Some of it will be the basic old Excel and charts and graphs that you put together. Some of it is just discussing the number. You know, putting the number on a slide and saying "this is an important number, and this is why. This is what’s happening, this is the change, year over year, quarter over quarter." And you need to understand that. The worst thing that I think can happen, is when you present a number, but you don't know why it is what it is. You gotta be able to back it up and understand it. So when you’re presenting these metrics, if you're having help doing that, but you don't know the story behind it, you need to understand it before you try to tell the story to somebody else.


Amy: Yeah, exactly. And just, thinking as a business unit, you have to be able to say "this is how we support the business, and this is why." So whatever is most important to the business and what they're trying to achieve, if you can show how you're supporting that, I've always found that—not only does everybody understand what they do and how they contribute, it impacts engagement, elevates your career, helps the company understand where they can make the right moves . . . So that's top-tier—that's PhD-level stuff right here, Wendy Jennings!


Amy: All right, so before we return to home base, just to round us out here, can you share your top five that every stock plan administrator should consider for measuring success?


Wendy: Every stock plan administrator should understand their plan, understand the what and the why of the metrics—they need to know their plans inside and out. Sometimes you'll have a conversation with people, and they don’t know all of the terms of their plan—they say, "Oh, I don’t know, I have to look it up." That’s the first thing you should do when you go to a company: Get your plan, figure out the top provisions of that plan. Then find out what your company goals are, and are you aligning to them? And are you administering your plan in a way that connects to your key objectives and goals of your company? And have you created a mission statement for your group? And are you operating in a way that aligns with that? Which then should also align with the company's goals. So it all kind of filters down from the top, down into the stock team, as far as aligning your mission and your goals to the rest of the company. Because that’s why you’re there. You're there to administer the plan, to help—again, getting back to retaining and attracting those employees and providing the great compensation benefits that come from operating our stock plans.


Amy: And keep fighting the good fight, right, ya gotta keep fighting the good fight. Stock plans may be somewhat overlooked a lot of times by employers, but only because they don't really understand exactly what those numbers mean. Would you agree with that?


Wendy: I do agree. And you know, there's the old adage the stock teams are not always highlighted unless there's something going wrong. But this is a way to highlight all of the great work that the stock administration teams are doing, and the huge impact it can have on your employees. You know this as well, but many times employees’ compensation from stock is a lot higher than their salary.


Amy: Right, right.


Wendy: And so, it's a huge impact. And you want to make sure that it's top of mind for the leadership, and they understand everything that’s going on. And the stock team, too—how important it is for them to get it right. This is important stuff. It's legal and tax ramifications that happen if they don't get it right. And you want to make sure that you’re doing everything exactly the way you should be.


Amy: Yeah. Don't you think it's one of the neatest, or like super-interesting things about the role and being in the stock plan side of things is it is such a great crossroads between compensation and legal and HR and direct line to employees and how much you impact people’s lives. So in case anyone hasn't told you recently, for all of those stock plan administrator teams and all your heroes on there, and Wendy, of course, for you, you do a really amazing work, and it has a huge, huge impact on those employees, and like things that they never thought could happen. So that you have choices. That's really all any kind of compensation or money is—it provides you more choices. And people like choices. We know that, right, being in this industry? People like a lot of choices. It makes such a big impact on employees' lives. And it matters. Your work matters a lot. Super important.


Wendy: Thank you. And I totally agree. Some of the most rewarding comments I've seen over my years of experiences—when an employee comes to me and says "I was able to put a down payment on a house," or "I was able to send my kid to college," or "I was able to buy a car for the first time." And that's great. That's where you know the work that you do matters, and it has a huge impact on these employees. So it is a rewarding career. And it's great to be able to help to make a difference in all these people’s lives.


Amy: Absolutely, absolutely. Wendy, thank you so much for joining us today and sharing all of your expertise with our listeners. I have been looking forward to this conversation for such a long time, and I can't express how much it means to me and to the team and to all of our listeners to have you share your very valuable time with us. So thank you! Really appreciate it.


Wendy: Thank you, Amy. It was a pleasure to be here. Appreciate it.


Amy: Thank you. So that’s the end of our journey today, listeners. Thanks for tuning in for this episode of Equity Unpacked with Wendy Jennings. If you enjoyed this episode, feel free to leave us a review. And subscribe to the show to get updates on new episodes. And stay tuned for our upcoming special guests and timely topics influencing the equity compensation world. Until then, safe travels, everyone.


For important disclosures, see the show notes, or visit schwab.com/equityunpacked.






Episode 11: Conflict Between Russia and Ukraine

Over the past several months, the U.S. and its allies have imposed unprecedented sanctions against Russia in response to the invasion of Ukraine. Amy and guest, Monica Protz, Director of Global Sanctions here at Schwab, unpack what these sanctions mean for stock plan administration. They cover some of the challenges employers face, the impact on the markets, and what your participants will want to know.

Amy Reback: Welcome back, listeners! I'm Amy Reback, your host of Equity Unpacked. And we are going on a long-haul international journey once again today.

And here to help us unpack some of what's going on on the international front, both from a political side and from a financial services side, is Monica Protz, who is part of our team here at Schwab. She's our Director of Global Sanctions, which is a big job. And she's also our Anti-Money Laundering Officer for Schwab Funds. 

Monica, I couldn't ask for anybody more qualified or more knowledgeable to join this conversation today. So thank you so much for being here. Welcome.

Monica Protz: Thank you, Amy. Thanks for inviting me.

Amy: Of course, of course. We all know that I could not have this conversation by myself. But I really, before we dive into the facts, I think it's so interesting what's happened in just the last six months since we started talking about what we'd like to do and what we'd like to focus [on] on the international front with Equity Unpacked this year. And completely different now than it was just a few months ago.

If you look back since March, there's been exceptional conflict and tremendous political upheaval across the world, particularly with Russia and the Ukraine. There's supply chain issues. There's sanctions. There's all sorts of things going on. And then in the markets, that really affects things. There's inflation; there's, of course the supply chain has been a problem since last year. 

But trying to figure out what's really happening, what comes next. We hear a lot of words on the news and the things that are happening that we just can't really all make sense of if we're not an expert. So when I ask people, I think it's so interesting what their reaction is if you say, "Oh, my gosh. Did you ever think this would happen? Did you ever really imagine that Russia would invade the Ukraine?" And depending on who you ask and what generation they're from, you get a very different answer. And I think the millennials are very, very factual, right? And they'll say, well some of them will say, "Well, I thought we were friends." And then the others will say, "Well, yeah, Amy, they invaded the Ukraine like four years ago. This should not be a surprise." 

If you ask my parents, on the other end of the spectrum, they'll say, "Oh, yeah, I knew the whole time." Like this is not a surprise at all. 

And then there's something in the middle, between Baby Boomers and between the Gen X folks. So it's really interesting and fascinating to me how your initial kind of formative experiences and what the political climate was when you were a kid and you were growing up and kind of understanding the world really impacts how people view this issue and what their reaction is to it.

So I'll just ask our listeners, just watch for that, 'cause it's so interesting how people react to that question.

So let's go ahead and dive into the real meat of our topic today. And Monica, I'm going to ask you, for our audience, to give an overview on the developments related to the Russian sanctions and the effects that that could have on our corporate clients and their participants.

Monica: Sure, Amy. Over the past several months we've seen the U.S. and its allies impose unprecedented sanctions against Russia in response to the invasion of Ukraine. The situation rapidly developed earlier this year and continues to be very fluid.

Amy: So, Monica, who's involved in that? Is it all government? Is it the regulators for the market? Is it just U.S.? Is it international? Who imposes those sanctions? And how widespread is it?

Monica: Amy, the Office of Foreign Assets Control, or OFAC, is part of the U.S. Department of the Treasury. And it administers economic sanctions based on U.S. foreign policy international security goals.

In this case, the sanctions were imposed in response to Russia's actions in relation to Ukraine. And the U.S., in this instance, has collaborated with many other governments across the world. I believe there are 30 countries that have imposed sanctions on Russia at this point. 

Amy: And when did this start? I know we saw sort of an escalation, and I don't think anyone was surprised when we woke up that Thursday and there was all over the news that Russia had invaded the Ukraine overnight. But when did it really start?

Monica: The sanctions started in February and have continued to target investment in Russian debt and equity, Russian financial institutions, Russian oligarchs, and most recently, all new investment in Russia.

Amy: And when you say, "all new investment," that means corporate investment. That means not just the markets in debt and equities and things that you and I could buy, but investment banking and the whole entire spectrum of that, right, of investments?

Monica: That's exactly right. Trading in all Russian securities had been restricted since the market stopped trading Russian securities in early March. And then in April, President Biden signed an executive order prohibiting all new investment in the Russian Federation by U.S. persons. And just recently, OFAC issued new guidance that indicates that U.S persons are prohibited from purchasing both new and existing debt and equity issued by an entity in Russia. The prohibition doesn't require U.S. persons to divest of existing holdings—and, again, the securities aren't trading—but any divestment or trades would need to be to a non-U.S. person. 

So what that really means is that clients are allowed to divest or transfer Russian securities to a non-U.S. person. Or the alternative is to transfer to a like-titled account at a financial institution that will accept the shares.

Amy: So how does this actually happen? As a financial institution, I know what I experienced, and it was a whole slew of emails of what was happening and what was being implemented based on what was required by the government. But, typically, do financial institutions get official notice from the government? Do employers or anyone that does any kind of business, how do they know? Is it just like a broad-based message that goes out to anyone, saying, "Hey, this isn't allowed anymore"?

Monica: We do receive notice. However, we don't receive prior notice to when those sanctions take effect. So the results can impact clients very quickly. And in some instances, the sanctions take effect immediately after being issued. And in some instances, certain activity is allowed for a short time.

At Schwab, our response has been focused on two key areas: ensuring that the firm remains fully compliant with all sanctions and providing the best possible service to our clients in these uncertain times.

Amy: Okay. So, Monica, that covers financial institutions, or at least how we experience that process as a broker-dealer. But for our audience, I'm curious about the impact to employers. What challenges would you expect an employer and their employees to encounter as a result of these sanctions, specifically with paying out equity awards?

Monica: Amy, employers have fewer channels through which they can send payments to Russia or receive funds from Russia. The U.S. imposed sanctions on several Russian financial institutions, and that prohibits broker-dealers such as Schwab from doing business with those banks. And this means that clients are no longer able to transfer funds to, from, or through those impacted financial institutions. 

And then additionally, the U.S., EU, and other allies decided to disconnect several banks from the SWIFT payment messaging system. And transactions through those financial institutions are no longer possible.

So, from a sanctions perspective, participants could authorize payments to another individual just as long as it is not going to a sanctioned person or to or through a sanctioned financial institution or jurisdiction.

Amy: So when you say that participants could authorize payments to another individual as long as they're not on the no-no list, then do you mean from person to person? So if you and I were in that situation, I could receive funds and send it to you as an individual. As long as it didn't go through any of those institutions that were on the list or that had been blocked.

Monica: Right. Or you authorize your employer or Schwab to direct those payments to another individual.

Amy: I see. Okay. So let's just kind of break this all down into plain language, 'cause it is complicated.

Employers are going to work through—for equity compensation—through broker-dealers, because we're talking about securities for equity comp, and that issues equity compensation to their employees. If U.S. broker-dealers are not allowed to conduct transactions with certain types of financial institutions that have been sanctioned—and even more seriously, a lot of those institutions have been cut off from that SWIFT system (which, for those of you that are not familiar, the SWIFT system is kind of the main highway that international transactions take place across jurisdictions and across borders). So if that's the primary means of executing those international firm-to-firm electronic transactions, it's gotta be pretty difficult for employers to issue those shares to employees if the receiving account or bank with a foreign equivalent of a broker-dealer is sanctioned by the U.S. or one of the Western allies and not really able to access SWIFT. So kind of like a highway system that's been blown up. The destinations are still there, but the on-ramps and the roads to get there are few and far between. Is that a good analogy?

Monica: That's exactly right, Amy. That's one of the direct impacts of the sanctions and the events in Ukraine.

Amy: So what could come next? Is there a pattern of escalation with something like this? Are we in completely uncharted territory? Is there something we could pick up on from history to give us a clue?

Monica: Sanctions in relation to Russia are truly unprecedented in the way they have rolled out and how comprehensive they are.

And although I don't have a crystal ball, a potential possibility over the long term is that Russia becomes a sanctioned jurisdiction, just like North Korea, Cuba, or Iran, with an embargo against the entire economy.

Amy: Okay. So earlier you mentioned OFAC, which is the Office of Foreign Asset[s] Control. That's a U.S.-based institution. Whenever I hear "North Korea," "Cuba," "Iran"—that's OFAC. So are you saying that we could potentially see it escalated to Russia being on the OFAC List? 

We don't make those decisions, by the way!

But it could potentially escalate to that?

Monica: That's right. And I think what's really significant about these Russian sanctions is that over 30 countries have imposed sanctions and export controls on Russia. We've seen more coordination between the U.S. and its allies as the sanctions have continued to increase. 

Again, the U.S. sanctions apply to a U.S. person, no matter where you're located. But with other countries rolling out similar sanctions, it could become more difficult over time.

Amy: Yeah, so, even though the Office of Foreign Asset[s] Control is what we know from a U.S. domestic perspective, there are equivalents across the world that would impose or have imposed those same sanctions or could potentially escalate that. Do you feel like those sanctions are happening in concert? You said that they've joined the U.S., but are they all the same? Is it a united front?

Monica: They're very similar, Amy. There can be some differences. One example would be where maybe the UK sanctions different Russian oligarchs than the U.S. But to a substantial degree, we are working in parallel.

Amy: Okay. So, there's so much to unpack here. I don't even know . . . like, beginning, middle? It just starts to be Pandora's box. From these sanctions, do you think we've seen the last of it?

Monica: I think the way the conflict is progressing that this could be a longer-term impact. And so I don't see immediate pulling back on those sanctions. I think what we've also seen are more and more firms derisking and voluntarily making decisions to move operations out of Russia.

We saw that with Visa back in March, when Visa card transactions in Russia were discontinued. We've also seen other firms, examples include McDonald's and Starbucks, that have also made decisions about how to continue operations in Russia.

The other things I think we've seen from a broader economic perspective is the U.S. imposed a ban on all Russian oil and gas imports in March. And more recently, the European Union also agreed to ban or reduce Russian oil and gas. 

Amy: Oh, boy. Pandora's box just got even wider here. So I'm seeing a lot of headlines in the U.S, or just in the news or actually hearing it in podcasts when I'm driving to and from work these days, about inflation, about oil and gas prices, about the war in Ukraine and the sanctions. Do you feel like the war in the Ukraine is contributing to inflation and gas prices and all of those things? The volatility that we're seeing in the markets, the bear market we just entered? How do you feel that the sanctions are impacting the markets?

Monica: I do think that in addition to the investment-industry impact around securities, that we're going to see other impacts. One example is Ukraine is a top global producer of certain commodities, such as wheat or other natural resources used in computer chips or electronics. In fact, Ukraine is expected to harvest less than half of its usual grain this year. So I think there are some downstream effects from those sanctions. 

Amy: Based on your experience and your expertise, what do you think is the most important consideration for our audience here to consider?

Monica: Amy, these sanctions have evolved rapidly. And the firm doesn't receive advance notice. So clients can absolutely be impacted in very short order. We do understand that there is a significant impact on the client.

Amy: If employers and their participants want to learn more, what resources would you recommend for them to understand these sanctions and what's happening on a global scale?

Monica: Schwab has created a website and kept it up to date with the latest information on Russian sanctions and the impact to transactions and securities. You can find it at schwab.com/resource/Russian-Sanctions. Another great source of information on OFAC actions is the U.S. Department of Treasury's website. And you can find that at home.treasury.gov/news.

Amy: Awesome. That's perfect. Thank you. 

I'm curious to know, based on your experience and your role here at Schwab, what kind of questions do you think we should be receiving from participants? What do you think the reaction would be from an individual?

Monica: I think typically they want to know how they move money and how they invest their funds. And so there are sanctioned securities and then there's that broader market restriction on trading Russian securities. So I think those are the types of questions that we're typically seeing. We've even had specific securities that are blocked by OFAC, and that means that we have to freeze those. We can't allow the client to even hold them. So that's a very rare occurrence, but we have seen that sort of thing. And so I think those are typically the most likely questions that we're receiving and trying to address on that website.

Amy: I haven't seen that personally. I don't know that we would because we don't issue any securities that would have been affected by those transactions. They're all U.S.-based companies. But questions from participants that I would expect, unrelated necessarily to their equity compensation but more related just to their investments, maybe if they've diversified, is: So the sanctions happen; they're not allowed to hold or trade in those Russian securities. What happens to them? Do they just evaporate? Do we sell them off? Does any broker-dealer sell them off? What do the regulations require us to do with those holdings? 

Monica: So if a security is actually blocked or frozen by OFAC, we have to actually open up an internal escrow account, and we move those securities into that account, and we hold those until we're allowed to do otherwise. So, unfortunately, that's the most, I think, severe impact that can happen if a client happens to hold a blocked security.

Amy: And that's every broker-dealer is required to do that. 

Monica: Absolutely.

Amy: Is the function of moving it into an escrow account—where it's still labeled as "These many shares belong to this individual"—is the function of that to prevent any access to it?

Monica: That's exactly right. 

Amy: Okay. And would that individual still be able to see, sort of as a book entry, that they still own that? They just can't do anything with it?

Monica: That's correct. And so, really, Schwab had never had to take an action on that large of a scale before. And so we worked very hard to create a process that was good for the client as well. And so in those affected client accounts, they do see, basically, a dummy security and know how many short shares that they hold.

Amy: Mm-hmm. Okay. That's interesting. Just how the pipes work in the background is super interesting. 

For our audience, I think, it's interesting to understand that we've been receiving a lot of questions—some from participants and also some from the corporate side, the administrators of the plan—and they've been things that I would not have expected, and it's posed a lot of new challenges. One of them is, we've had, at least in the beginning, we had a lot of questions from employers saying, "Can you help me locate my employees?" That were in the Ukraine. Because they were on the move. They were fleeing the invasion, and they literally could not find them. If they didn't have updated information or they didn't have access to those or the networks were down. It was really troubling. And we were in the middle of that. Much more troubling for the employers and certainly for the employees that were experiencing that.

That sort of died down. I think the initial panic over that has died down. And employees have been able, at some point, to get in touch with their employers, but they may not be able to receive their shares, or they may not even be able to be paid. So there's a lot of scramble, really, just to try and figure out how to iron all of this out and take care of their employees but also make sure that they're safe. And from afar that's really, really difficult to do. So when you're in this type of business, you're exposed to those things that you wouldn't necessarily think about just as a regular person. But I'm sure you see those types of issues with individuals and their accounts and access to funds all the time, as the Global Sanctions Officer. 

So, really interesting stuff. Monica, I'm so pleased that you were here with us today. Thank you so much for joining. Thanks for giving us some additional resources for our listeners.

And one of the things that we started to dive into when we were formulating this episode, everyone . . . one of the biggest impacts in this process that always boils down to impacting equity compensation as well is supply chain. And that makes that Pandora's box even bigger. So we did decide to do another episode on supply chain. So watch for that because that's going to be interesting as well. 

Lots of intangible things here, but we've tried to make the most of it and tried to make sense of it for you all. 

Thanks for joining us on another journey today, with Equity Unpacked. 

Monica, thanks again for being here. And happy travels, everyone.

Female speaker 1: Subscribe to our podcast. And visit schwab.com/equityunpacked.

Female speaker 2: For important disclosures, see the show notes. Or visit schwab.com/equityunpacked.

Episode 10: Quick Takes—Measuring Success

Measuring equity plan success isn’t quite one-size-fits-all. But there are three key things to keep in mind when building a compensation plan that can make measuring success easier and more consistent over time. In this episode, host Amy Reback reveals the fundamental values worth sticking to in order to create a successful equity compensation plan.

Amy Reback: Think of Quick Takes as little podcast snacks. These are short episodes, just a few minutes long, that cut right to the chase of hot stock plan topics worth unpacking quickly.

Welcome back, everyone, and thanks for joining us on Equity Unpacked. I’m your host, Amy Reback, from Stock Plan Services at Charles Schwab.

Our Quick Takes episode today is focused on measuring success in your equity compensation plan.

Okay, so first, why do we care? Every employer that issues equity compensation does so for a reason. What’s yours?

And before you answer that for yourselves, I’ll ask you to consider the following three things.

So first, when measuring success for your equity comp plan, ask yourself, what are you trying to accomplish? And then ask, is that aligned with the mission and purpose of our firm?

Second, do you have an equity compensation strategy? And if you do, is it well-defined? Does it have a clear philosophy? Does it have clear goals? Does it have a compelling value proposition to accomplish those goals? 

And third, will your strategy stand the test of time? Equity comp is a long game. Most of those awards vest—and here’s the key—over time. If one of your goals is to increase retention, is your plan enticing enough to weather the changing employment market? Are the metrics or even the type of awards you can grant flexible enough to overcome a drop in the equity markets? There’s external, uncontrollable forces like those that might force you to revise your plan year after year. And as you react to those changing factors, you could lose sight of your compensation’s strategy and then the plan goals you had originally established. And without those, measuring success becomes impossible.

So, in short, before you can actually measure whether or not your plan is successful, you have to do the following.

Define what success looks like. 

Devise a strategy that’s aligned with that mission and purpose of your firm so your employees understand how they contribute to those goals as an individual. They’ll be more engaged. They’ll be happier. And you can increase retention by that alone.

Devise a compensation strategy that rewards that behavior. And then ensure the structure of the plan is sound enough to withstand major fluctuations in the workforce and market volatility.

Offering a specific yardstick that measures success for every equity comp plan is just impossible. But if you keep those three foundational values in mind when building your plan, measuring success becomes a lot easier and more consistent over time.

Thanks for joining us today for this episode of Equity Unpacked. And be sure to join us again for our next adventure. Safe travels, everyone.

Female speaker: For important disclosures, see the show notes. Or visit schwab.com/equityunpacked.

Episode 9: Quick Takes—Top 3 Participant Missteps

Host Amy Reback looks back on common missteps participants have taken on their equity journeys. She identifies three specific mistakes to watch out for, explores different ways to avoid them, and covers what can be done to help participants better understand these pitfalls.

Amy Reback: Think of Quick Takes as little podcast snacks. These are short episodes, just a few minutes long, that cut right to the chase of hot stock plan topics worth unpacking quickly.


Welcome back, everyone, and thanks for joining us on Equity Unpacked. I'm your host, Amy Reback, from Stock Plan Services at Charles Schwab.


Today we're looking back on some mistakes we've made in the past, along the road of equity adventures. Things we've learned but would really like to avoid doing again. So let's get started on our Quick Takes episode with the top three participant missteps.


Number one: selling too early.


Ouch! I mean, seriously, your tax bill could be really interesting this year. Did you just volunteer to pay a higher tax rate on everything you earned? Nobody does that. Nobody does that willingly. So know the rules—especially the tax rules for selling.


Number two: I held it too long.


Uh-oh. Did you leave your stock options sitting in your account? Did you forget about them, and then they expired? That's a really steep cliff to dive off of, and man, there is no coming back. Or did you take your employee loyalty to the next level and hold onto those shares for a really long time over the years? And then all of a sudden you had this massive position? So, you know, that can lead to a huge concentration of a single stock, also known single point of failure. Remember the old saying, "Don't put your eggs in one basket"?


There's a lot of wisdom there. 


And number three on our missteps list: not knowing the rules.


I have seen the look of horror and surprise on the face of a lot of RSU recipients who don't understand that restricted stock units don't belong to them until they have vested, which happens over time. Then they accept a role at another firm, thinking they can take all those equity awards with them, only to find out that they can't.


And then second, you get a second whack. Equally big oops. Is then, even vested options typically have a timeline attached to them. Those are vested options that you think belong to you. But if you leave your current employer, do you have the funds to buy and hold all those shares in the next, let's say, next 90 days? Or if you cash out of those options, what does that do to your tax bill? These are really big considerations. They can be really big mistakes that are completely avoidable. Really important to make sure that you pay attention to those.


So let's make sure we review.


First, don't sell too early. Understand what that means for your taxes.


Don't hold it too long. Understand that you could miss out.


And the last is, you gotta know the rules. Know what you have, and know how to make the most of 'em.


So, that's the top three mistakes. But how do you avoid them? And all of the rest of the big mistakes people can make with their equity comp?


First, ask questions. Look at your statements. Get online and chat or call the service number and just ask. The can give you all the details you need to know about your awards and how to avoid big mistakes like these.


If you're a DIY type, go online. There's lots of resources out there to help you to find what you have and get you started.


Or ask your employer. They gave you the award to begin with. They did it for a reason. Why? Ask some questions.


Most importantly, no matter what path you choose, you have to invest a little time. Just like everything else.


We're talking about money here. If I gave you a hundred envelopes and told you that one of them has a lottery ticket in it worth 50 grand, you'd spend the time to open every envelope and find it, right?


You have to approach your equity comp the same way and invest a little time to find the most value that you can get from them.


So that's it for today. Thanks for joining us for this episode of Equity Unpacked. And be sure to join us again for our next adventure. Safe travels, everyone.


Subscribe to our podcast. And visit schwab.com/equityunpacked.


Female speaker: For important disclosures, see the show notes. Or visit schwab.com/equityunpacked.

Episode 8: Quick Takes—Increasing Participation in ESPPs

Host Amy Reback tackles the crucial question: Why aren't more employees adopting their ESPP? She explores a two-part strategy to market ESPPs as an enticing financial benefit that can help participants reach their financial goals.

Amy Reback: Think of Quick Takes as little podcast snacks. These are short episodes, just a few minutes long, that cut right to the chase of hot stock plan topics worth unpacking quickly.


Our Quick Takes topic today is increasing participation in your employee stock purchase plan. And from here on out, I'll just indulge in industry jargon and refer to it as "ESPP."


So the question du jour: how do you increase ESPP participation?


Now, you can search the internet and find a never-ending list of suggestions on things you can do to increase awareness of your ESPP. But ultimately the puzzle you're trying to solve is: what will tip the scales and drive your employees to participate—or purchase—your ESPP plan?


Now, chances are, if you're listening today, you've done the aforementioned internet search, and you've made those basic tactical changes to your plan to drive awareness. But now it's time to get a little more adventurous. So there's two steps we recommend you take to get there: message and method.


Step one: The message.


Stop focusing on the plan itself, and start thinking about who's buying it, and what do you have to say to get them to buy it? If you approach your ESPP plan as just part of your employee benefit plan, you're likely missing the mark.


That's right! Your ESPP and your employees are consumers that are making a choice. And you have to approach them as such.


Now, if you think about it, there's two types of basic choices consumers make. First, either-or choices. Inherently more difficult. Second, a supporting decision—or an and decision. Investing in your ESPP is competing with all the other either-or choices your employees have to make with their income, like housing, food, transportation, entertainment. Those are tough choices. And let's be honest—people don't like to make tough choices.


So to turn the tides in your favor, your message should clearly demonstrate how investing in your ESPP is an and decision. In other words, your message should be focused on how ESPP participation can support and enhance the buying decisions they're already making. Versus asking them to make another foundational buying decision that really forces them to chose between one thing or the other.


So we say this all the time in marketing and advertising. Even simple things that we all do, like, let's say, buying laundry soap. Just make it really simple. So here's the example. Most people do laundry. The goal is to get clean clothes. And, generally speaking, that can be accomplished with buying laundry soap. So the initial decision is either-or. Which brand? This one or that one? Once you've made that decision to buy the product and you're walking down the aisle or you're scrolling through your app, you're going to be faced with another decision. And human nature dictates that you're likely to stick with the first decision you've made. But what if you're offered an opportunity to buy something that makes that first decision even better? And that's the and decision.


If you buy this extra special additive, your shirts will be even cleaner. Or softer. Or smell better longer. And they probably do. But if those products were positioned just as a competitor to laundry soap, you're asking them to go back and reconsider their initial decision. And that's a lot harder to get than offering an opportunity to reinforce their original choice as a good one.


So our number one suggestion is to create a message that clearly communicates how investing in your ESPP can support the spending or saving choices your employees have already made.


So here's an example. Let's say your ESPP has a fifteen percent discount to market value. And let's say your stock price is $150. Employees who participate in your ESPP today will pay $127.50 a share. That's an automatic gain of $22.50 per share if they sell it. Now let's say the majority of your employees buy an unlimited data plan. That's a pretty safe bet. Most people do. And that unlimited data plan is going to cost $1,200 a year. How do you position your ESPP to support the choice to buy that unlimited data plan versus having to choose between that and investing in ESPP? Which is the way that most of us do that today. Right? We're competing for those dollars.


Well, what if you did this? If your employees buy 54 shares of your company stock through ESPP and hold it for at least one year to minimize taxes, as long as the stock stays at or above $150 a share—and there's no guarantee of that, but as long as it does—the 15% discount on their ESPP, that means a gain of $22.50 per share for 54 shares. Let's do the math. That's a total gain of $1,215. Enough to pay for that unlimited data plan for a whole year.


Now, apply that thought process to a bigger financial goal, like buying a house in the Bay Area, and giving an example of how investing in your ESPP plan can help them support that decision. Suddenly, you're in the marketing business, and you've got their attention. You're not asking them to sacrifice a spending choice. You're offering them an opportunity to support the spending choices they've already made by leveraging the benefits of your ESPP plan. And that's the power of the message.


Now step number two is method. And by method, I mean method of delivery. So once you've decided on a message that supports a spending decision, focus on how you're going to deliver it.


First, segment your employees. Everybody learns and absorbs information in a different way and at a different level of urgency. For me, I'm less likely to care about, you know, an unlimited data plan. But if you delivered a really compelling example of how the ESPP plan might help me pay to put my boys through college or retire earlier, you've got my attention.


So change up your method and the message a bit to attract different audiences at different levels and different phases of life. Method's also related to communication and multiple different channels and repeating it, repeating it, and repeating it.


You know, there's a reason we see advertising all around us. If your eyes can land on it, there's a good chance you'll see an advertisement there. So advertising your ESPP plan, marketing it to your employees, should happen early and often.


So, to summarize, your employees are consumers. Create a message about how your ESPP supports and enhances the spending decisions that they've already made. Then plan your method of delivery to attract different audiences. And do it often.


Thanks for joining us today for this episode of Equity Unpacked, and be sure to join us again for the next adventure. Safe travels, everyone.


Female speaker: For important disclosures, see the show notes.

Episode 7: Quick Takes—2021 End-of-Year Recap

Host Amy Reback brings together the themes we've explored in 2021, recapping the conversations we've had, the leaders we've welcomed, and the nuggets we've uncovered to help stock plan administrators navigate the changing world of equity compensation and serve their participants.

AMY: Think of Quick Takes as little podcast snacks. These are short episodes, just a few minutes long, that cut right to the chase of hot stock plan topics worth unpacking quickly.

Hello listeners! Thanks for tuning in and welcome back to Equity Unpacked. I'm your host, Amy Reback from Charles Schwab Stock Plan Services and I have to say it one more time before the year ends, "this is your moment of equity zen."

Now in our quick takes episode today we're going to bring together all the themes we explored in 2021, so, let's reflect. It's so hard to believe that just this year, I mean, less than a year ago right now, we embarked on our first Equity Unpacked journey together, and we set out with the intent of creating a specific space to highlight equity comp industry topics and had an aspiration of uncovering some useful nuggets to help you manage your equity plans and serve your employees.

Along the way, we welcomed some of our experienced peers, industry experts and even leaders from across Charles Schwab to add additional perspective to the conversation. We learned a lot and managed to have some good times as well.

So, today, I'd like to share a few key takeaways from our year of conversations. You could call this our twelve-days of equity admin edition, and I hope you like it. Oh, don't worry…despite the twelve days reference, there's no carol singing involved so I'll just get into it.

In our first year of equity unpacked we ventured into some big and very intentional topics to learn about navigating things that you face every day, such as The International Landscape. We heard from Schwab's own Kate Gory about how granting awards to those international, mobile, and global employees is pretty complex and different than granting awards to the domestic employees.

And that subject became more and more relevant as the year went on due to that continued "work from anywhere" approach. So then we spent some time with the wonderful Christine Zwerling on Workplace Mobility who explained the difference between a transfer vs a traveler, and the importance of creating a remote work policy and a tax policy associated with it both at the corporate and the employee level. Super complex stuff.

We also drove down the Path to IPO thanks to the expertise of Kelly Yurt and Brad Hass, and unpacked what's most important in preparing a private company plan to transition to a publicly traded company,  that was a really timely topic as the IPO market continued to surge in 2021.

And of course, we always inject some insight on how these administration topics relate to the needs of your participants. We leaned on our guest Liliah Koski to unpack Various surveys (our own Schwab participant survey, Gen X, and a few others) which reiterated that employees are in need of help and guidance now more than ever, and made a few suggestions on how you might incorporate that into your overall return to office or workplace flexibility programs going forward.

When I look back at our inaugural year of Equity Unpacked conversations, a really common theme was rapid and perpetual change, and people, if there's one thing we're all acutely aware of, and maybe could use a little less of, it's change.

However, time and equity comp waits for no one, and these very specific topics we addressed in 2021, the international landscape, the path to going public, increased demands of workplace mobility compliance, and how you support the needs of your participants through it all, are guaranteed, and I don't use the word guarantee very often, but I guarantee that those will be recurring and evolving themes over the next few years.

Another common theme we heard from our guests throughout our podcast series is the need to communicate. Over and over and over again. And just when you think you've said something too many times, say it again. And then do it one more time after that. With business partners, compliance, legal, finance, HR, and of course, our employees. We all know that, but it's a good reminder that you can never communicate enough, especially as we plan our agendas for the new year.

And you know, as we end our initial journey together in 2021, I want to take a moment to recognize the exceptionally important work you and your equity administration teams do, and even more importantly, the role you play in creating better financial futures for your participants. And I don't believe you often hear about the positive impact your work has on the lives of your employees.

Each and every one of you makes it possible for your participants to fulfill a major life-long goal. You know, how many people get the opportunity to do that? At Schwab, we experience that all the time, it's part of our core mission and purpose, it's literally in our DNA. But for most of our listeners, playing a major, yet relatively silent role in the financial futures of your employees is probably not included in the foundational corporate values of your firm, so your contributions here are really unique.

As a provider, when your participants call our service teams, we routinely hear stories of how their equity compensation has allowed them to buy their first home or send their children to school, support their families and or their extended families, weather some of those unexpected changes in life, both good and bad, things like unshackling themselves from the weight of revolving debt and looking beyond the next paycheck to plan for the long term and retirement.

You make all of those things possible for them through the work you do every day, and at Charles Schwab, it's our exceptional honor to serve you and the needs of your participants in your endeavors. So thank you for all you do. It's just, it's so important to recognize that you make a real difference in the lives of your employees, and it matters. It matters a lot.

Now, on a lighter note, for 2021, we hope you've enjoyed the conversations this past year. Found them informative and at the very very least, a good use of your time. We know it's been a challenging year with Covid and navigating the "work from anywhere" mentality that came with it.

And You know, I think if it would be possible for one year to send a holiday message to the next year I imagine it would read something like this, "Dear 2022, you've got skills that we apparently didn't have. You can do this! Sincerely, your pals, 2020 and 2021."

Now, in all seriousness, speaking of next year, I'm looking forward to a new set of adventures here on Equity Unpacked, and would love to hear from you on what you would like to explore with us. Until then we wish you a happy and healthy holiday season from our team at Charles Schwab. Cheers to you all, and safe travels everyone!

Subscribe to our podcast. All episodes of Equity Unpacked are available wherever you get your podcasts.

And visit Schwab.com slash Equity Unpacked.

For important disclosures, see the show notes. Or visit Schwab.com/equityunpacked.

Episode 6: Workplace Mobility

Host Amy Reback is joined by Christine Zwerling, Director of Global Equity Operations at Twilio, to unpack how stock plan administrators can adapt to the pandemic-induced mobile workforce. From managing tax and income sourcing implications to key actions admins can take now, they discuss how to stay compliant to serve the workforce of the future.

AMY: From Charles Schwab Stock Plan Services, this is Equity Unpacked, the podcast dedicated to simplifying the complicated world of equity compensation.


Well, hello everyone. Welcome back to Equity Unpacked. I'm Amy Reback, your host, and I'm thrilled have Christine Zwerling here today with us as our guest. Christine, welcome. Happy to have you.


CHRISTINE:  Thank you. I'm so excited to be here. I'm a huge fan of your podcast.


AMY: Oh, thanks. It's so exciting to hear. So today we're going to be spending time on mobility, which is a really big topic, I think, at any given time. But especially in the last year, when we reflect on 2020, there were a lot of employees who were forced to work from home. And there's a lot of great things about that, but there's a lot of complexities that go from a record keeping perspective and a finance perspective as well, particularly for equity plans.


So I have Christine here from Twilio, and she's our Director of Global Equity Operations there and an expert on mobility. So Christine, what changed in 2020? What was the biggest change as a stock plan administrator? What did you notice the most in 2020?


CHRISTINE:  From a mobility perspective, I just noticed mobility took off. All of a sudden we went from everybody, most people were in their own office, and so we could kind of track them. We knew where they were. If they were moving, they moved offices, so it was easy for us to track. We would get reports, and everything would flow, and it was fairly easy to manage where they were and to track how we're taxing them and all of that.


But all of a sudden, no one was in an office, and it was trying to figure out where are they actually working? Where are they performing that work, especially the places that are close to where state are close together. And maybe they live in New Jersey, but they usually work in New York, but now they're working in New Jersey. So where is their actual work location?


So all of a sudden payroll, stock, everybody had to become an expert in mobile tax, and where was this income actually earned and tracking that.


AMY: It's got to be really difficult for corporations to do that across the board, just as a corporation from a payroll perspective, but it gets even more complex when you talk about the different types of compensation.


We're most interested of course, in equity compensation, but there's bonus and there's regular salary and reimbursement and all of those different things. 


So for 2020, what I noticed is the world sort of ended in about March, and everybody went home, and we were all asking, well, when are we going to go back? When do we go back to the office? And slowly people started to realize it's going to be a while. This is sort of the new normal that we're all experiencing.


And about July, when people normally would've gone on some kind of summer vacation, they decided to not just go on vacation, but maybe go somewhere for a month or two and work from there. Because if you're working remotely, why wouldn't you work remotely in someplace that's really close to a beach or a lake or your vacation house or a rental that you can have for a long period of time just to change it up. Because everybody had been locked up in their houses for a while.


So the hard part, like you said, is figuring out where they are. And I'm wondering, do you feel like employees know that they have a responsibility to report that to their employers and the implication for their employers?


CHRISTINE:  Definitely in the beginning they did not. For some, they just felt like everything is online anyway. I can get you on Zoom. You can email me, you can find me. So I think in the beginning they did not.


I know at Twilio, we did a lot of campaign to please update your work location. We set up our HRIS system with a temporary location. We know maybe temporarily you're working at your vacation home or your parents' house or wherever you got trapped when the border's locked down and all of that. So we tried to get people to do that. You know, as a leader, people 50/50 that they read the message and then 50/50 of that, that they actually action what they're supposed to. So we did a lot of updating, a lot of manager training like if you know your person is somewhere else, you need to help us find that out.


At the same time, also rolling out work anywhere, the ability to, okay, if you went ahead and you moved somewhere else, maybe you're just going to stay there anyway. So what can we do? What would that look like for you? So for some planning. And there was almost somewhat... We're headquartered in San Francisco, and somewhat, there was almost a disincentive to let us know that you moved outside of the San Francisco bay area, because there would be a pay differential.


So if you went to live in Montana, you might take a pay cut. So a little bit of that to deal with too. Our employees tend to be fairly honest, so they did report when they moved. But I think that's something that I've talked to other stock administrators about how they track it. And they also have run into some of those issues too.


AMY: It's a big conundrum, I think, that everybody's really just trying to figure out, but it's been a long time coming that individual jurisdictions or states if we're just talking domestic, it gets a lot more complex with international, but there's this concept of difference between a transfer versus a traveler.


So transfer would be someone who decides to move somewhere or actually changed their residency for a significant period of time. And a traveler is someone that frequently travels for work. That's a different thing that a lot of people sort of know that if they go somewhere for a day or two, they may have to report income. But the transfer piece, the big change with that is that there were some employers who it was okay for you to say, "Hey, I'm going to go live in Florida, or I'm going to go live in Hawaii."


And that was okay, because maybe you were a remoter. Maybe you traveled a lot, and it wasn't necessary for you to be in one specific place. But now it's becoming a lot more mainstream for employees to say, "Hey, this is my choice of where I want to live."


And in a very short period of time, we've accelerated this mainstream acceptance of you can be full-time remote. So instead of the employer knowing, hey, we're initiating a transfer and we're moving you to this specific place for your job, it's more of a voluntary thing that we're seeing from employees that are saying, "Hey, I want to go and work in Montana or relocate to this place."


I don't think the mobility idea of different tax jurisdictions is new. Like you said, someone that lives in New Jersey but works in New York, that gets a little bit of complicated of where they are, but having to pay taxes or be responsible for income tax in two states is not new.


But it is new when it's voluntary, and it's a sudden change. So how do you get that education out there? I know you said that you've asked, and your employees tend to be pretty honest about that, which is terrific, but what's your advice for other stock plan administrators and equity teams who are having a hard time tracking it down?


CHRISTINE:  Yeah, well, hopefully you have a committee that's working on, a COVID committee or some kind of HR committee that's working on this type of program, and you have someone from tax involved because you can't do it alone. You need your internal team who's going to work on that have a consistent message. Make sure that at you are getting that mobility information out in every message that goes out.


We have on our intranet, there's a website that talks about when you're moving, here are the things you need to work about. There's a section on equity, and we have... It's a little matrix that our tax provider provided us, where you can say, I'm moving from California to New York, and it'll give you the blurb of here's how that affects you. So people can get that in front of them.


Any opportunity that we can take to over communicate to employees to let them know there is a trailing tax liability, just, the day after vesting is not when you want them to go, why did you sell so many shares for my taxes? What happened?


Tax surprises are never fun. Once the work location is updated in our HRIS system, they automatically get an email that lays out, Hey, you've moved tax jurisdiction, you're going to have a trailing tax liability. Go check out this website. It'll give you more information.


The more that you can educate employees and just get the word out there, the more likely it is that they will hopefully let somebody know that their work location has moved.


I feel like we're in the upswing now of finding out maybe before or while somebody's moving rather than, oh, I moved two months ago. So I think it's getting better, and the education's getting out there, but it's definitely not something that you can take a break on. You just have to keep hounding them. It's so complicated and confusing.


Employees get confused enough about tax on equity as it is, adding in the complication of trailing tax liability, you just lose them. And then they're like, I don't have time to even deal with this.


AMY: Right. I just can't. Right? I just can't.


CHRISTINE:  Right. I'm just sprinting through each day.


AMY: Did you just say, tax? I'm leaving now. Hey, so we've heard a lot in the last 18 months, and you were giving some great details on surprises that employees can experience, but there're surprises on the corporate side too. So I'm really curious to know how often is that happening? I think the employee tax surprise, which, like you said, never fun. We know that that happens. We've seen that in the news, but something that we don't see in the news very often is the corporate level. Because there can be tax implications at the corporate level as well. If you have an employee that moves to a place where the corporation doesn't have an existing entity, there could be new corporate taxes at the corporate level. How often are you seeing that?


CHRISTINE:  And that is definitely something that when the pandemic first hit, and we first went into lockdown and people started either going places or getting stuck places or maybe going back to help family somewhere that was sick.


AMY: Sure.


CHRISTINE:  You can't tell them no, they can't do that. And it seemed like cruel and unusual punishment to say, "Oh, you can't work if you're there." So there were definitely things that we needed to look at.


Thankfully Twilio is big enough that we were already registered in all of the states, so we didn't have that issue. But I had talked to other colleagues at of oftentimes private companies who weren't registered in each state that all of a sudden they're scrambling to register in those states to do tax returns in those states and pay payroll and all of that. So we didn't quite have that issue.


We did internationally. People would be like, well, I have to go help family in X country, or we're vacationing in a certain country and then the borders closed and they couldn't get back. So definitely things where we had to pull together with tax and legal and our outside advisors to, what's our policy? How long is that going to last? What are the policies in that country?


A lot of countries did put in a temporary if you got stuck here, we understand. You can do that for a certain amount of time, but each country is different. So we did a lot of that. And then as things started opening up, it was okay, if you're in a country where we have a jurisdiction, these countries, then you can stay, or you can settle there permanently. Here's some of the options to do.


There were some, I'm going to say, happy coincidences on the tax side. Because as I said, we are headquartered in San Francisco, and San Francisco has a pretty high local tax. But most people don't live in San Francisco.


AMY: Sure.


CHRISTINE:  So all of a sudden we could do that survey too. And we could put that out to the local San Francisco employees. Like we need you to update your work location. If you're not working in San Francisco, we will save money. So we didn't have to pay as much of the local tax as in prior years.


AMY: Interesting, okay. I want to just flip over really quickly to... We've talked a lot about the transfers and surprises that come with that when folks choose to work somewhere else for a certain period of time.


What about travelers? I know that states have gotten a lot more savvy this. If you were to fast forward 10 years from now, what do you think the capability will be both for transfers and travelers, considering there's 22 states that impose income tax on the very first day that a non-resident comes, a business traveler comes to work in their state. I don't think a lot of people know that there's quite so many.


I think even for myself, I had to look at the list and say, okay, let me just double check and make sure, and there were some surprises there. So if you look forward, and you say right now, a traveler that's going someplace for one day, it's really up to them to be able to report that. How do you think systems and tracking are going to come together maybe 10 years from now to allow that to be a little more automatic? What are you seeing?


CHRISTINE:  What I'm hoping since I have you on the phone here is that we will be able to link our travel systems up with our equity and/or HR systems to have the information flow through. I do feel like we've gotten a little bit of a break in the last year and a half because nobody was really traveling, so we could a little bit say, okay, we'll take this time to figure out what we want to do when people do start traveling and how we want to change because I think also with everybody being remote now, there's going to be more travel.


So I definitely think it's something that we are going to have to continue to educate the employees on and then figure out what are the tracking systems and what are the travel tracking systems? Because I think since a lot of people haven't been traveling, those systems aren't really being updated right now.


I think those companies are waiting to see what's coming also so that they know what to provide their companies. So I think in the next couple of years, it's really going to be a lot of development for what do companies need? Are they going to force people to use one travel company? Some companies let you use whoever, some force you to use one travel company, except for these people, they can use this, it's that type of thing. So I think it's going to be something where we streamline a lot more and with an understanding of why because I think the complications from COVID educated a lot of people that are in those decision making roles on why it's important to track where people are working in that when states start looking for this revenue, they're going to start focusing on all of these different pieces.


And when they see, oh, I see, you do have a lot more people maybe living and working in this state where you didn't before, I bet there are other people that are traveling in and working here. Let's start auditing this. Let's start looking at this. I think what I had heard is that the tax authorities would pull the proxy statements for companies and look at who their officers are and then look to see if they had done any investor conferences in their state. And then look back and see like, oh, I see the executive from this company did three investor conferences in my state. That's weird. There's no tax return because this is one of the states maybe that has a one day in, they should have paid taxes. So now I need to go back and audit everything.


So I've heard that from tax professionals. That is not advice. That is something that I've heard, so that somewhat scares me that we do need to start getting better at making sure we know when people were in certain places for no matter how long.


AMY: Sure.


CHRISTINE:  And I think it hits on some privacy issues too because what if you were on vacation, but you worked for a day while you were there. So definitely things I think will come up with policies about.


AMY: Right, and a lot of complex details to figure out. It's definitely a gray area at this point. There's a couple of things that are recommended for equity professionals and SPAs to take to help your companies and your teams track these things. The first one is educate employees, which we've covered really, really well. You gave us some great tips on that. What about systems? What advice do you have on systems to track this and how does that help?


CHRISTINE:  Yeah, definitely look at what systems you're using to track where people are and when they are. Since this is a trailing tax liability, and most of us have at least a four year vesting on our equity awards, that means we are going to be tracking that move for four years.


So when I had first gotten to Twilio, we were much smaller. We were a few hundred people. I had a spreadsheet, and my tax advisors who would help me track the mobility, it was kind of a joke that we had this funny little spreadsheet that we would send back and forth. I would get information from HR on moves, and then we would add it to the spreadsheet.


Thankfully, we upgraded our systems shortly before the pandemic hit, so the moves are entered into our HRIS system. They flow automatically over to our equity tracking system, to EquiView. And then the system applies all of the taxes according to the rules that we set up.


But definitely having something automated. I can't say enough how glad I am that we have this because the moves just accelerated. They went from maybe a hundred people a year to probably over a thousand. There's no way we could have done that in a spreadsheet. Yeah, yeah.


AMY: Wow. Do you think most employees, I'm thinking about a disconnect between it's one thing for an employer to track where employees are working and there's, like you said, there can be employee tax surprises, especially from a trailing tax liability perspective. But at the end of the year, they get all of their tax documents, and they see that they're being reported for income in let's say five different states. What happens? Are you seeing any disconnect if they are not paying attention to that, and they're not filing in those states? Is that happening yet, or is that five to 10 years from now?


CHRISTINE:  You know, I don't know. I've not heard from any employees that they've not filed in certain states. I have done a number of phone calls with employees and their tax advisors because their tax advisor didn't understand why we reported income in different states.


AMY: Got it.


CHRISTINE:  And they didn't necessarily understand how to report that or how to help their client with their tax returns. So I think on the tax advisory side, I think those folks are going to have to become a lot more educated in how we process or how they process tax returns in multiple states.


AMY: Okay, let's move on to support. You mentioned how important it is to have a really robust tracking system. And I loved what you said about tracking employees on a spreadsheet. A hundred is still a lot, but it is exponential when you start really looking at more than that. And then as the world opens up and people start traveling and start moving around, and the world has changed, so we're going to see that more and more often, systems may not be enough. So what kind of additional support would you suggest, and what do you use? What have you found helpful?


CHRISTINE:  Yeah, well, definitely we have our internal committee, so we have employment law, tax, HR, all of those people in a one room, our facilities folks, who know where the offices are and all that to, to look at what our policies are going to be at least on a grand scale.


But then on the tax level, which is where most of this falls in, we partner with one of the Big Three or however many firms there are, accounting firms there are, who've been just amazing helping us first, because one, you can't go it alone. There's no way that anybody knows all of this information.


It can be expensive, but it's a cost of doing business. So that's something you need to help your company understand if they're a little leery of we're going to have all these huge bills. It's like, well, it's part of what we have to do.


So we definitely have partnered with them. Again, we were fortunate to get this process started before the pandemic, but they sat us down, and we looked at the countries we were in, the countries likely to go into, and then just the domestic, all the different states, and came up with what our tax policy was for each of those moves.


Here's what the law says that you will tax from, or you will treat the income from grant through vest. Is that how you're going to recognize it? And that type of thing. What type of things that we could comply with with our system, we sat down with payroll, with HRIS, with here's what we can do and came up with our tax policy.


Then they actually worked with Schwab to help set up our mobility preferences in the system so that it works. But it definitely was not something that I went alone at. We had an internal team that were worked on it with our external experts, and I feel a hundred percent confident that what we have now is getting us to where we need to be to be compliant.


We also, in coming up with that tax policy, they created a workbook for us in Excel that we can share with payroll and HR. I don't know if they actually use it, but we also took that and created a separate matrix that we posted on our intranet. So employees can kind of see how the move will affect them also for their equity, but it has those policies out there. So HR or not HR, sorry, payroll can look at it and see why are we getting taxes for this guy? He moved a year ago, and they could look and be like, oh yeah, a year ago he was here, per their tax policy, that's what we do.


So it feels good that we don't have to, every time a question comes up, we have backup for it. And we give here's our tax policy. Here's our matrix. Here's why we do it. The employees get the same information. Payroll has the same information. I have the same information. Our systems are set up.


So it's that is really figure out... I kind of feel like the order we talked to about these in as far as educate the employees and then figure out systems. I think we maybe almost did that backwards where it's figure out your tax policy, document that, get your experts in line, then set up your systems, then educate the employees, so everybody's got that same information. It makes it so much easier.


AMY: Yeah, yeah. You're absolutely right. I'm really curious. You talked about having a partner and having mobility experts. Being in the equity comp industry and being the expert that you are, when you look around at your colleagues and your own experience, how common is it for a company or even an equity team to have either a mobility specialist or a specific dedicated mobility staff?


CHRISTINE:  It depends on the size of the company, and this is something Twilio was growing internationally already. So we had a global mobility team, and that was already growing. So that was great that we could work with them and make sure that as they are applying for work permits for somebody in a certain country, that we know that that was coming. So, especially if it was a new country, so we could get things set up.


Smaller companies or companies that maybe were mostly domestic with a little bit of outside, probably don't have those teams. And with those, it's even more important that you get outside expertise that can help you with this. I think no matter what, you need that outside expertise because they can go out and look up.


It'll be some obscure issue. Everything will go along fine, 80 percent of the time. Then you'll have those side cases that are like, I'm a citizen of XYZ country, but I'm living in this country, and then I move to that country, and now I'm in the U.S. And how do you tax that?


There's just, nobody can figure that out. And then it's also some of the issues that come up is if you are applying a hundred percent of the letter of the law of tax in those jurisdictions, there are times when employees actually won't receive any shares because they're being taxed so high. And what is your policy on that? How do you communicate that to their manager? Their manager needs to know that they're not going to see that money until they file their tax returns or whatever. This is maybe getting of it before they move.


Hey, you're going to have this trailing tax liability for this employee moving. I don't know if you really want to do that. One, very high social taxes in that country, and that's going to come out of your budget, and/or they're going to be double taxed for a couple years. So is that really, everybody's going into this eyes wide open. But definitely something to bring up.


AMY: Yeah, gosh. Do you know, I'm really curious. I've done absolutely no personal research on this whatsoever, but for mobility experts or mobility staff, is that typically just a tax and accounting function, or are there a specific professional designation for mobility experts?


CHRISTINE:  I don't know if there's a specific designation. It does roll up into HR, and I found that other companies too, it typically rolls under the global comp and benefits type team.


I know one of the people on our team actually has her undergrad. I think it's an undergrad degree in mobility. She lives in France, so I think it's more common in Europe that they do that.


But they definitely, that team deals with everything about the move, the work permits, all of that. And tax just like little, tiny sideline of it, where they actually, the employees actually have a tax briefing with our outside advisor to give them a heads up on what's going on.


But that all starts changing too when you have people that choose to go live somewhere else. Do they still get a tax briefing? What do we give them?


AMY: Sure.


CHRISTINE:  Again, we don't want anybody surprised at tax time, so maybe it's better for the company to provide that tax briefing, but those are different things that I think all companies are struggling with right now is do we pay for that tax information, or do we just tell them to go it alone? Talk to your personal tax advisor, which is what we all fall back on.


But to me it feels like such an empty message because I get that deer and headlights look from employees like tax advisor? How do I even find a tax advisor? And they just, like Uncle Bob? Like what?


So some of it's also educating them on how to find a tax advisor. And I think it's common for us in the U.S. to have tax advisors because our tax system is so complicated, but a lot of foreign countries, it's not that complicated, or the company does it all, and you only have to do a return if you have some wacky stock situation. So it does feel like we need to do more.


AMY: I'm sensing the rise of a whole mobility industry here, so definitely keep your eye out. I think we're going to see a lot going forward.


So I'm going to take our four key actions for SPAs and flip them based on your recommendation and start with, you really need to have a remote work policy and a tax policy associated with that, both at the corporate level and to be able to help employees.


And then make sure that you get your systems in place, and you've got the right support, and then go out and have a plan to educate your employees, and you can support them better. So I think that's a really, really good plan.


What would you do first if you were starting out brand new? You go to a brand new company, and let's say even a private company, but you're about to go public. What's the first thing you would do from a mobility perspective to support your employees and make sure everything was in compliance?


CHRISTINE:  I would go out to the experts and figure out who my team is. Internally, who's my team? Who knows where all the bodies are buried? Who knows where the employees have been? And then with the outside experts, who has the expertise here? What vendors can I work with? And get that team in place first. And then start pulling data and having the outside experts help evaluate what we've got, what we need to do to clean up, and how we need to move forward.


AMY: Yeah, but I guarantee you that's a multi-year effort, right?


CHRISTINE:  It can be, it can be. And you do have, I feel like, knock on wood, I've been here almost five years. We've gotten all of the zombies from before. I think we've cleaned all of those out and, trued everything up and corrected everything. So I feel like we're almost at baseline zero, but that is definitely something I would do first.


AMY: That's a great place to start. And I think one of the most important things probably to remember with this is that you're not going to get to perfection with compliance day one, but if there was an audit or the regulators did come knocking on your door, it's super important to be able to show here's what we're doing to work towards compliance. And here we do have a future state and a strategy in mind. Here are all the actions we're taking to get there. And that's a lot better than trying to have one big, significant launch where you're you reach perfection.


This is it's evolving. It's not going anywhere. Mobility's definitely here to stay, but nobody achieves perfection and a hundred percent compliance with it overnight. But being able to show progress towards that, having the policies in place, the systems in place, the right support, and the right education is super important. So thanks for your guidance on that. Really, really appreciate it.


This has been so much fun. Thank you so much for joining us, such a hot topic and so complicated, so interesting, and definitely something we're going to have a lot more to talk about. I anticipate we're going to have this conversation in a year, and there'll be so much more to talk about. Don't you think?


CHRISTINE:   I agree. I agree. Thank you for having me. This has been so fun. I'm a huge fan again.


AMY: It's super fun to have you. It's great to see you. Thanks so much. Thanks for being a part of Equity Impact. And to all of our listeners, thanks for joining us today, and we'll see you at the next episode.

Episode 5: Quick Takes – Generation Investor

Host Amy Reback introduces a new generation of investor and unpacks how this group is changing the way investing is defined.

Think of Quick Takes as little podcast snacks. These are short episodes, just a few minutes long, that cut right to the chase of hot stock plan topics worth unpacking—quickly. Today we're talking about a new generation of investor that has emerged in the last year, despite a global pandemic, economic uncertainty, and market volatility. 


It's called "Generation Investor," and it refers to the large number of people who are bound together not by their birth years but by when they started in their investing journey. These days, being new to investing spans multiple traditional generations as investing in financial markets has become more accessible. 


Schwab partnered with Logica Research1 to survey investors who first began investing in 2020 to learn more about this group and their goals. 


Based on the information from the survey, the median age is 35, they earn an average of about $76,000 a year, and they like fast moving markets, and are interested in trading strategies and crowd sourcing their information. 


The overwhelming majority of Gen I reported that they want access to materials and tools to do their own research and improve their knowledge on investing topics. They also find value in access to live investment professionals for ongoing help and guidance. They get to a point where they're beyond their depth, where they just have done their own research, and need a thought partner—someone to answer their very well thought out questions.  


We have to ask, what kinds of tools and services will this generation need to be successful? And mobile is definitely going to be key. Along with the ease of use and simpler user interface. Gen I will find modeling tools helpful to understand the long-term impacts of their investments— or, for an equity comp specific example, tables that compare outcomes for exercising awards now versus 1 year from now versus 5 years from now and tax implications and all of those things. 


In thinking about the future for Gen I, this generation has likely been emphasized by the pandemic because people had more time to really engage with their portfolios and they learned about new ways to invest that require minimal or even no asset minimums. There's just no way to put that cat in the bag, and why would we want to? 


It appears that Gen I has caught the investing bug and that will continue. What will be really interesting going forward is how some of the new trends and sources of information for the investing public are regulated. Let's keep in mind upfront, that the objectives of financial market regulation is to protect the investing public, and provide the level of transparency they need to make informed investing decisions. And while social media is nothing new, the trend to look at social media feeds or blogs for investing tips or to predict volume is. 


The question is, how do regulators react to meet the demand of enacting rules and regulations beyond those in place for traditional access points such as broker dealers, and ensure the investing public is being protected, and that our financial markets are fair and transparent. Broker dealers have operated in compliance with such rules & regs for decades, but what happens when investors are not leveraging broker dealers as their primary source of information? That used to be a one-off dinner party conversation, but what happens when that dinner party conversation becomes global and is being driven by individuals that are not regulated and have little oversight? 


Also, Gen I appears to be focused on trading strategies and playing the market. And that's very different than how a licensed professional would define investing. That would include a clear understanding of risk tolerance, long term financial planning, expected rates of return, dollar cost averaging and price limits, or having a strategy to exit a position, and yaddah yaddah yaddah. It's really, really important to understand the differences between trading and investing.


That's a wrap on this Quick Takes episode. I hope you're enjoying our new abbreviate format. And more episodes will be coming throughout the year to keep you current on all things stock plan administration. 


Subscribe to our podcast, and visit Schwab dot com slash Equity Unpacked. 


For important disclosures, see the show notes. Or visit Schwab dot com slash Equity Unpacked. 


Episode 4: Unpacking the World of IPOs

Host Amy Reback teams up with Brad Hass, Director of Stock Plan Services, to interview Kelley Yurt, a client who recently went down the pre-IPO path with her current employer, Olo. They dissect Kelley's experiences at different stages in the pre-IPO journey to help private companies unpack the path to taking their companies public.

AMY: Hello everyone, and thanks for joining us for another episode of Equity Unpacked, a podcast dedicated to simplifying the complicated world of equity compensation. I'm your host, Amy Reback, from the Stock Plan Services team at Charles Schwab.


Our session today is focused on the complexities of the pre-IPO world, helping private companies unpack the path forward to taking their company, and their respective equity compensation plans, public.


To help tackle this topic, I'm super excited to welcome our client Kelley Yurt from the DC area—who recently went down the pre-IPO path with her current employer, Olo, and our very own Brad Hass, from Schwab Stock Plan Services. Let's do some brief introductions before we start our conversation and, in addition to introducing themselves, I'm going to ask each of our guests to choose a word to best describe the pre-IPO journey and why they selected that word. Brad, I'm going to pick on you first. Go! 


BRAD: Thanks, Amy. I've been with Schwab for over 20 years and have worked with our Stock Plan Services group for the last 10 years of my career. Within Stock Plan Services, I do have the privilege of leading both the Stock Plan Sales team as well as the Relationship Management group that is responsible for our largest clients. To answer Amy's question specifically, about the word that best describes the pre-IPO journey, gonna cheat a little bit and use two words: Those words are "exciting" as well as "daunting."


I used "exciting" because there is an amazing sense of validation for the company's founders' vision and the efforts of the team that helped the company reach this milestone event.


I use "daunting" because there are just so many moving pieces that are involved in an IPO.


AMY: Excellent. "Exciting" and "daunting." Two words—always the overachiever. Totally fair assessment. Got it. Thanks, Brad, appreciate it. Kelley, your turn!


KELLY: Thank you, Amy. I'm looking forward to the conversation. I'm the Director of Equity Administration at Olo, and for the past 15 years or more I've worked for several public companies, and I've also been a part of four teams taking their companies pubic.


So, if I look at one word, I would say that IPO is, the process is more like a wedding. It's a huge event. It's been dreamed of, planned for over many years, by many different people, with varying expectations. We put together a large team in preparation and think that everyone is prepared for all the different circumstances, and we just know that we're ready for that wedding. But inevitably, there is something that happens that was not imaginable until it happens.


AMY: Yeah, totally right. I mean, that is the honest truth, right? The best-laid plans go awry. I hear it. I've seen lots of wedding nightmares. Thankfully, none of them were mine, but I've seen some interesting stuff. I'm sure we all have. 


BRAD: Kelley, thanks again for joining us today. I chose the word "daunting" because, as I mentioned, there are so many things to consider when heading towards an IPO. If we just focus on the equity plan itself, there are still an overwhelming number of topics to consider—from plan makeup, to finding a provider and a platform that meets the needs of internal stakeholders such as you, the equity admin, as well as the CFO; an HR group, who leverage the plan to acquire and retain the best talent. And then there's always participants of the plan and their needs. Then there are considerations for the end of the lockup period and ensuring that participants in the plan are educated on the process and have a strong understanding of what they've been granted and the choices they have between holding, exercising, or selling their shares. Can you share your experience in going through these, and any other considerations you went through?


KELLEY: Sure. I'd begin focusing on the equity plan and the equity platform. These are key in my opinion. The plan needs to be understood clearly from all of the different team members, both internally, cross-functionally, as well as your vendors. So the team needs to understand that the vendors that they choose need to also understand their plan and that just by providing the documents is not enough. You really need to discuss it. Hopefully, both teams are asking questions and overcommunicating. And that really it's the company's responsibility to understand the plan and disseminate the information to the vendors. The plan's a legal document, so not everyone who reads it will understand its complexities or interpret each clause in the same manner. So be prepared to break down the nuances of the plan for your internal team, if you're the stock plan administrator or on the legal team, which I am both. And then also, communicate that and break it down for your vendors into very clear English. Don't be afraid to repeat yourself or to overcommunicate. 


I'd also say, remember to focus on timing and build extra time into your plans. So if you leave the timing to one team or one vendor, then they may not understand the complexities of the next step and may not build enough time into the overall process. So you can't expect to just hand a letter of instruction to one of your vendors and that it could be implemented in one day. I've seen that happen, where the process plan has one day for a vendor to do their piece and yet, they're not really thinking overall about how that vendor may have extra steps that they're not aware of to get the quality control and ensure accuracy for your request. So, all of this takes time. And additionally, while the Company may be working 24/7, preparing for this exciting IPO, all the vendors are not. This is normal, they have a lot of different clients, and we need to remember that they're our partners. And we don't want to overly stress them with last-minute urgent items, so we need to build a strong long-term relationship with them and start on very good footing. 


AMY: That's a super important point. I was just thinking that I'm not sure "unpacked" quite covers it. I'm thinking  more like "unravel" is a better word. Because there's so much. And a lot of times you don't really have the time to build that long-term relationship. But I love the fact that you used the word "wedding," Kelley. And really what you're saying is the relationship and the time you have to build into this process is the contingency plan for if it rains or the groom gets sick or whatever. So I think that's a great, great point, and I'm so thrilled to have you both here today. We couldn't do this topic without both of your expertise. I'm going to back up for just a second and set the stage. I probably should have covered this in the very beginning. There are so many proverbial rabbit holes we could go down regarding this path to public and how all of that is changing. We've got SPACs—these Special Purpose Acquisition Companies—Direct Listings. These are playing a really big part in the shifting landscape. So I just want to clarify for our listeners that we could spend an entire episode on each of those. But our focus today is really going to be on this traditional path for private companies to go public versus via a regular IPO. So that is the most likely scenario for most of our listeners, and there is a lot of regulatory debate going on with SPACs and Direct Listings. I don't know about you, Kelley and Brad, but I love to get into debates. But not necessarily on regulatory topics, so I'm just going to steer clear of that, let the experts sort that out, and maybe we can unpack those alternative paths for going public down the road in a future episode when we have a little more clarity from the regulators. 


OK, let's get back to the traditional pre-IPO path. Kelley, you are an expert here. And your most recent experience with Olo's journey to being a public company is, like, hero-level story. So you've got a ton of insight on that role that equity compensation plays in navigating the journey. I'd love to start at the beginning. What was that initial journey like? How did you chart the path for going public? There's just so many questions. What were the activities? So many questions came to mind here, but tell us your story. How did this work? 


KELLEY: I interviewed and actually started nine days before we went public, so a lot of the planning phase had already been completed. And as I arrived and realized that we really were that close to IPO, I had to really grab a hold of the reigns and start diving into things. So I do remember, I interviewed, and have talked to a lot of the team, about how did they start on the path to IPO. I've noticed that it was very consistent with other companies that I've talked with and worked with previously. The Olo company debated on timing. And this is very normal. I think that all companies look at not only the timing but also the market's appetite for purchasing shares of the company. There were huge efforts that were made to transact this IPO. And many meetings, discussions, timelines, considerations, tons of excitement. And factors that the team were making sure that they were ready and which vendors to utilize. 


So understanding the compliance and the audit role is also a must. Compliance and auditing are both key pieces of the puzzle of transitioning from private to public, and that seems to be one of the hurdles that a lot of companies spend a lot of time on. I think that it's part of the story of the company that you're telling in the S-1, and the numbers and details are more important than most realize. So the S-1 is the start of the public numbers. And particularly from an equity plan perspective, this is where the plan has defined numbers of authorized shares and what has happened so far as you've become public. The numbers are normally kept at one vendor, or sometimes in Excel sheets I've seen as the company goes into finding a vendor and a third-party administrator. So often times, the IPO is when a company moves into the new equity system with a broker relationship. And I think that you have to keep in mind that most public companies have equity administrators who have other roles in their company. They may have inherited the equity role. They may not have specific equity training. So when I arrived and a lot of this had already taken place, it was being handled by different members of different teams, and it was a lot to reign in and really get a handle on. So a very busy time. I've worked with a handful of companies as a consultant and in house as well. And what I've heard from all of them when I arrived is, "I wish you'd been here earlier." So just a note: If you're starting this path to public, you probably should be involving an equity administrator from the start. It makes sense to have that person help choose and implement the vendor and equity solutions that you're choosing. And most of the teams at a private company don't have experience with transfer agents or brokers or any equity administration platforms, so it's hard for them to choose what would be best for the company. You really need the help of whoever is going to oversee this. 


BRAD: Kelley, those are all great points. We've also heard from other clients the importance of bringing in your key internal stakeholders is a must. For example, legal, HR, accounting, finance, and any others that want to have input. 


KELLEY: Yeah, that's a great point. It's another good reason to bring in the equity admin early, so that they can help develop this cross-functional team and kind of shepherd it through the process. HR generally handles more of the employee participant type of aspects of this. But all these internal teams need to understand that their roles in the overall process of becoming public are important and just what their role is. So, as HR understands the culture, they can help with communications, the training. And they can help everyone in the company realize how they're going to sell their shares. That's generally a joint venture between equity administration and HR. But so much excitement and tons of questions go into it. So I would say spend less time on preparing FAQs and more time answering the individual questions. I would drop the terminology and put it into plain English for your employees. I've seen a number of different companies spend a great amount of time creating wonderful educational tools. But in the end, a lot of people won't go out and read or watch the videos. They kind of just want to ask their question. They think its unique to them. They don't understand the terminology. So if you can build in some office hours, that's a great way to communicate and educate your team. 


AMY: OK. So what I'm hearing is, it's a big, daunting, wedding-size project to tackle, involving regulators, compliance, vendors, internal partners. Accuracy is super important, and accounting methods are very different for public versus private companies. And there's very few people who've really been trained to administer a public equity compensation plan and even fewer that have significant expertise with the transition from private to public. You put all of that together, and I've definitely heard of easier things to tackle. I don't know about you two. One thing we think we should really point out that we didn't cover because we probably don't have to for our actual listeners and equity compensation experts or SPAs out there . . . For folks that might be listening from the benefits world, the reason that this transition is such a big deal is pre-IPO shares that are issued as a private company, the accounting methods are completely different. It's on paper. It's just on paper. There's nothing happening in the markets. There's no real-time market value that you can see on CNBC. So when you go public, suddenly all of those shares are trading on the public markets. And there's regulations and restrictions, and accuracy, like Kelley said, is so important. And that transition for the employees of what they can do and can't do and when they can do it is really hard, and it's all new. So that's why it's such a huge, daunting, wedding-size task, and it has to be perfect. Now, one thread I'm going to pull on that is about the data management, Kelley, that you mentioned. There's a lot there to consider. So when you think about it, and in your experience, what kind of assessment do you do to determine what you wanted or what you needed in a recordkeeping system. How do you assess those systems? What do you keep? What do you add? I know that's a lot to unpack, but that recordkeeping part helps you get to that point where the accuracy is really, really good. So it can make or break that transition. Can you give us some key points that our audience should consider?


KELLEY: You really do to need to have your equity-plan–experienced SPA right there and helping decide what you can keep and what you need to change and which vendors to use. So they've had a little bit of experience. If you're allowing a team that doesn't have experience to make the choice, it can be very difficult. Most of the private equity platforms may house grant data and shares outstanding, but they don't have all of the compliance and all of the data that you are going to need and want to see. So you're going to have to transition, implement into a new vendor, and learn how to find a transfer agent. Choose one, implement that. That's a huge undertaking, going from a private company and issuing your initial mass issuance file to the transfer agent. That's a whole project in itself, and its one that I've seen not be given the amount of attention that it needs. So I strongly suggest you use an equity admin for this piece. A lot of people let it sit with outside counsel. And although they're wonderful and have done many of them, they may not have all the details or all of the key concerns. So I prefer to go ahead and do that myself. I know that my general counsel says, "Don't let it happen to you." Make sure that you choose your vendors wisely and have open communication between the teams. And just try to move forward making sure that everything is clear and buttoned down. 


BRAD: Kelley, did you work with vendors at the data management stage, and what role did they play?


KELLY: We used different vendors to compile some of the data, to create the documents. However, there is not an experienced team member there to represent the public happenings of a company. If you don't have that, then things can be missed. So you want to make sure that when you provide plan documents to the vendors—as I said, before they've read them in depth—they are understanding the language and the nuances of your plan, making sure that your team may be new to the vendor as well, so overcommunicate things. Ask for extra time. The transfer agent probably needs two weeks, or maybe two days. However long they need, you need to find out how long do they need before they can do what you're asking—making these shares live on their website and sending out communications to your new shareholders, or old shareholders, but now your public shareholders. So I think that we need to keep all of that understanding that maybe we've provided the information in a document to a vendor but they maybe are forgetting because they're working with a number of different clients. So overcommunicate and constantly review information as they're updating the information that's going into your systems. 


AMY: OK. So we have covered a lot—all great points to cover from a private company perspective. Let's go to the next phase, the S-1 filing. I'm not sure if we should have, to use your word, Brad, daunting music in the background or follow-the-yellow-brick-road kind of stuff. I'm not sure. What does that look like? You show up on the front door of the SEC. You feel really prepared. What's that like? Is it an exciting moment? Is it a hold your breath moment? What was the path here? 


KELLEY: Well, the accounting and finance teams, and equity, everyone are really working on the S-1. It's also a time for auditors to ask a lot of questions. They want records to support the numbers. The compilation is generated. The S-1 is drafted and filed. And initially there's usually kind of like a holding S-1. So it has a lot of blanks. And I'm sure I'm not using the correct, proper term. Maybe it's a pre S-1 or the initial S-1 that's filed with different blanks and different terms that then are updated as you get closer to the actual filing and going public. So as you're nailing down all of these and explaining different items to the accounting team and internal and external auditors, you need lots of coffee, lots of patience, and much time as possible to get these things ready. 


AMY: Right, exactly. I was just thinking, I was gonna ask, did you also remove all of the sharp objects off your desk because I think that would have been necessary for me. 


KELLEY: Sure. 


AMY: OK. So it's gameday. Let's unpack the IPO. Tell us about your experience once things got rolling after the S-1. And, for our listeners, if you're a SPA about to go through this process, what's the top three things we should keep in mind? 


KELLEY: That's a good question. I think that the excitement like "It's here" really starts on Pricing Day, so the day prior to going public. It's what everyone on the team is looking for. What is the number? So everyone's waiting to hear what the CEO tells us the IPO price will be. And it sets the initial ESPP offering price if you have that kicking off at the same time. Helps calculation on the awards that are being valued, usually for the board and particular milestone grants that have been waiting for this day. So it gets a lot of calculations going. Lets many people figure out what kind of profits they may make if they have options and they want to sell. And it's really changed a lot in the last year as the SEC has allowed or regulators have allowed for this early lockup release period, which Olo had and a number of companies have had over the past year or so. It's a new feature, and it gets a lot of excitement. We had our early lockup release from IPO date through the end of the month, so about a two-week period, where employees could trade 20% of their shares held at IPO and 20% of their vested options. So that sounds great, but it adds a lot more complexity, a lot of extra work. It requires extra preparations, like having the shares delivered or just 20%. Doing more calculations on which shares are eligible, which different colleagues in the company are eligible to be a part of this early lockup release. And just ensuring that all the right groups of employees are excluded or included. And everyone understands who or who cannot trade. So it's a great way for people who have been waiting a long time to actually trade on the market in a short, defined period. It's valued and utilized, but it is a bit more of a headache, I think, at the end of the day. It created a lot of work at a very busy time.


AMY: It's a lot to keep track of, that's for sure. But what an exciting journey. That's a touchdown, right? So what comes next? Can we talk a little bit about regular lockups and lifts?


KELLEY: Sure. So we're actually in the midst of preparing for our lockup release. And that's generally about a six-month period defined by the brokers and part of the contract when you do the signing there. So questions are starting to roll in again. The company's getting excited, and they're preparing for more exercises, some sales. And the company is preparing to have the freedom to be involved in the market, like the Olo shareholders have been doing since IPO. Once again, there are many regulations to follow, black out windows to be aware of. And for the equity team it means preparing the broker, the transfer agent, for a bulk transfer of the remaining 80% of our shares, and preparing to manage any of the outside 10b5-1 transactions after the release. It's a very busy and exciting time for Olo.


AMY: Well, they're lucky to have you and all of your experience, that's for sure. So we've covered a lot today, and we're definitely at the end of our journey and our time together. Kelley and Brad, thank you both so much for helping us unpack this path to pre-IPO. It's such a complicated subject. Your insights, your experience, and your knowledge really helped us navigate this journey today. 


BRAD: Thank you for having me, Amy. And Kelley, thanks so much for joining us.


KELLEY: Thank you! 


AMY: And thanks to all of our listeners for joining Equity Unpacked and being on this journey with us. Subscribe to our podcast, and visit Schwab.com/equityunpacked.


For important disclosures, see the show notes, or visit schwab.com/equityunpacked. 

Episode 3: Quick Takes – COVID's Impact on Participant Attitudes

Host Amy Reback explores how the pandemic has changed participant attitudes and their sense of financial security, and what admins can do to address their growing need for help.



AMY: Think of Quick Takes as little podcast snacks. These are short episodes, just a few minutes long, that cut right to the chase of hot stock plan topics worth unpacking quickly. 


It's been over a year since the beginning of the pandemic, and—here's the understatement of the year—a lot has changed. One of the biggest concerns that COVID has intensified is regarding financial security. The uncertainty from the past year has impacted people's personal finances, their attitudes towards financial wellness, and who they are looking to for help—which is a topic we touched on earlier this year during our inaugural Equity UnpackedTM episode. 


Last year, in July of 2020, our annual participant survey asked employees what they really thought about equity compensation. And what we found was an increase in the need for help due to the pandemic. 39% of stock plan participants are more likely to need financial advice due to COVID.


And in late 2020, almost a year into the pandemic, a study conducted online by Morning Consult reported that 77%—that's nearly 8 in 10 workers—want their employers to focus on providing benefits central to financial wellness. 


While this isn't necessarily an apples-to-apples comparison, these numbers do shed light on changing views towards personal finances—and to suggest the pandemic has played a significant role in how their attitudes may have shifted. 


Now that we're starting to return to the office, it may be a good time for us to consider how we can help our employees with their financial stress. 


Which makes me ask: How can employers beef up education around equity comp to address employees' needs for more financial security? 


And I think first it's going to be important to understand what's already out there for participants to reference. Are the existing resources comprehensive enough? Because if they are, then it's a matter of encouraging participants to engage with them. Sometimes participants just aren't really aware of what's available. Or maybe they're not taking the initiative to engage with it.


As an admin, you can ask your provider to offer seminars on financial planning and maybe leverage that return to office as a way to engage employees—either on-site or virtually—to support that increased need for financial education overall. 


You might also consider creating subject matter experts across your firm on how to best leverage equity awards, as we know the most powerful conversations often take place peer to peer. 


In closing, we can be super confident that workplace benefits are potentially more powerful than ever as tools to help employees build financial confidence. Employees have spoken, and they've made it clear they are looking for benefits from their employers that will help them with long-term financial security. And the pandemic definitely amplified that need. As your employees return either back to the office or however you define the new normal, this might be a good time to help support their desire to learn more about creating that financial security they're seeking. 


I hope you enjoyed our new abbreviated format. More Quick Takes episodes will be coming throughout the year to help you stay ahead of the curve on all things stock plan administration. 


Subscribe to our podcast and visit schwab.com/equityunpacked. 


For important disclosures, see the show notes. Or visit schwab.com/equityunpacked. 


Episode 2: The International Landscape

There's granting equity, and then there's granting equity to an international workforce. In episode 2, Amy and her guest Kate Gory, VP of International Global Services, discuss how to navigate the biggest hurdles when granting shares to international employees. They unpack current global dynamics that have the potential to change the game for equity compensation—and what those dynamics mean for employers and participants.



AMY: Welcome back to Equity Unpacked, a podcast dedicated to simplifying the complicated world of equity compensation. I'm your host, Amy Reback, from the Stock Plan Services team at Charles Schwab. 


Today, we're going international, and not just because we're all stuck at home yearning to travel. For stock plan administrators, granting awards to international, mobile, and global employees presents additional complexities versus domestic employees, and that in itself is worthy of a long-haul trip. 


As our guest today, we have the one and only Kate Gory, Vice President of International Global Services here at Charles Schwab, and she'll help us navigate some of those ever-shifting sands that admins and participants may encounter when it comes to equity awards and global investing. From Brexit to China, Kate is joining our journey today to help us unpack a few key topics.


Kate, welcome to Equity Unpacked and thanks for joining the show!


KATE: Thanks, Amy. It's wonderful to be here, especially since we don't get to see each other in person, and I'm really looking forward to our conversation.


AMY: Where to begin? I mean, we could do an entire series on all of the themes that are swirling around on the international investing scene, but let's start with what issuers and plan administrators might need to consider on a foundational level: So if I'm a stock plan administrator building an equity award program for a global company, what are the current international employment and labor issues I need to consider? 


KATE: Well, you mentioned it in the introduction, Amy. I would be remiss if I didn't start with a very hot topic, which is Brexit. I think that's really one of the many key international events that employers will be considering as they look at their hiring strategy, both for this year but well into the future. There are some protections in the Withdrawal Agreement, which is the treaty that was signed between the UK and the EU last year, that protect the status of UK citizens legally resident in an EU country or vice versa—EU residents that are living in the UK at the 1st of January 2021. So, each participant needs to really consider their own personal situation, but most employees of an EU company that are UK citizens, or vice versa, should generally retain the right to work, access to health care, etc. At present, there is also a pathway for these individuals to gain permanent residence in those host countries, so if you've already resided continuously for five years, or after you've done so, there's a pathway to gain permanent residence in that host country. So, for existing employees in this situation, this will hopefully have a limited impact.


The real open question, that will take some time to resolve, is the ability to work across borders for those who were not already resident outside their country of nationality on 30 December 2020.  For new hiring, where previously European employers could source from across the UK and any other EU member state as the role warranted, it is unknown what—if any—provisions will be made allowing individuals to work across borders.


Of course, Brexit is just one of many trends that could impact where work is being performed. You also have my favorite topic, the emerging trend of digital nomads, which has really come about in response to COVID.


AMY: Oh my gosh, digital nomads. I love it, tell me some more. 


KATE: Well, I think we may see a shift in the way people work due to the impacts of the pandemic. When your home is your office, why can't your office be somewhere fun? So, you see countries like Anguilla and Bermuda offering visas for expats to work remotely from their islands. With limited community transmission of COVID and sandy beaches, it is an alluring prospect. But, with this new freedom, it will require employers to take a hard look at the cross-border legal, regulatory, and tax framework that applies to these digital nomads. Personally, I am just waiting for the day I am invited to work remotely from Disneyland.


AMY: Ha ha, Disneyland, I know how much you love it there. I think you might need to invest in some military-grade noise-cancelling headphones for that, but we'll see. Let me know how that works out. Let's go back to something you mentioned a minute ago. I'd like to explore your comment around data flows and Brexit. What can you tell us about GDPR post Brexit?


KATE: Well, the good news is, for now, we expect data flows to continue. The EU GDPR requirements were already incorporated into UK law, and as of the 1st of January the specific privacy regime post-Brexit is the Data Protection Act of 2018—affectionately called the UK GDPR. While UK organizations need to ensure their privacy programs align with the UK GDPR requirements, we don't really expect any immediate disruptions. Organizations that are operating on a cross-border basis, however, between the UK and EU, will need to ensure they are meeting both EU GDPR and UK GDPR requirements.


Really, the major space to watch is a final adequacy decision, as we saw last July—when "Schrems II" was passed by the Court of Justice of the EU and it declared that the "adequacy" previously provided for data flows between the EU and U.S., what was called Privacy Shield, was no longer valid. The concept of "adequacy" will be a critical topic for determining the ease of data flows between the UK and the EU. Recently the EU released a draft adequacy decision, but it still has to be approved, and it will need to be reviewed every four years to ensure that the UK has continued to meet those adequacy requirements. 


AMY: I'm really wondering if you were using air quotes around "affectionately." But moving on, GDPR, Schrems II, what does this really mean, I mean, fundamentally, what does this really mean for employers with international employees and their requirements regarding data privacy?


KATE: Well, Chapter 5 of the GDPR talks about ways in which personal data of people living in the EU can be transferred to "third" countries—countries that aren't EU member states or EEA countries. Through an adequacy decision, the EU can declare that a third country, like the U.S. and now the UK, is adequately secure for data transfers. Countries like New Zealand and Japan were expressly determined to have suitable data protections in place so that data could flow from the EU into these countries—assuming the data transfer itself, obviously, is legal and meets the other terms of GDPR.


Previously, the adequacy decision for the U.S. in relation to the EU was specific to the U.S.–EU Privacy Shield. On the 16th of July, the ECJ declared Privacy Shield to be inadequate. In the ruling, they point to two key areas where U.S. laws did not provide sufficient protection to meet EU minimums. First, GDPR has a concept of necessity when it comes to all data sharing—even for sharing data with the state for things like surveillance programs. In the case of Privacy Shield, the courts found that the U.S. surveillance programs had too broad of a scope. The other aspect of the U.S. privacy rules that the court used to determine insufficient adequacy under Privacy Shield was the lack of effective redress for European data subjects.


AMY: OK, so, so what are the options for employers—and providers, for that matter, really—to remain compliant with this EU data privacy?


KATE: Well, Privacy Shield gets a lot of coverage because it, and its predecessor, were ultimately struck down in EU courts. However, there are several mechanisms of data transfer between the EU and a third country: adequacy, which, frankly, I think we've talked about enough for this podcast, but that's what Privacy Shield used to provide; derogations, which are exemptions from the law; binding corporate rules; standard contractual clauses; certification methods; and codes of conduct. While I know this podcast is called Equity Unpacked, there is just too much, frankly, to unpack on each of these options! In the absence of an adequacy decision between the EU and the country to which the data is being transferred, employers will need to consider how they are using the data, why they are transferring between the EU and this third country, and what other mechanism might be feasible and appropriate for their data privacy process. The EU has a great FAQ on this topic, which we'll link in the show notes for this episode. 


AMY: Terrific, thanks for the resource tip. I know everyone will appreciate that. Let's pivot and talk about China. Kate, what's happening in China these days?


KATE: Oh, just a few things, Amy. There's lots interesting happening in China, and I think that really begins with Schwab. We began a partnership with the Shanghai Advanced Institute of Finance at Jiaotong University in 2016. We really want to study China's rising affluent investors with an annual financial well-being index, and we launched that back in 2017. The Chinese rising affluent investors are a large yet really not well understood segment. And so we're really proud that this is our fourth year tracking such a growing, vibrant segment. 


AMY: Hmmm, OK, so are there any key themes you're seeing? I mean, what trends really stand out for the emerging affluent in China? 


KATE: Well, this past year we saw several key themes for the emerging affluent in China:

  • We saw improved rates of financial planning, and it really points to a growing awareness of the importance of being prepared for emergencies. We expect that financial wellness education would be meaningful to the employee base.
  • A desire for cash and other low-risk products to respond to changes in circumstances was another critical theme.
  • We have seen prevalent missed debt repayments, indicating vulnerability to unexpected financial challenges and underscoring the benefit of financial wellness resources to employees. 
  • Influence from social media could undermine the achievement of long-term financial well-being.
  • And, a greater financial literacy can heighten focus on financial aspirations. 


AMY: What about financial confidence? What have we seen in the past year, and is it changing? 



KATE: Well, despite the pandemic, the rising affluent in China continue to increase their financial confidence, and it's underpinned by a faith in future prospects and a personal sense of financial preparedness. Specifically, and this is good news for those stock plan administrators, a job with stable income and stable family circumstances. Rather than the financial planning that we often think of in the U.S. as being critical to that financial confidence. Additionally, only 20% of the rising affluent answered basic financial literacy questions correctly, meaning that a focus on just those fundamental financial literacy topics with employees, through the financial wellness solutions offered to them via equity awards and other programs, will continue to be meaningful.  


AMY: OK, great. Kate, as always, you always bring such an incredible depth of knowledge for our stock plan administrators and employers. There's a clear reason you're a fan favorite! 


Now, I'm not done with you, just yet, Kate. But before we swing into the last part of the show, I'm going to add one carry-on sized note on the participant experience side, as that's always a hot topic for stock plan administrators and employers.


As a provider, we get asked about the participant experience, particularly equity compensation education for international participants, so I'm going to quickly unpack a few things on the participant side.


Let's think of equity awards like a vehicle—an actual vehicle, let's say, a red, four-door, five-passenger sedan. You deliver a sedan as an award to a domestic employee in Ohio and the same exact sedan to an international employee in Bangladesh, let's say. Despite the difference in destination, the same red, four-door, five-passenger sedan is received by each employee. 


So, let's ditch the analogy and go back to actual equity awards. An international employee in Bangladesh and a domestic employee in Ohio both receive an RSU grant on the same day. The awards are the same, but the locations of the recipients are not, so what happens after they receive their awards will be different. For the employee in Bangladesh, they will be taxed at a different rate, and possibly taxed even at a different time. 


The way they are allowed to interact with the broker-dealer that holds or custodies the award for them will be subject to the securities regulations in their country of residency and/or citizenship, or both. And the exchange rate for their native currency may impact the final value they receive. But ultimately, the nature of the award they receive is the same, just like that red, four-door, five-passenger sedan. I mean, fundamentally, an RSU in Ohio is the same as an RSU in Bangladesh. 


I mentioned before, providers often receive requests for specialized education for their international participants on equity awards. But remember, the awards themselves that are granted to those international employees, again, in the vast majority of cases, are no different than those granted to domestic employees. In other words, if the domestic participant from Ohio and the international participant from Bangladesh both come to me as a provider and ask, "What is an RSU?" or, "What is an ISO?" the answer for both is the same. The answers to fundamental equity compensation questions addressed by participant education programs do not change based on where the participant lives, and it's simply table stakes for any provider to offer at least fundamental participant education. However, there's a catch: The type of education and support most often requested by international participants is not usually related to the securities business. 


The most common questions participants ask—international participants, that is—are things like: "How and when will I be taxed on the award?" and "Will the exchange rate for my country impact the value if and when I sell?" 


Now, as you can imagine, trying to address those very individual, personal questions from participants just isn't possible in a group setting, in a workshop, or, you know, in an education forum, because every single one will be different, and they become increasingly complex when dealing with not just global but mobile employees. I've been to a number of education workshops with international participants and I'll never forget getting this one question from an attendee. I wrote it down, actually. He asked: "I'm a citizen of France, my permanent residence is in Singapore, I spent three months in Shanghai, six months between Ireland and the U.S., and I've been in the UK on assignment for the last eight weeks. What will the tax implications be for my equity awards?" Now, I know that may seem like an egregious example, but trust me, that level of complexity is very common with these international employee populations. 


They are important, but really tough, and individualized conversations that really need to be addressed by a local and appropriately licensed tax expert or accountant that can customize the response to meet the needs of each unique participant, and many, many employers, not all, but many employers, create partnerships with international tax consulting firms that do just that for their participants. 


So, there it is. The burning questions about how to support the greatest needs of international participants, unpacked!


OK, Kate. Digression over. Back to our original agenda. Let's close out this episode with a Lightning Round. I have three questions—are you ready?


KATE: Oh, I'm ready. 


AMY: First, I'll ask you to sum it up for us—what are the top three global dynamics that employers and participants should be aware of that have the potential to change the game for equity comp?


KATE: Well, the first that I really think about is social media. Social media and other digital means of communication really close that gap that may have previously existed between employees in the company's home country of the U.S. and employees that are working in other locations. We saw from the study I mentioned earlier, with the Shanghai Advanced Institute of Finance, that influence from social media can actually undermine individuals' long-term financial well-being.  


The second thing to consider is financial wellness solutions. As you were mentioning, Amy, and as we've talked about, we see emerging affluent not only in China, but in a number of countries in which U.S. companies have employees, and we will likely see a continued demand for financial literacy to be part of that solution when people are offered equity awards.


And the last one—not to take us all the way back to the beginning with Brexit, Schrems II, and GDPR—but it's data privacy. We've talked about it a lot in the EU context, but I think really data privacy is an important space to keep an eye on regardless of where your employees and your consumers are located. Whether it's GDPR, Privacy Shield, and standard contractual clauses, or the recent data privacy updates in places like Brazil, China, and India, a number of countries are reviewing how their residents' personal data is used and shared across borders. Companies need to be aware of these emerging changes both for their own data transmissions as well as those of their service providers.


AMY: OK, so tell us, what's the number one question regarding international or global policies that have an impact to markets and investments that you typically get from your business partners?


KATE: Well, you are one of my business partners, and it's probably not a great way to get invited back to the podcast—but the number one question I get is, "Why is it so complicated?" And my answer disagrees just slightly with the carry-on-sized topic that you just unpacked for the audience. My answer is honestly that it's not inherently complicated. The rules in any one jurisdiction aren't any more complicated than dealing with all of the rules in the U.S.—it's just that when you're working on a global basis, you could be asking about the rules in over 200 different jurisdictions. And so there's a lot of different rules at play, versus just the single set of U.S. rules. But we cannot ignore the fact that we now see more multi-national companies than ever, and especially multinational companies offering equity awards to their employees outside the U.S. And so, in order to be able to best support our clients—corporate and retail—we have to have a robust program to understand the rules of the jurisdictions in which we do business and the differences between those jurisdictions and the U.S. rules. I am a problem solver at heart, so what others might see as complexity, I honestly just see as a fun puzzle to put together.


AMY: Well, thank goodness for that. And finally, quite possibly the most difficult to answer after 2020: What has been your favorite way to "escape" since we've all been working from home and on lockdown?


KATE: Well, Amy, I have a toddler who received a trampoline for Christmas. I'm just grateful my "escape" hasn't been multiple trips to the emergency department.


AMY: We're all grateful for that. Well, Kate, as usual, you've been just such a great wealth of knowledge, and I'm so grateful you were here today to help us unpack the rather nebulous and of course ever-changing international landscape. Thanks so much for sharing your time and your knowledge with us today. 


KATE: Thanks, Amy, this has been a ton of fun. 


AMY: Thanks again, Kate, and thanks very much to all of our listeners. I hope you'll join us for our next journey on Equity Unpacked. Until then, safe travels.


Subscribe to our podcast and visit schwab.com/equityunpacked. 


For important disclosures, see the show notes. Or visit schwab.com/equityunpacked.


Episode 1: The Participant Mindset

What do employees really think about equity compensation? Amy speaks with Lilah Raynor from Logica Research to unpack the data from this year's participant survey and explore the ways COVID has impacted how people are (and aren't) investing.  



AMY: From Charles Schwab Stock Plan Services, this is Equity Unpacked—a podcast dedicated to simplifying the complicated world of equity compensation.  


I'm Amy Reback, and for the last few years, I've spent at least a portion of every day searching for a source of simplicity within an otherwise notoriously complex profession.  


While technical, detailed sources abound, simplicity and even suggestions on where to learn more about current trends are scarce.  


I've scoured websites, had endless discussions with plan administrators, accountants, participants—both experienced and novice—in an effort to uncover a digestible source of information to navigate hot topics and themes within the stock plan world. 


When was the last time you looked beyond the details to take in a broader perspective? And how do you know if you're even asking the right questions?


In Equity Unpacked, we examine emerging themes in managing equity comp. From administrators to participants, this is your moment of equity zen.


In our inaugural episode today (very exciting), we will focus on participants—how they feel, what they want from their stock awards, and the role they want their employers to take.   


After all, the core purpose of equity compensation, or stock awards, is to retain and attract top talent. In other words, participants are the reason equity compensation exists to begin with. So, we figured they're a great place to start.


For the last four years, Charles Schwab has commissioned Logica Research to produce a stock plan participant study to examine the mindset of employee participants.  


How do they view this type of compensation? What do they use it for? Are they confident in making those decisions? And in 2020—wait for it, you knew this was coming—how has the unrelenting reality of COVID-19 influenced how they feel and the decisions they make?   


My guest today is Lilah Raynor, CEO of Logica Research, and our goal is to unpack the Schwab Stock Plan Participant Study for 2020.


Lilah, thanks for joining us today.     


LILAH: I'm so happy to be here, Amy, thank you for having me. 


AMY: Now, Lilah, Schwab and Logica have produced this study for a few years now. And, as with any study, one would  assume that over time certain trends would emerge—and then… 2020 happened.  


Now, I'll ask you to forgive me ahead of time for using "normal" and "2020" so close together in the same sentence—but, under normal circumstances, we know employers use equity comp as a means to attract and retain talent.  


One of the data points that stood out in the 2020 study is that 57% of respondents—who are all stock plan participants—would prefer to stay with their employer specifically due to COVID. Let's think about that from a "retain and attract talent" perspective.  


Clearly, it's harder to attract employees if they're less willing to change employers—but employee retention, on the other hand, has become automatically easier due to COVID.  


So, if we look at that through an equity compensation lens, the longer an employee participant stays with their employer, the more they'll benefit from their stock awards. Their awards have a chance to vest, they may even receive additional grants as well, but 57% staying put—I'm curious how this might influence participant behavior.   


So, Lilah—are you ready to unpack? I'm wondering if participants are simply seeking security, or are they waiting for shares to vest? Is there a greater need for income? Walk us through the data from the study.    


LILAH: Yeah, Amy, all great points and great questions. We have seen over the years in conducting the study for Schwab  on equity compensation that equity comp does play a key role in choosing an employer. 


So absolutely, under normal circumstances, that is true as well—but yes, of course this is a totally different kind of year, and so we're seeing a few things going on, and you hit on a number of them. There really are a mix of reasons. 


It's a time of uncertainty, and staying with an employer helps limit or mitigate uncertainty for people, by not switching jobs. It's also a time of waiting, and waiting for shares to vest.


And then, also, there is a sentiment right now that we're seeing in our research around employee engagement. For a lot of people, employee satisfaction is actually up due to COVID. And we're seeing that there can be increased employee engagement based on how employers have handled this challenging time. Part of it can be just increased employee engagement right now. 


In addition to reasons for staying, we've seen that between 2019 and 2020, the likelihood of employees choosing to work for a company because of equity comp went up significantly, as well. It was already high at 87%, and it went up to 90%. We also saw that equity compensation went up as a main reason to take the job and that this was especially true for millennials.


AMY: So I see the importance of equity comp as part of that decision-making process increased pretty significantly, as well—and then when you add COVID to the mix and the multitude of difficulties that go with it, you factor all of that in, and participants are choosing to stay with their existing employer longer, so they do benefit more from those employee equity plans. And then, if they're faced with that "should I stay or should I go" decision, their awards are worth more, the stakes are higher, and that decision becomes even more difficult.  


Now, on the flip side, it makes it significantly more expensive for employers to attract new talent, as they may need to offer higher amounts of equity to prospective employees to lure them away—and it sounds like great news for stock plan participants, but it also means employers may have to step up their equity game to compete for talent.  


Lilah, in the 2020 participant study, we also saw that 39% of respondents feel they're more likely to need financial advice due to COVID.


Let's unpack it—what kind of advice are they looking for? Is this a new trend?    


LILAH: Yeah, it's so interesting. We have seen in our research that now is a time when people are more open than ever  to talking about money, and they are really looking for advice.


The type of advice they need can depend on their financial situation.  


So, people have been looking for financial advice for a long time, of course, but it's especially true right now. And you have a range of people needing help moving from spending to saving on one end of the spectrum, so they need help with debt management and budgeting.   


And when we have conducted interviews with people in the past on how they use their money from their stock plan, we found that it could be used for basic needs such as paying down debt and basic budgeting needs.  


Then they also want to know how to use their equity compensation to help them do these things.


And then when you look at the other end of the spectrum for more affluent and more highly compensated employees, they need help and advice to plan for the longer term and to look at some of the more complex aspects of their financial situation.  


So, what we see in our study among stock plan participants is that employees need help with a range of financial advice—from budgeting, debt management, to investment advice, to retirement planning. So, that full range.     


AMY: So what I'm hearing is there's a range of needs here. And that's normal, don't you think? I mean, financial concerns in your twenties are super different than they are in your thirties and forties.  


And hopefully, as people mature and they save and invest, they have more choices in how they spend or use their money, right? So, the overall theme here is participants need help understanding the best way to use their equity compensation at just about every stage of their financial life. Do you agree?    


LILAH: Yes, absolutely. 


AMY: So, these are big decisions. It sounds like these are the type of big life decisions that could induce a lot of anxiety, mostly because it's really hard to ask for help, especially with financial matters. But it can also be even harder to commit to a long-term strategy for anything in 2020.   


What can employers or plan sponsors recommend, and what can participants do to mitigate this type of stress or apprehension about their finances?    


LILAH: You know, knowledge is power and really helps alleviate anxiety and fears in general.  


This is certainly true for finances, as well. And we've actually seen that confidence in making decisions on equity compensation has gone up in the last year.   


Our hypothesis as to why this is happening is that there is more information and education available and that people are educating themselves, which really makes them feel more confident.  


Equity compensation is one part of this financial picture.  


There are more communications from employers and from other people in an employee's network—and with this is a need for education and how best to use equity compensation and when.   


Our research revealed that the majority, 85% of employees, agree that they would like their employer to provide more education to help them understand their equity compensation. So there's really an opportunity here for employers to provide education and help in planning, and help alleviate that anxiety. 


One of the things that we see in our study is that confidence in decisions is higher for those with an advisor.  


Getting education and advice is super important. And, going back to that earlier part of our conversation, people are open for that advice and asking for it more now because of COVID.  


We see in our stock plan participant study that 30% of people exercise or sell as part of their long-term plan.    


AMY: You know, Lilah, I love that you said "knowledge is power." That just sums up everything in 2020, doesn't it? We could use that as a simple way to answer nearly every question relevant to this year—"What should you know about COVID?" "Knowledge is power." "What should you know about the election cycle?" "Knowledge is power." "Where do I find household paper products these days?" "Knowledge is power." And, of course, closest to our hearts—"What should you do with your stock awards?" And knowledge is definitely power there.  


So, Lilah, let's turn to another standout statistic from the study, and this one is particularly interesting because it's specific to the millennial generation:


Why should we pay attention to millennials? Well, two reasons. The first is they represent the largest percentage of employees in the workforce today, and, also, they have a lot more energy than those of us from Gen X.


I mean, Gen X, love you, mean it—'80s music always gonna rule—but let's face it, we are outnumbered here. So, the more effort we put into understanding millennials, the happier everyone will be.  


Besides, millennials are fun and they teach us how to do really cool things with our phones—so perk up, Gen X. Lilah's about to unpack how all of this is different for our millenial friends.  


Here's the stat: the study reports that 27% of millennials are more likely to exercise or sell equity compensation due to financial stress versus 13% for older generations.  


Now, Lilah, we already know financial stress reaches everyone—so why is this so unique, or more prevalent, for millennials?    


LILAH: Millennials have had a lot of financial challenges as they've gone through their lives. They entered the job market at a challenging time, they were hit by the great recession, and then manage the stages of careers, families, homes, and retirement planning. 


They came of age during the last recession, many with a lot of college debt, and then—COVID.  


COVID is hitting millennials hard, with younger ones not as established in their careers so their jobs are more vulnerable, and older ones with more financial responsibility—while at the same time they're having job security issues, and they're taking care of kids and working at home with kids at home.


So of course it's understandable that stress is high for millennials due to COVID, and they're going to need a lot of help.


But what we also see is that millennials are engaged in their finances.


In our study among stock plan participants, we see that they may rely more heavily on company stock as part of their portfolio and assets. So they're going to need extra help understanding how to manage this, how to manage their equity compensation, and how to diversify, and how to plan. 


And we see that in other research as well, too. 


AMY: You mention "plan"—let's go back to long-term planning for a second. The study also indicates that 5 in 10 (or  50%) of participants, overall, use or intend to use their equity comp as a means to supplement their retirement savings.  


Now, most millennials are just starting to think about retirement as a reality—but as a card-carrying member of Gen X, retirement has been top-of-mind for a while over here.  


What does it mean if 50% of participants are using their stock awards to support their retirement? Are we all grown up now? Are participants embracing long-term planning here?    


LILAH: Yeah, it's a really great question, and you raise a good point. You know, this really goes back to that idea that we  seem to be at an inflection point right now in terms of how people are engaging with their finances.  


They are engaged—and I'd say that in the 25 years that I've been doing this research on people's attitudes toward money, they are more engaged than I've ever seen before.


And, we see that show up in different ways.   


One example is we know people are spending less and saving more on average right now.   


Those people who have the income, who have the abilility to save—they are. And we see that people are looking for ways to make the most of their money, and to make it work for them.  


This includes their retirement accounts and their equity compensation programs.  


So, we are seeing that people are increasing their contributions as well as rebalancing their accounts.    


One finding this relates to is that about 1 in 5 people anticipate delaying their retirement, so the increased contributions are a way to help address that.     


AMY: So, if 1 in 5 (or 20%) of participants are delaying retirement and staying in the workforce longer, they likely continue to earn more equity awards, which contributes even more to that retirement fund.  


Lilah, you've really helped us to unpack what's happening in the hearts and minds of participants today—so let's see if we can sum it up.   


First, thanks to COVID, more than half of participants prefer to stay with their existing employer, which allows them to gain more benefit from their stock awards and also reduce some uncertainty of a new job. But that also makes it harder for new employers to lure them away in the long run.  


Participants face anxiety about making decisions on how to make the most of their equity awards across all ages, and they are looking to their employers to provide opportunities to them to get help and guidance, to alleviate that stress. And that's especially true for the millennial generation—who we love—and who has unfortunately suffered more than their fair share of financial setbacks.  


Lastly, more and more participants are engaging in long-term financial planning and subsequently using their stock awards to help them save for retirement.  


So, let's bring it home with some suggestions—what can participants and their employers do to make the best financial decisions in terms of long-term equity awards?    


LILAH: So, I wanna take that from two angles. One is, if you're an employee or a stock plan participant, what should you do—and the other is if you're an employer. 


If you're an employee—first of all, you want to understand your choices so you can make informed decisions. Second, you can seek help from your employer. And third, understand where your equity compensation fits in your total financial picture.


And then, if you're an employer—first of all, your participants are seeking help from you. Second, help employees understand their financial picture and where equity compensation fits. And then, finally, as an employer, you can offer greater access to financial advice and planning tools to all of your employees, so those employees who are on that full spectrum of financial needs—not just the executive team.    


AMY: That's fantastic advice, Lilah. You know, after 17+ years of serving clients at Charles Schwab, I can attest to the importance of planning and the peace of mind it can offer when tailored to your specific needs.  


I mean, let's be honest—financial planning doesn't sound like a barrel of laughs. But you said it, Lilah knowledge is power. And having a clear sense of where you are, what you need to plan for, and steps on how to actually get there is such a relief, I've seen it time and time again, that life just becomes a whole lot more fun when you aren't stressed about your finances.  


A financial plan is simply information that helps you make better decisions. Word to the wise—you are the decision maker.  


Lilah, your insights have been terrific. Thank you so much for being here to unpack equity today.    


LILAH: Thank you so much, Amy. It was great to be here.     


AMY: And thanks to all of our listeners for being on this journey with us.  


In our next episode, we'll explore the ever-shifting sands of the international investing landscape with the one and only Kate Gory, Vice President of Global Investing here at Charles Schwab.  


From Brexit to China SAFE, Kate will help us unpack how to navigate the biggest hurdles when granting shares to international employees.  


Until then, thanks for joining Equity Unpacked, and safe travels.


CTA: Subscribe to our podcast, and visit schwab.com/equityunpacked. 


For important disclosures, see the show notes. Or visit schwab.com/equityunpacked. 


Amy bio

Amy Reback, head of Stock Plan Services, currently leads more than 150 employees in over 50 different roles. With over seventeen years at Schwab, she's responsible for business acquisition and development, corporate client onboarding and service, product and platform development, operations, relationship management, financial reporting, retail engagement, and business strategy.

Amy previously served as Vice President, Regional Market Executive for the Great Plains in the branch network organization at Schwab, leading the efforts to provide ethical and transparent financial services to thousands of clients among 16 branch locations, 8 branch managers and 125 branch employees located between St. Louis, Missouri, and Aspen, Colorado. Amy and her husband, Dan, currently reside in Denver, Colorado with their two boys, Tyler and Jackson.


Image of Amy Reback

Ready to start a conversation about your plan? Call 877-362-0140.