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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.

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.

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