Employee stock plans and equity compensation are among the top tools you can use to improve talent recruitment and retention while simultaneously incentivizing greater performance from your employees.
However, despite the benefits to your company that employee stock plans offer, the ongoing administration needs of managing a stock plan system can become incredibly time consuming, tedious, and prone to costly errors.
Stock plan systems face a number of administration challenges including tax compliance requirements, employee demographic updates, syncing the stock transaction details to the payroll system, and ease of use and access for employees to view their stock awards and transact.
Traditional stock plan administration often involves multiple spreadsheets, manual formatting and importation of data between the different payroll, HR and stock plan systems, and other non-scalable, error-prone tasks.
The good news is that automated stock plan management inherently solves many of these problems regardless of the size of your organization, complexity of stock awards, and number of employees who are part of the stock plans.
In today’s era of software platforms and administration, there are few reasons not to transition to a more automated integration of your systems. Let’s explore some of the key areas of headache that are eliminated by switching to a more automated approach.
Year-to-date (YTD) tax information is stored within the payroll system, while demographic information is stored and updated within the human resources information system (HRIS). However, because stock plans have tax implications and affect YTD withholdings, every pay cycle requires an update to the data in both the HRIS and payroll systems, including any demographic changes such as employee terminations and address updates.
Updating and formatting data in a CSV file for both systems poses the risk of human error, formatting problems, and version control, which can result in minor and major issues. For example, if tax withholdings are incorrect, employees may be forced to reimburse portions of their paycheck to cover tax withholdings from stock plan transactions.
Furthermore, terminated employees might still be able to exercise a stock option if the data has not been properly updated, which can be incredibly costly. A former employee might also be issued stock during a restricted stock release, which poses another major risk.
Automating stock plan management eliminates this entire manual process, meaning withholdings and demographic changes automatically sync between all relevant systems, avoiding any errors or mishaps.
When employees exercise stock options or have a restricted stock vesting as part of their equity compensation plan, the payroll system must be updated with the transactional tax and compensation income information. In manual administration, this requires downloading a report, formatting it for the payroll system, importing it into the payroll system or emailing it to that department, and hoping that no errors or version control issues arise during this process.
The CompXchange system is particularly effective at syncing this data for a clean administration process. Without CompXchange, automating this process is incredibly challenging.
Spreadsheet-based administration faces the pernicious problem of version control, especially when multiple administrators or departments need to work on the sheet. Having multiple versions, each with key data, floating around the company email system is a recipe for errors that compound and get out of hand, especially at scale.
Cloud-based automation removes version control issues with stock plan administration, allowing every administrative change to be updated within the system immediately.
If your team only administers stock plans for a small handful of employees, the overhead associated with manual processes can seem minimal.
However, administration via manual updating is not scalable, and as your company and team grow, it can quickly get out of hand. Plus, every additional employee in the equity plan compounds the error risk and administrative headache.
Automatic stock plan management functions just as well with 5 employees as it does with 500. There is no real limit to the scalability, and little-to-no marginal increase in difficulty as employees get added to the system. If you plan on organizational growth, then automated stock plan administration is an inevitable need, so implementing it sooner rather than later is a wise move.
Even the most meticulous administrator will make errors. This is simply an inevitability of human work, especially when iterated over long periods of time. Automating all stock administration requirements removes this risk. Whether it's entering information into the wrong cell on a spreadsheet, or missing a decimal point, these are things that just don’t occur when a computer takes over repetitive data related tasks.
Removing this layer of risk is key to ensuring a seamless stock administration process.
Employee engagement is another key benefit of automated stock plan administration. Employees who can log into a platform to view or interact with their stock plans are far more engaged and motivated in terms of leveraging equity compensation and ensuring the stock plan translates into improved employee performance.
Consider the difference between traditional stock investing through a broker over the phone versus logging into an app on your smartphone to view your stock portfolio. Which system is more interesting, engaging, and motivating?
Of course, the app is the better route.
Similarly, a stock plan system that allows employees to view their stock awards in real-time is simply put, superior to traditional systems that do not allow this functionality.
While this may not be a direct cost-saving benefit per se, it does mean you as the company owner or financial leader will get much more benefit out of your equity compensation system in terms of talent retention and motivating better performance.
This system is only possible with an automated stock plan system because it requires real-time data. It can also eliminate the need for administrators to interact with employees whenever an employee wants information or updates on the status of their stock plan.
Collectively, these benefits of automation lead to a drastically reduced administrative burden. This frees up time for more important tasks and potentially allows you to have a smaller administration department overall.
Plus, with a managed software system, you can outsource the stock plan administration and scale up or down based on your evolving company needs.
The collective time and cost savings from this reduced administrative burden cannot be understated.
Whatever tool you use for your EC management, keep in mind that implementing a new platform in your organization will be a major undertaking. You’ll need to allocate budget, staff, and possibly account for downtime and interruption of processes.
Many small or mid-sized companies looking to adopt EC management software often do not have dedicated experts for implementation. That’s where CompIntelligence can come in.
Our combination of technical expertise and experience with all the major stock plan systems allows us to integrate all the key areas needed to deliver a complete stock plan automation solution that meets your organization’s exact needs.
Contact us today to find out how we can make your stock plan administration a seamless and pain-free process, regardless of the size of your organization.