Trends in Executive Equity Services and Transactions

Providing exceptional service to company executives is essential to supporting corporate success, especially when it comes to managing their equity transactions, which are highly visible, often complex, and subject to rigorous regulations. By implementing exemplary controls over these transactions, organizations can demonstrate a strong commitment to corporate governance and strengthen shareholder confidence.

The NASPP’s recent pulse survey on trends in executive equity services and transactions, which is sponsored by Bank of America, reports data companies can use to benchmark the services they provide to executives and their compliance practices against their peers. In this blog, I highlight some of the results of the survey. To learn more, download the full survey results and be sure to attend our webinar presenting highlights from the results.

Executive Services Are a Dealbreaker

Executive services are a key consideration when companies evaluate an equity plan provider, with 84% of respondents to the survey indicating that this is a very important or critical consideration in their selection of an equity plan administrator.

This isn’t surprising, given that executive transactions are often more complicated, involve greater compliance risks, are more visible to both regulators and shareholders, and are higher in value than transactions by lower ranking employees. On average, the percentage of time survey respondents spend managing executive equity plan transactions exceeds the percentage executives represent of their participant population by ten times. It’s imperative to have a business partner you can depend on to assist with these transactions.

When it comes to the products and services executives request from plan administrators, Rule 10b5-1 plans, wealth management, and tax advice top the list. Rule 10b5-1 plans and wealth management are also common offerings for executives, with 83% and 71% of respondents respectively reporting that these products are available to their executives. Only 45% of respondents report that their administrator offers tax advice, however.

Executive Education Is Often One-on-One

Companies are invested in executive education, with most providing access to resources provided by their plan administrator, as well as internally developed resources. Among respondents that internally develop educational resources for their executives, fully 90% offer one-on-one assistance to executives.

Why so much one-on-one assistance? Well, it might be due to the fact that, although most companies report that they make education and transaction modeling tools available to their executives via their equity plan websites (91% and 79% of respondents, respectively), only 40% report that executives use these tools.

When HR or stock plan administration provides one-on-one assistance to executives, it is almost universally provided upon request by executives (92% of respondents). Just over 60% of respondents also provide one-on-one onboarding sessions for new executives (but only 41% provide exit sessions for departing executives).

Transaction Fees Are Still Common for Affiliates

It is still common for affiliates to pay broker fees on their equity plan transactions, with over half of respondents reporting that affiliates pay a fee for online orders and 85% reporting that affiliates pay fees for broker-assisted and Rule 10b5-1 plan trades (often higher than the fees for online transactions).

Preclearance Procedures Are a Manual Process

Virtually all public companies require executives to preclear their trades. In our pulse survey, we wanted to learn more about how preclearance requests are managed. Here is what we found out:

• Management of preclearance requests is performed largely via email. Despite this manual process, close to 80% of companies make a decision on the requests within a few hours or at least on the same day the request is received.
• Once trades are approved, just over 60% of companies give executives anywhere from two to seven days to submit the order.
• At about half of companies (53%), the specific transaction must be approved. However, at just over 30% of companies, executives are given general clearance to engage in any transaction.
• Companies overwhelmingly block executives from trading on their broker platform when they are not cleared to trade.

Management of Insider Filings

Form 4 filings are largely managed in-house (nearly 90% of companies). Half of respondents rely on a third-party tool that is not integrated with their recordkeeping platform to prepare Forms 4. In fact, more respondents use the EDGAR OnlineForms website to prepare their filings (35%) than use a tool integrated with their recordkeeping platform (only 13%).

Conversely, Form 144 filings are typically managed by brokers, with approximately 80% of respondents relying on their broker to submit these filings.

This year the SEC is transitioning the EDGAR platform to a new login protocol called EDGAR Next. Although the new platform will be live on March 24, 93% of respondents were, at best, only somewhat familiar with the new platform. Just over 20% were not aware of it. To learn more about the EDGAR Next platform, check out the NASPP webinar “How to Prepare for EDGAR Next.”

10b5-1 Plans Are a Key Governance Tool

Nearly all respondents permit executives to use Rule 10b5-1 plans and about half report that executives and directors are required or encouraged to use them:

• Companies are more likely to encourage or require the use of 10b5-1 plans for officers (51%) than for directors (42%).
• Technology companies are more likely to encourage or require the use of 10b5-1 plans (63% for officers, 52% for directors) than other sectors (41% for officers, 34% for directors).

Governance practices, the ability to trade during closed window periods, and better planning for executive trades are the primary drivers of the use of 10b5-1 plans.

Most companies (75%) report that usage of 10b5-1 plans has not changed in the aftermath of the SEC’s adoption of new Rule 10b5-1; just over 20% of respondents report that usage has increased. Fully 70% of companies report that their executives have not expressed any concerns about the new rule.

Virtually all companies review 10b5-1 plans, with 86% tasking legal with this responsibility. Over 60% of companies do not impose any limits on plans other than those required under the rule. Only 12% of companies allow automated 10b5-1 plans but 20% are considering doing so.

Learn More

Want to know more? Download the full survey results and don’t miss our webinar presenting highlights from the survey.