Could a Robot Manage Your Equity Plan?

I don’t know about you, but there are definitely some parts of my job that I would be happy to hand off to robots. If you feel the same way, I have some good news for you. There are lots of ways that artificial intelligence can help with managing your equity plans. In this blog, I look at some of the ways AI will change stock plan administration.

Intrigued? Learn more about AI and equity compensation at the session “AI and the Future of Equity Plan Administration” at this year’s NASPP Conference. This session will explore specific use cases around HR efficiency, error detection, and risk management that are being developed and implemented and will share a vision for how AI could change plan administration in just the next five years!

And check out the article “How AI Will Change Stock Plan Administration” that we featured in the Summer 2020 issue of the NASPP Advisor newsletter.

Automating Complex Calculations

Companies commonly have to download data from their stock plan recordkeeping platform to Excel to perform additional calculations. With AI, you may no longer need to be a whiz at Excel to create these custom reports. (If you do want to brush up on your Excel skills, check out our course “Excel Essentials for Equity Compensation.”)

AI-driven tools could automate these calculations, reducing the risk of human error and ensuring accuracy. For instance, AI algorithms might be used to model different scenarios and predict outcomes based on various factors such as stock price volatility, employee turnover rates, and vesting schedules. This saves time and provides management with insights that can inform strategic decision-making.

Risk Management and Compliance

AI could be used to assess and manage risks associated with equity compensation. For example, algorithms developed with AI could be used to analyze historical data to identify patterns and predict potential risks, such as the impact of stock price fluctuations on the company’s financial statements or which employees should receive retention grants. By proactively identifying risks, companies can take preventive measures to mitigate them.

AI might also be able to assist in monitoring compliance by automatically tracking changes in regulations and updating the equity compensation management system accordingly. I’ll admit that, given the complexity of the laws that apply to equity compensation, this seems like a long way off. Still, imagine if you could task some sort of bot or app with monitoring compliance in the countries where you grant equity; it might not solve all your compliance challenges, but it would help mitigate the burden of compliance.

Mobility compliance is an example of an area where AI might be helpful in streamlining operations. AI could provide tools to manage the complexities of multiple jurisdictions, automatically applying income sourcing rules and calculating tax withholding obligations taking into account local tax rates, treaties, and exemptions.

AI can also be an effective tool for error detection. By analyzing patterns in equity plan data, AI can identify anomalies and discrepancies that could be indicative of inaccuracies or other concerns.

Enhancing Participant Education

One obvious area where AI will have a significant impact is employee education and communication. There are free tools that you could be using now to help with your educational program.

For example, Paz Dizon of Jazz Pharmaceuticals uses the AI tool SimpleShow to create videos explaining Jazz’s ESPP to employees: here’s an example. I was able to get both ChapGPT and Copilot to create an outline of a presentation to explain RSUs to employees. [I liked ChatGPT’s outline better but, for a minute, I thought I was going to be able to get Copilot to create the actual slides, complete with graphics to make them more visually compelling. Unfortunately, I couldn’t get the download link to work for the slide deck it said it had created. Copilot couldn’t figure it out either, which, okay, does kinda seem like an AI fail. But I think I might have gotten farther with both tools if I were willing to upgrade to the paid versions.]

Eventually, AI is going to go much farther than just helping you create materials for your educational program. Think about how much time you currently spend responding to employee inquiries. Chatbots could be used to offload much of that work, so that you only have to respond to the most complex questions.

In addition, AI-driven platforms might be used to generate customized dashboards that provide employees with an overview of their equity awards, including current value, vesting status, and potential future gains. AI might also be used to tailor educational content to individual employees based on their roles, levels of experience, and financial goals.

Enhancing Other Plan Communications

AI could be used to help create all your internal and external communications for your equity plan. Even now, you can use tools like Copilot and ChatGPT to help with drafting emails—everything from proofreading to actually writing the email for you.

AI could also help with more complex communications, such as a quarterly report to management on the status of the company’s equity plans or training on your equity program for your local payroll teams.

And then there are your external communications. Could AI be used to write a first draft of your CD&A or update last year’s equity plan disclosures in the notes to your financial statements? Maybe. Probably.

Supporting Strategic Decision-Making

AI’s ability to analyze large volumes of data could be a game-changer for strategic decision-making in equity compensation. Companies could leverage AI to gain a deeper understanding of the effectiveness of their equity compensation plans and make data-driven decisions to optimize them.

For example, AI might be used to analyze employee engagement and retention to determine the impact of equity compensation on employee behavior. This analysis could help companies identify which types of equity awards and features are most effective in motivating and retaining employees. Or AI might assist in benchmarking the company’s equity compensation practices against industry peers.

AI can also be used to model the financial impact of different equity compensation strategies, such as granting more RSUs versus stock options or adjusting vesting schedules, helping companies make informed decisions that align with their financial goals and long-term strategy.

Not So Fast: Potential Pitfalls of AI

AI has considerable potential to improve management of equity programs, but with any technology that is this powerful, there are also numerous concerns.

• Data Privacy: Equity plan data is highly sensitive. If AI tools are used to analyze this data or draft communications, it is important to ensure that this data is kept confidential and won’t be used inappropriately. For example, you obviously don’t want to use the free version of any AI tool to, say, draft a communication that includes any confidential information about your equity plan, since you don’t have any control over how these tools might use the information you provide. When it comes to your equity plan data, it is important to use AI tools that you trust to adequately protect your data.
• Misinformation: We’ve all heard stories of AI chatbots simply making things up. When it comes to communications about your equity plan, any misinformation could be very damaging to the company and to individuals relying on this information. Certainly, any content drafted using AI should be reviewed carefully for accuracy. And that chatbot I talked about above that can answer employee inquiries will need to have controls built into it to prevent (or at least minimize) the potential for incorrect responses.
• Bias and Fairness: AI models are a reflection of our society; as such, they can unintentionally perpetuate or exacerbate biases, especially when trained on historical data. When using AI for decision-making, it is crucial to audit for bias and to ensure that the process is as transparent as possible. This is especially important when it comes to employee compensation. The decisions you are making can be life-changing for employees; it is critical that they be fair.

More Reading

Want to read an uplifting story about benevolent but sarcastic AI? I highly recommend the Murderbot Diaries series by Martha Wells. Definitely start with book 1.