The Go-To Guide to 2016-2017 Filing / Reporting Requirements for Global Employee Share Plans


It is almost the end of the calendar year, and in addition to wrapping up gifts and holiday parties, it is time for multinational companies to consider the necessary tax and regulatory filings for global stock plans triggered by the close of 2016. As you consider the steps your company may need to take to start the new year right, please see our Global Equity Services Year-End / Annual Equity Awards Filing Chart, which contains key filing and reporting requirements for 2016 and 2017.

Happy Holidays from Baker McKenzie – wishing you prosperity in the New Year and favorable equity regulations around the globe!

Brave New World: Withholding in Shares After Changes to ASC 718


Many companies are considering changing their tax withholding practices after FASB modified the accounting rules for share-based awards (ASC 718). For most companies, the modified rules become mandatory for accounting periods starting after December 15, 2016, although companies are able to voluntarily implement the revised rules earlier.

The changes to ASC 718 were mainly intended to facilitate tax withholding for equity awards granted to employees outside the U.S., but have also raised questions for taxes withheld for U.S. executives. Continue reading

Blame it on Switzerland


 If we are looking at significant trends in 2013 affecting equity compensation programs, then the rise of foreign asset and account reporting obligations will have to be one of them. And Switzerland is to blame for it, sort of.

For many years, wealthy individuals all around the globe, including in the US, have deposited millions of dollars in Swiss bank accounts, where local bank secrecy laws were thought to keep them hidden from the tax authorities. The IRS finally got fed up with this practice and started to aggressively pursue these hidden assets. Part of this strategy included introducing new reporting obligations (through the adoption of the Foreign Account Tax Compliance Act, or FATCA) as well as stricter enforcement of existing reporting obligations (by introducing harsher penalties for failure to comply with the Foreign Bank Account Reporting Act, or FBAR).

Under both FATCA and FBAR, US taxpayers are required to report (as part of their annual tax return) foreign bank accounts and other foreign assets, thereby ensuring that the IRS can get its share of taxes due on such assets. Many countries are now following suit and are adopting similar reporting requirements for their tax residents (Korea, Japan, Argentina) or beefing up and imposing stricter penalties for existing reporting requirements (Canada, Spain, Italy).

Getting people to pay their fair share of taxes is great but why should you care as an equity plan professional?

Well, if you are an issuer, then you most likely work with a broker/plan administrator that allows your plan participants to open brokerage accounts to hold their shares acquired under the plan as well as any proceeds from such shares. If these accounts are maintained outside the US, your US plan participants will need to comply with FBAR and FATCA. If the accounts are maintained in the US, many of your non-US plan participants (depending on their country of tax residency) will now also have to report such accounts.

Is this really your problem as an issuer?

No, technically, the obligation to complete the reports lies with your plan participant, and the company (or the plan administrator) has no liability if the plan participant does not report (or not correctly reports) the accounts or assets in the account. That said, I think it is fair to assume that many plan participants (especially if you are offering your plans not just to high level executives) are not aware of foreign account or asset reporting obligations, and it may not occur to many of them that, by participating in your equity plan and setting up a foreign brokerage account, they are now subject to these reporting obligations.

Given the stiff penalties that apply in many countries if accounts and assets are not correctly reported, I think it is good practice to notify your plan participants of these obligations and advise them to talk to their personal tax advisor about whether they need to complete a report. This notification (which usually does not have to be more than a paragraph) can be included either in the grant agreement/notice (or in a country-specific appendix to the agreement) or in a tax supplement (if your company provides such information to participants).

We will probably see more countries introduce foreign asset and account reporting requirements over the next few years, so make sure to review the requirements on a regular basis. Your plan participants will thank you for letting them know about these requirements and (hopefully) keeping them out of trouble.

Giving Employees a Choice


In the past several months, I have seen two companies (both large Fortune 100 companies in different industries) evaluate the merits of a choice program and it looks like both of these companies will move forward with such a program.

In both cases, the companies will let employee choose what type of awards they should be granted during the annual grant cycle, e.g., 100% RSUs or 100% options or 50% options/50% RSUs, and so forth. Usually, there is a default (e.g., 100% RSUs) if the employee fails to make a choice.


Choice programs are nothing new,  but they are often limited to top executives or used only in special circumstances.  Here, the choice will be offered to all employees who are eligible to receive equity grants during the annual cycle, for both companies a significant number. 

So, is this a trend or just a coincidence? More importantly, is it a good idea to offer a choice program? 

From a legal perspective, there are less issues than you might expect, provided the program is structured properly.  In particular, the choice should be made before the actual grant occurs, and it is important to communicate to employees that making an election does not guarantee getting a grant (for example, if an employee terminates employment before the grant date, they would normally not be able to get a grant, regardless of any election). 

The Remorse Risk

The most significant legal risk related to choice programs is what I call the “remorse risk” where an employee later regrets his/her choice and claims the company should compensate or put the employee in the financial position they would be in had they made the “right” choice.  The argument would be that the company failed to properly educate the employee about the risks related to the different choices. 

I am not aware of any lawsuits in this regard, but, in surveying our foreign offices, most of them identified the “remorse risk” as the most important and real risk.  To mitigate this risk, companies will need to bite the bullet and ramp up the education they provide to employees regarding the different types of awards.  A simple plan prospectus describing the awards is unlikely to be sufficient.  Companies should prepare different examples showing how the awards fare depending on the development of the stock price and consider providing employees with calculation tools to run their own numbers. 

In addition, it will be important to educate employees on the different tax treatment of the awards, especially in those countries where the treatment can be dramatically different (e.g., Canada, Brazil).  In my experience, many companies do not provide tax information to foreign employees.  And while I would argue that companies should always provide such information, I recognize that the risk of not doing so is currently low (at least for US companies). 

However, the situation is different for choice programs, because the tax treatment can have a crucial impact on the value of the respective award.  By not providing the employee with tax information, companies set themselves up for complaints that the employee was not able to make an informed choice regarding his/her awards, and the “remorse risk” looms large. 

Another issue to consider is translation of the documents.  Again, most companies do not translate their grant documents into local language.  Translation is typically not legally required, so companies shy away from the costs associated with translations.  However, if we really want to make sure that the employee understands the choices offered, a translation of at least the educational materials related to the choice program is advisable. 

Additional Bumps in the Road

Aside from the risks outlined above, the other legal issues are mostly benign.  In some countries (e.g., Australia, Malaysia), there is a risk that offering the choice will accelerate the securities filings which are normally due only when grant materials are distributed (after the grant), or create a second securities filing obligation (in addition to the after-grant filing).  However, even though these accelerated or additional filings can be annoying, they are typically easy to complete and a concern only in very few countries.

Last but not least, companies should consider the additional administrative burden as well as the expense created by a choice program.  In addition to preparing additional educational materials, as well as possibly translations, timing can also become a concern because the choice program should be offered at least 2-3 months before the grant date, which means companies will need to start preparing for their annual grants even earlier.  Then, companies need to think about how to offer the choice: will they hire a third-party vendor to administer the elections, should they build an in-house election tool, etc.?

There is no doubt that a choice program raises some legal risks not typically seen with “regular” grants and creates a significant additional administrative burden for the company.

However, employees will appreciate the opportunity to take charge of their financial destiny and become more engaged in the grant process, thereby maximizing the value of the company’s equity programs and increasing employee satisfaction.  Well, at least one can hope…

Spring Time for Annual Grants

  We are at a time of year when many companies are making their annual grants so let’s discuss some best practices and “do’s and don’ts” regarding the preparation for annual grants. I am approaching these issues mainly from a legal perspective, so my comments below omit crucial steps that should not be forgotten, such as working with your accountants to determine the expense for the grants, working with your outside plan administrator to ensure documents are posted properly and on time, brokerage accounts set up, etc.

Time is your Friend

Allow for enough lead time and start preparing at least 3-4 months before the grant date.

At that time:

  • Talk to HR about the proposed grant recipients
  • Determine the countries in which grants will be made
  • Determine the number of grant recipients in each country
  • Talk to Legal about any changes to last year’s grant terms and award agreements

If significant changes are considered, give yourself, and your advisors, even more lead time. At Baker & McKenzie, we have developed an annual grant questionnaire which lists all of the questions that you need to answer to get prepared for your annual grants, and we have found this tool to be very helpful in getting timely information from our clients.

Compliance is a Beautiful Thing

Once you have gathered the information above, ask your advisor to prepare or update a tax/compliance analysis for the upcoming grants. This can take the form of a chart, memorandum, or if you are not worried about having a paper trail, even a phone conversation. The purpose of this analysis is to evaluate if any changes in local tax or regulatory rules require changes to the current year’s grant practices.

Example: The Australian securities regulator has shocked us recently by declaring that RSUs are derivatives and can, therefore, not benefit from the typically available prospectus exemptions in Australia. If you normally grant RSUs in Australia, a decision has to be made whether to no longer grant such awards, grant a different type of award, assume the risk of granting, or seek a special exemption from the regulator. In the annual grant chart or memorandum, your outside advisor should discuss the different alternatives and provide a recommendation, but it is important to schedule a meeting or call with a cross-section of company representatives (usually Legal, HR, Stock Administration, Finance and Tax) to reach a decision that “works” for your company.

After the analysis and discussion within the company, you hopefully have a game plan regarding the types of awards you will grant and any filings or other compliance actions you must take prior to or upon the grant.

Jump into Action!

This is when we will shift to the preparation of the grant documents and requisite filings. If you are not implementing any significant changes to the award terms, usually only minor (if any) updates to the award agreement will be required. However, because country rules invariably change in the span of a year, you will see that country-specific appendices need to be updated and that there are often significant changes from year to year.

Practice Tips:

  • Should the changes require you to change the administration of the awards, make sure to discuss them with your broker to ensure the broker can manage any restrictions that you may have to impose (e.g., cashless exercise restrictions that are recommended or necessary in several countries to avoid regulatory or tax issues).
  • Give thought to the procedure for adopting any changes you make to your grant documents. Many companies have delegated the authority to prepare or amend grant materials to an officer of the company so changes can be implemented relatively quickly. Other companies require their Board or Compensation Committee adopt any amendments to award documents and/or country-specific appendices. In this case, you will need to allow enough time to get the amended documents in front of the Board or Compensation Committee.
  • If your company translates some or all of the grant documents, build in sufficient time to prepare/update the translations. Generally speaking, translations of grant materials are not legally required, but some companies determine that translations are advisable to ensure that grant recipients understand the terms of their awards or because the company has previously created a practice of translating grant documents which now has evolved into a legal requirement.
  • In case you have expatriate employees (and who doesn’t….), consider what grant documents to distribute to them. If you use global award agreements, this should typically not be an issue, because all grant recipients will receive the same documents, regardless of where they are located. However, if you use country-specific agreements, or a US agreement and a non-US agreement, this issue can be trickier, as you will need to decide whether to distribute the documents of the employee’s home or host country. Unfortunately, there is no rule of thumb that can be followed here, because the analysis always depends on the specific countries in question. I recommend you compile a list of the expatriates and discuss the best approach with your counsel.

Work with your outside counsel to determine any filing obligations that may be triggered by the grant and/or the distribution of grant documents to employees.

Example: In Malaysia, both a securities and a tax filing generally are required within a certain period of time after grant and distribution of the grant materials. This means you will need to keep your counsel apprised of when the grant documents are actually distributed to the grant recipients so that any filing deadlines can be met.

History Repeats Itself

Document your decisions. This will make it so much easier when you prepare for the following year’s grants or when you receive questions from employees or other colleagues within the organization.

The Last Word

Preparing and going through the annual grant process can be stressful because there are so many different moving parts. I strongly encourage you to establish annual grant practices and/or checklists that you can follow year after year, to make sure you can stay on top of legal requirements and adapt your grants to the ever-changing legal and tax environment for global equity awards.


Welcome to The Equity Equation!


Welcome to my first blog on the fascinating topic of global equity and incentive awards. I am a partner with Baker & McKenzie (in our San Francisco office) and have focused on advising multinational companies on all aspects of their global equity and incentive programs for over 14 years. I will use the blog to share my thoughts on new (or not-so-new) developments that could affect your equity or incentive programs, best practices for these programs, as well as industry news and company trends.

I am always open to suggestions for my next topic, so if you have an idea for a blog-worthy post, please feel free to share it with me at