Actions to Take When Facing a Corporate Action

December 18, 2014 Shareworks Marketing

How to be an action hero

An all-staff email from your CEO arrives in your inbox. Your company has acquired a start-up in New Zealand. You’d gotten a whiff of the action a few months ago, but nothing that seemed concrete. Now the water cooler is abuzz with speculation about the details of the deal, and you’re concerned about your equity plan. How will it be affected? Which equity administration system will go forward? Will you be responsible for administering the acquired company’s plan as well? These are all important questions to ask, and the answers will help you determine the best plan of attack.

Acquisitions are just one type of corporate action. In general, corporate actions are events that bring material change to a company and affect its stakeholders. Mergers, acquisitions, spin-offs, stock splits and repricings are all examples of corporate actions that can present new challenges to stock plan administrators. And they can occur at any time – at the end of a quarter or fiscal year, at the expiration of a large option grant or on the measurement date of your first performance award.

At Synergy 2012, our annual client conference, two industry experts discussed the topic of corporate actions. Drawing on their years of experience, they outlined some actions that stock plan administrators can take to get through these types of events.

Be prepared – and get ready to investigate

As was the case in the example above, you may not know about a corporate action until the day it is announced. To ensure you’re as prepared as possible, always know your plan inside and out, and maintain strong relationships with the various departments in your organization. Determine who your main contact is in finance, accounting, HR and payroll, so that you can quickly obtain any information you need when a corporate action is announced.

Post-announcement, deploy your sleuth skills and start investigating. The more details you have, the better you can understand how your stock plan will be affected. For example, are you acquiring a company with foreign operations? If you suddenly have international plan participants, welcome to global plan management! As a healthy start, you’ll want to familiarize yourself with the jurisdictions where your people are present, understand what is considered a taxable event in those areas and determine a system to track employee mobility. Involve your vendors early, as they typically will have plenty of experience with corporate transactions and will know how to handle the event in the system. For more insight on managing a global equity plan, read our two-part white paper, Granting Equity Globally.

Consider your participants

While you’re busy gathering the details of the corporate action, it’s easy to forget about the most important people in your stock plan – your current participants. Communication is paramount. Once you’ve got a firm understanding of how they’ll be affected, reach out to your participants regularly to ensure they understand how their plans will change.

Do the math

Some corporate actions require more number crunching than others. In the event of a corporate spin-off, for example, you’ll want to ask which ratio will be used to modify both the parent and child company’s grants. Will that same ratio be applied to different award types within your database? And can your equity administration system handle the proposed ratio? If not, contact your vendor to find a solution.

Again, communicate with your participants. Illustrate the effect of the transaction on your participants by modeling the treatment of grants and transactions both before and after the corporate action. In the case of stock splits and repricings, employees will be especially curious about the value of their awards and savings plans. Save yourself time by creating a repository in a central location, such as a section on your intranet, where you can post explicit examples. Pair the examples with a list of FAQs. Sometimes, seeing a list of questions can actually provoke a few more from your participants. If you get stumped, give your participants an approximate date they’ll receive the information and how it will be communicated.

Tap into your network

Finally, don’t go at it alone. Take stock of your professional network and ask your peers to share their experiences. Chances are, someone’s been through the exact same thing and can share valuable information. And you can pay it forward – document your processes so that future administrators who work for your company can learn from your experience and recommendations.

With a vow to do your due diligence and a commitment to communicate with your participants, you’ll be able to spring into action with confidence, no matter what corporate action you face.


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