Expedite Your Plan Approval Process in Five (Not So Simple) Phases

August 14, 2019 Dee Crosby


Synergy 2020 Icon This topic was initially delivered as a session at Synergy 2019 in Scottsdale, AZ.
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Is your company preparing a new equity plan or making substantial changes to an existing plan? Or – more likely – does your existing plan need additional shares?  That means that you’ll need shareholder approval.  This may seem daunting, but with a little advance work, it doesn’t have be difficult.  Understanding the process will not only expedite approval, but it will highlight where you can add value as a stock plan administrator! And – by working smarter, you will ultimately get approval faster.

Let’s look at the five stages of the approval process to see how working smarter will expedite the approval process and highlight where stock plan administrators can participate.

Step One: Planning Phase

All projects need a good plan, and obtaining shareholder approval is no exception.  This is a critical step that is often rushed or overlooked.  Time spent planning will ultimately shorten the approval cycle. And a good plan will help with future approvals as well.

First, who should be part of this process?  Many companies limit the shareholder approval process to a small group consisting of various board members, legal counsel, external consultants, and top executives. But by including internal and external stakeholders from the beginning, the amount of rework or unexpected outcomes can be significantly reduced.  Consider including:

  • Internal stakeholders (e.g., HR, internal legal, finance, accounting, tax, stock plan administration, payroll, corporate governance, senior management, internal auditors)
  • External stakeholders (e.g., compensation consultants, outside legal counsel, proxy advisor services, auditors, select shareholders)

Not all of these groups will be needed for every change or by every company. And some may only be needed to review certain portions of the process. But during this planning phase, consider what value each of these perspectives can bring to the process.

Start planning with a look at the “big picture” – this means taking a step back and viewing your current needs, your immediate future needs, and your long-term goals for your equity plan.  For example, what is your current share reserve and how long will that last with the current burn rate?  Will your needs change in 1,2 or 5 years? Is your company at the brink of a large growth period, or is it mature and steady?  Are you a target for an acquisition or a merger?  Do you have adequate change in control provisions?  Will you be adding an ESPP?  What is the reason you need a change to your plan NOW?  Will you need the service of outside consultants such as compensation experts or guidance from institutional investor advice firms such as ISS or Glass Lewis?  All of these questions will help you structure a plan for obtaining shareholder approval for your current needs – and for future needs.  Elements of your plan should include resources needed (internal and external), timelines (ensure adequate time so you do not run out of shares!), and information on major shareholders.

Stock plan administrators normally have access to all types of valuable information to help with the planning phase. Data on existing share pool balances, burn rates, forfeitures, ESPP participation rates, underwater options, and the like can all be extremely beneficial at this stage.

Step Two: Design Phase

Once you have your strategy in place, you can begin designing your plan – or designing the changes to your plan.  Your plan design is a balance between the needs of your company, the company culture, the plan participants, and the shareholders.  Therefore, a holistic approach to plan design is needed. You cannot design a plan around one faction or for one point in time – allow for flexibility. For example, if a company only grants options, designing a plan just for options may not meet the needs of that company in 2-3 years. An omnibus plan that allows for RSAs, RSUs, options and performance awards would be a better design, even though the company may only issue options for the short term.

Concentrate on the details in this phase to expedite the approval process. Look at your plan features: how do your plan provisions compare to your peers?  Is your plan competitive?  Overly generous? The nice thing about public companies is that this information is available online.  There are no secrets in today’s internet-connected world.  Make use of this data to fully understand how your plan provisions will be viewed by your shareholders.  Do you have anything that is unusual, unique or just odd?  Comparing your plan to others in your industry or sector can highlight areas where you may need additional analysis or information.  Stock plan administrators can add value by providing that peer data or by sharing their industry experience.  Many companies will also utilize outside compensation consultants during this phase as well, to ensure that the new plan (or plan changes) are competitive and comparable to other plans in their sector.

Next, if your plan does have any unique elements that might require an explanation, you should plan on creating a good explanation for why that element is needed. Your company may understand why your dividend equivalents are payable prior to the vesting of the underlying award, but that doesn’t mean your shareholders will “get it”.  Will you need an outsider review of those details to make sure that shareholders understand the reasons for your plan provisions?  Crafting a well-written explanation during this phase will save time later.  And it is always better to have an explanation already prepared rather than being caught off guard by a question from a shareholder.

Step Three: Review Phase

Having multiple people and departments (and even outsiders!) review your plan is essential to achieve shareholder approval.  Internal departments such as finance, HR, legal and of course, stock plan administration, should have the opportunity to assess the plan in multiple areas, including but not limited to:

  • Does the plan meet industry and peer standards, as well as current best practices?
  • Have you addressed proxy advisor guidelines regarding the number of shares requested and plan features?
  • If any plan features are outside guidelines, does the plan address why it is outside and why the plan is still “good”?
  • How does it compare to previously approved plans?
  • Have you evaluated internal processes that may interact with the plan including payroll, HR, global compliance, LOAs, retirement, financial reporting, etc?
  • Will additional participant education be required for any new award types?
  • Can your service provider manage all the plan provisions?

Stock plan administrators can play a pivotal role in the review stage.  Administrators regularly interact with numerous internal and external departments and may be able to spot potential issues or problems.  Most stock plan administrators can share a few stories about being asked to administer impossible plan provisions!

Step Four: Assessment Phase

The recommendations generated from the review phase must now be evaluated.  Some changes may be unrealistic from a cost, benefit or company culture perspective. Each company will have its own risk profile and must determine what changes to incorporate, and what elements to leave alone.  Stock plan administrators can add value at this phase by speaking up in response to the evaluation.  The cross-functional knowledge and experience of the administrator is invaluable when trying to determine if a particular change is actually needed or if an item is truly non-negotiable. For example, the stock plan administrator may address concerns from the HR department about offering ISOs when the company has employees in Pennsylvania (which does not recognize ISOs) by demonstrating the capabilities of their stock plan administration software, as an example.

If substantial changes are made, this may require another pass through the Design and Review Phases.  Just repeat the steps until there is agreement that the plan is “final”.

There may be provisions that are non-negotiable even if they are problematic in terms of potential approval. These could be linked to company culture or based on trends in a particular industry.  Examples include a single trigger change in control provisions or generous share recycling.  In these cases, the company will most likely receive a negative recommendation from the proxy advisors. The best strategy, when faced with a possible negative recommendation, is to plan for it. Don’t assume that it will all work out – have a response ready and incorporate that into your proxy materials.  Remember back in the design phase where you explained why those unique provisions were critical to your plan’s success?  Now you can use those well-crafted explanations to your advantage.  Make sure your shareholders have access to that information before voting starts.  Many companies will use a road show, or have their board members reach out to select shareholders.

Finally, you should always have a Plan B ready. If shareholders do not approve your plan, be ready with an alternative.  This could be a cash compensation plan or a reduction in the number of awards or shares to make your current pool last until you can present the changes again for consideration.  Don’t be caught unprepared.

Step Five: The Vote

In preparation for the vote, make use of all the work you have done up to this point. Include your holistic approach in your proxy materials to illustrate how this plan balances the needs of the company, the company culture, the plan participants, and the shareholders. Mention any unique provisions and portray them as a positive element – not a negative one – despite what the proxy advisors may say.

Once the vote is complete, you cannot just sit back and relax! If the plan is approved, congratulations! Now get to work on the next iteration.  No plan is stagnant.  Changes will be needed, and you should be ready. And if you are the stock plan administrator, now you can begin to administer this plan (or the new changes) that you helped bring to this stage.

If the plan was not approved, you can implement your Plan B, and work on revising your design and beginning the process again – reassemble the team and start fresh.


Obtaining stock holder approval for an equity compensation plan is a process that most public companies must go through several times.

Here are some final tips:

  • Understand the process
  • Have a plan and start early! The shareholder meeting is your hard deadline – don’t wait.
  • Use a holistic approach. Understand the goal of the plan and balance needs of the company, culture and current acceptable design.
  • Make sure your team has all the necessary members – internal and external
  • Know industry trends
  • Know current regulations
  • Know your shareholders
  • Understand the role of the proxy advisor and know that a negative recommendation is not the end of the world
  • Expect the unexpected

As a stock plan administrator, you can consider each of the items below as additional opportunities to demonstrate your value throughout the process:

  • Be part of the team – volunteer if anyone is asking.
  • Don’t let them forget stock plan administration – if they don’t ask you to be part of the team, offer information, assistance, or advice.
  • Provide information on the current plan.
  • Communicate potential risks or costs associated with the proposed plan design.
  • Communicate and discuss impractical plan provisions.
  • Understand the impact and structure of cross-functional responsibilities – you are in a unique position to see these interactions.
  • Read and know your plan.

By working smarter, being prepared, and utilizing internal and external resources, you can streamline the process for you and your team.


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