Employee equity programs can help engage your team by inspiring a culture of ownership. But like anything else, these programs come with some challenges. For many public companies, one of the biggest challenges is deciding whether to administer your program in-house, or to outsource it to a specialized equity compensation administration firm.
Whether you’re re-examining your plan design, attempting to address and resolve questions around complex accounting, reconciliation, or taxation issues, it’s worthwhile to explore the risks and compare the costs and benefits of conducting your equity administration in-house, or outsourcing it. We explore the pros and cons of each approach below.
Note: This analysis applies to public companies, but we’ve also written a similar comparison for private companies, which you can read here.
The Challenges With In-House Equity Administration
As a public company with an employee equity compensation program, every day the stock market is open you’ll have transactions that need to be processed and your equity compensation systems that need to be updated. Even if your team has the internal expertise to navigate the complexities of equity compensation, these regular demands can eat into valuable time and bandwidth that could potentially be better spent on higher ROI activities.
Some public companies will delegate their equity compensation administration responsibilities to internal departments like HR, accounting, or finance. But while your team may have some of the table-stakes knowledge to administer a program, they likely won’t have the specialized tribal knowledge it takes to optimize your equity compensation program, so that your employees are getting the most out of this benefit. Although equity compensation plans can be a very powerful component in your company’s overall strategy, there are a number of complexities to consider. These include share dilution, employee income reporting requirements, legal compliance, and properly accounting for expenses and liabilities in the company’s financial statements.
So while doing your equity compensation management in-house can appear to save you money superficially. In the long run, it can actually cost you by risking reporting and compliance requirements while taking valuable time and resources away from other crucial business operations your team could be focusing on.
The Benefits of Outsourced Equity Administration for Public Companies
For many public companies, outsourcing equity administration can be the better option. It frees up time and staff in-house, and also ensures that your equity compensation program and reporting are optimized to their full potential. In other words, outsourcing is a win-win, as your internal business operations and the equity administration process will run more efficiently.
The trouble with outsourcing your equity administration often lies in finding a partner that can manage your plan from end-to-end. Many companies only offer hyper-specific solutions or services, which may not be a fit for where you’re at or what you currently need.
If you choose to outsource your equity administration, it’s critical that you work with a firm that has a strong reputation and is knowledgeable of all equity compensation platforms that manage these plans. This means you want your partner to support the entire life cycle of your equity awards: from plan design to ongoing administration, accounting, transaction processing, communications, and more.
Wherever you’re at with your equity awards program, we’re here to help. Reach out to us today if you’d like to learn more about optimizing and outsourcing your equity administration operations.