How to Choose Employee Ownership Consultants
5. Choosing an Administrator
Here the task in selecting a service provider is relatively simple. Find an administrator with a good reputation, demonstrated expertise, and acceptable fees. The administrator will keep all the records, make sure forms are filed with the government, work with you to make sure participants get the information and distributions they need, and help integrate your plan into other plans you may have. The administrator should also be capable of helping you assess your repurchase obligation and plot strategies to deal with it. An accomplished administrator should also be a participant in the plan design phase, helping you to structure the plan so that you can actually live with it. It is advisable that your administrator be able to administer all your retirement plans. ESOP plan administration firms can do this, but many firms that focus on 401(k) or other plans may not have the right skills and systems for ESOPs.
Equity Compensation Issues
- Many companies administer their equity plans in-house, especially smaller companies. In fact, there are software programs on the market specifically designed for this. Companies can also outsource plan administration. This is common with larger companies who find it more cost-effective to have someone else administer a complex plan. The choice depends on the complexity of the plan, the company's knowledge and experience, as well as the company's desire to devote staff time resources to this process. At companies with broad-based equity plans, there can be thousands of employees with awards 'in the money," and at any time they can exercise those shares. If a company has little experience with administration, this can become difficult, confusing, and time-consuming.
- An outside administrator can also be useful for companies with few employees or infrequent transactions. From the perspective of employees, probably the most important consideration is access to their administrator. Most employees, however, have very little contact with their stock options administrator as the majority of employees appear to exercise and sell all their options in one day.
- If you have a broad-based equity compensation plan that delivers actual shares, and you are publicly traded, you probably will want to hire a brokerage firm to handle trades. These companies can help you set up and maintain a program to allow employees to exercise their awars through cashless exercises, stock trades, or other approaches. Most large brokerage companies now have special departments to handle this area. Fees and services vary widely, so comparison shopping makes sense. In some cases, brokerage firms also handle plan administration.
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