In part 1 we looked at some of the issues to consider when looking at a general agreement from a stock plan vendor. Today, let’s consider things you want to think about when reviewing the service agreement.
The service agreement defines the extent (and limits) of the services you will receive from the vendor, so a careful understanding of its terms is critical to ensuring long-term satisfaction in your selection. As we covered in Part 1, this type of review is something that you will want to do sooner rather than later as you are considering alternatives.
We encourage our clients to build a detailed outline of their own requirements to ensure that the service agreement matches expectations of what will need to be done. In fact, the biggest mistake a company can make is to rely upon the vendor to “build the box” in which you will be living. It is obviously far better to anchor expectations, and let it be known that your decision making process will rely mainly on the vendor’s ability to meet your terms than to try to try to figure out if your program’s needs will fit their offering. Start with these areas and questions:
- Implementation
- No vendor can be expected to be up and running overnight, and most have an implementation process (and fees) included to cover the set-up and acclimation process. There is usually a lot of wiggle room there in both the pricing for this set of services, as well as what is included. By reviewing the terms of the service agreement early in the selection process, you come in with a lot of leverage, and can often minimize the cost while maximizing what you get from your vendor. Things you might ask for include system review/clean-up, automation of the data feeds between your equity systems and payroll and/or HR, review of your processes and procedures, as well as limited technology builds and customization to handle unique requirements of your equity plans.
- Routine Administration and Processing
- Most service agreements should include a detailed list of routine activities included. Take care in reviewing this section, especially for what is not included. Things to look out for include exceptions or the omission of administration for ESPP, performance-based plans, as well as limits around activity, e.g. number of restricted stock unit releases that will be processed. The real thing to look out for, though, is an unwillingness to be clear in what is being delivered.
- Communications
- Look for clear language around responsibility for participant education (if applicable), especially with respect to both the frequency and type of content to be delivered. For day-to-day questions both from a management and participant perspective, the service agreement should cover business hours (your account manager/team may be completely across the country) and response time expectations.
Stay tuned for Part 3, where we will cover Termination, your outsourcing pre-nup.
Looking to outsource your stock plan administration? Don’t start without talking to Equity Point.