There are multiple factors to keep in mind when deciding which vendor(s) to go with to manage your companies stock plan. Aside from some of the high level factors outlined in High Level: Preparing Your Stock Plan For An IPO, we will dig further into what to consider in regards to selecting a provider(s).
In transitioning from a private to public company, you will want to have an understanding around the different kinds of vendors. In terms of overall vendor selection, you will need to consider the following:
- Broker
- Software platform
- Dedicated outsourced provider
- Temporary consultant
- In-house hire
Signing on a brokerage and implementing software are nothing short of essential. Software is required for the proper management of your companies equity plan and will need to be evaluated on the basis of cost, flexibility in broker selection, types of equity your company grants, the complexity of your companies plan, the user friendliness of a participant portal, custom reporting and accounting capabilities, etc. Another important point to consider is the limitations of software and the knowledge or experience level of a consultant, in-house hire, or outsourced provider who is going to be managing your plan…
A software system is essentially database management. The purpose of it is to track and maintain that database, while allowing the end user to export custom reports for other departments such as payroll, finance, legal, etc. The software system is also used as a means for your companies participants and executives to access, track, trade, and maintain their equity portfolios as well as some financial reporting capabilities. The systems don’t do much more outside of that. Without an experienced firm or stock plan administrator, you essentially have a ship with no captain…
You’re going to need someone who works within that system, inputting data, handling employee education/communications, answering participant questions, tax reporting and withholding, transaction processing, plan design and benchmarking, hosting shareholder meetings, ensuring compliance and auditing, proxy disclosures, Section 16 reporting, financial reporting, etc. You will either need to hire someone, bring on a consultant, or outsource the function.
Your needs will determine which of these routes you want to go down. There are many factors to consider but some of the questions you will want to ask yourself are:
- Does my company desire to keep the management of the stock plan internal and close to the heart?
- Does my company desire to outsource the function entirely and have it out of sight and out of mind?
- How much work do we anticipate before, during, and after the IPO?
- How knowledgeable is our team in regards to equity plan management?
- How much annual growth do we anticipate as a company in terms of participant/employee count?
- How complex is our equity plan and how much work does/will it take to manage it properly?
- Do we have the internal resources, time, or expertise to justify assigning the function to a current non-specialized employee(s)?
- Is my company large enough to justify hiring a full-time stock plan administrator as a specialty employee or would outsourcing prove to be more cost efficient?
Your answers to these kinds of questions will begin to reveal the best pathway for your company to take in managing the stock plan.
You may want to hire a consultant to come on board initially. They may handle the bulk of the initial workload. They may also serve as a strong point of support and guidance throughout the IPO process through leveraging their expertise. They can remain as needed, until the internal team is geared up to manage the plan or prior to fully outsourcing the function to a specialized firm, if desired. This is especially ideal if you are unsure in which direction to go, but want solid hands on deck in the meantime.
You may want to train a current employee internally or begin the recruiting effort to hire a permanent stock plan administrator. Bearing in mind that this usually means you are a fairly large company (an absolute minimum of 1,000-2,000+ employee’s) which justifies hiring a full-time internal resource or you currently have an employee who has adequate expertise. This brings with it the benefits and hands on approach of an in-house employee who becomes a master of your companies stock plan.
You may want to immediately outsource the function with a specialized firm to partially/completely take over the management of the equity plan. If done immediately, then this provides adequate time for the firm to integrate with your company and implement best practice and procedure going forward. This also maximizes the financial bang for your buck, eliminates the threat of turnover, and ensures your plan is in the hands of experts. When you outsource, you are typically leveraging the collective knowledge and expertise of an entire firm or team, rather than counting on a single consultant or employee’s experience. If you considering outsourcing to any degree or with any provider, you might want to read further in Selecting An Outsourced Provider & Differences In Services.
Our Take:
Equity Point is here to assist in not only providing further high level guidance (like what is outlined in this article) but open the doors to the different kind of specialized vendors in this space. We have partnerships with multiple software providers, outsourced providers, staffing and consulting agencies, and a network of independents to leverage and ensure you find the right vendor at the most competitive price. Talk to us and we can recommend specific options, gather quotes, provide consultants or candidates for placement/temp-perm.