Every company that can see an IPO in the distance will reach a tipping point, and ask itself, “what kind of stock plan department do I want to have when I grow up?” For an increasing number of the clients we talk to, they answer “none at all!” Of course, there will always be some equity compensation responsibilities maintained in-house, but more and more, companies are looking to carve out the day-to-day responsibilities that go with having a stock plan, and outsource it.
Here are the things you should think about once you have made that decision:
1. Understanding the job
How you define the role and responsibilities of your stock plan function is the most critical exercise you must go through to begin the process of outsourcing. What falls under the umbrella of “stock plan management” now? What should fall under it? And, how will it change once you go public? If you don’t have the experience and expertise to answer these questions internally, it is a good idea to look for outside (consultant) help to not only clearly define the job responsibilities, but also help you determine future responsibilities, as well as what tasks are better handled elsewhere in your company.
2. What will you outsource?
It is good idea to take the document you created in step 1, and group those tasks into broad categories. For example, many of our clients think in terms of:
- Database management/day-to-day processing
- Financial reporting, tax and accounting
- Participant Communications
- Section 16
- Other responsibilities which may be unique to each client
Once completed, you can now pencil out which pieces are best maintained in house, and which you would outsource.
3. Find your happy place
Now that you have a clear idea on what you will be outsourcing, the next step is to define success in your outsource relationship, then go find it. What is it that is going to make you ecstatic about your decision down the road? Top notch equity accounting? A committed account manager? As much automation as possible? A solution coupled with a state-of-the-art system? Get the stakeholders together and be clear about what the priorities are in finding the right solution. Then and only then are you are ready to start looking at alternatives.
4. Build a plan for choosing the best fit
With priorities in hand, you have the beginnings of a Request for Proposal (RFP). It doesn’t have to be as formal as all that, but you do have to have a plan for how you are going to winnow down the myriad alternatives in the marketplace. Leverage existing networks to determine who should be included (based on your priorities) and who should be left behind. And, once you start reaching out, be clear about your “must-haves”, so that firms that can’t hit your highest priorities can bow out gracefully. For those that are left, by being proactive in letting them know exactly what you are looking for, you have given them the opportunity to tell you exactly how they can meet your needs, rather than giving you the standard presentation.
5. Checking their work
Plenty of people you talk to will sound great, but you will want to do more than take their word for it. As part of your plan, you will want to determine what type of references you will ask for. Do you want a company of a similar size, or from similar industry? One that uses your same system, or offers similar equity compensation mix to their employees? If a great account manager is a top priority, you may want to consider getting a reference from a company utilizing the same account manager that would be assigned to you. Whatever the case may be, the important thing to remember is that checking references should be more than a pro forma exercise. Properly managed, the reference check should actually be a critical component in the decision-making process.
Outsourcing a stock plan is a lot of work, but if it is the right decision for you, it should be a decision you never look back from. The team at Equity Point is here to get you there.