This article is specific to outsourcing and, depending upon your situation, you may want to read IPO – Vendor Options, Selection, and Management first.
Outsourcing the stock plan administration function is common and often a great solution for many small and medium-sized companies. There tends to be different “degrees” of outsourcing within the industry, and not all providers of outsourced services are created equal. Thus, it can be hard to easily distinguish from among the various service offerings and understand their differences without digging deep.
If you are seeking to outsource the stock plan management function, you will find that many brokerages, transfer agents, software providers, and specialized firms offer outsourced solutions. Whether those outsourced solutions will be satisfactory for you depends upon your needs and expectations. Let’s reiterate, it’s about YOUR needs and what YOU’RE SEEKING.
If you are reading this, then you have already come close to deciding that you want to outsource stock plan administration. The next thing to consider after choosing to outsource is what you require from an outsourced solution. There tends to be two situations:
- Do you want absolute outsourcing? That is, to have a partner that completely manages nearly every aspect of the stock plan, allowing you and your team to minimize your role in the management of the stock plan to the largest extent possible.
- Do you want supportive outsourcing? That is, to have a partner who will handle some of the day-day routine functions, but still maintain overall management of the stock plan.
Once you have determined the type of outsourcing relationship, you can begin to determine which vendors are going to be the best fit for your needs.
A break down of how it works:
The general rule is that the competitive nature of the equity system, brokerage, and transfer agent landscape has spawned the need for many of these providers to offer some form of outsourced stock plan administration service. These outsourced services tend to be birthed from a desire to keep a competitive edge within the industry…meaning that this is typically not a primary focus but more of a secondary offer to be able to compete effectively for new clientele. These providers outsourced services are more like database management. They will handle the day-day data input, pull reports for you as needed, as well as offer a call center for your participants; however, you are not going to be getting the “white glove treatment” so to speak, at least where it comes to the administration of your programs. Outsourcing with one of these providers typically means they are taking on some of the day to day workload, but you will still be handling the burden of many other stock plan-related responsibilities internally and should not necessarily expect proactive guidance and support. This is not the case for all providers in this industry but it’s what we’ve seen. If you are in the second situation above, then this will likely satisfy your needs.
There are specialized service providers in this industry that offer the more all-inclusive outsourced services. These providers are generally agnostic with respect to your brokerage, transfer agent, or equity system, and are capable of not only managing every aspect of the administrative function but also covering equity accounting needs, executive form filings, proxy, etc. These firms are more than capable of providing that “white glove service” and assisting with complex projects and corporate actions. The difference that needs to be understood here is that this is essentially having a provider who is dedicated to this specific focus and if they do it poorly, they are out of business. Ever bought a product that did 10 different things, but it only did each thing half as good as another product that only did only that single function? Professional services is same so if you want the best, then don’t buy the multi-tool. If you are in the first situation above, then a specialized firm will be fit your needs.
Our Take:
Choosing the right equity compensation firm (or individual) to manage or assist in administering your stock plan is a process that begins by thoroughly understanding your own needs and requirements. Equity Point is here to assist you throughout the evaluation process, ensuring you make the right decision so you can move forward with confidence. Our partnerships span the industry and include equity software vendors, boutique stock plan outsourcing firms, staffing and consulting agencies, and a network of independents. We will help you find the best fit at the most competitive price, and help you put your stock plan stress behind you for good.