Reduce ESPP Reporting Friction with Equity Management Software

insightsoftware -
June 22, 2021 by insightsoftware

Global provider of enterprise software solutions for the Office of the CFO to connect to & make sense of data in real time, driving financial intelligence across the organization.

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Managing equity compensation plans, including employee stock purchase plans (ESPPs), can be a complicated process, even for companies that have been issuing equity compensation for some time. ESPP tracking and reporting, in particular, is especially challenging, and the cost of getting it wrong can be significant. That’s why many growing companies turn to equity management software to streamline and automate their ESPP reporting and equity management in general—tightening compliance, minimizing risk, and improving their overall productivity.

Let’s look at four ways in which companies can reduce the friction associated with ESPP reporting using the right equity management software and services.

1. Automate ESPP Processes

Many companies begin the process of managing equity compensation using manual processes. The challenge, of course, is that things can get enormously complicated very quickly. By the time a company goes public, employee participation in equity programs has typically expanded to the point that it has become unwieldy to manage those processes by hand.

Unlike many incentive stock option (ISO) programs, ESPPs typically involve more employees, more transactions, and complicated tax implications. Stakeholders expect to have ready access to information through an employee portal, an administrative console, industry-standard security, and more. Onboarding new employees or terminating existing employee relationships require substantial effort. Adding ESPP tax calculations to that mix creates a new layer of complexity on top of that. Equity management software streamlines and automates those processes, ensuring accuracy and simplifying workflows.

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2. Reduce Time-Consuming Paperwork

Meeting SEC, FASB, and IFRS regulatory requirements requires significant effort. As with most other compliance requirements, reporting errors can have serious, negative implications. To make matters worse, the job often falls to a single person with specialized knowledge of the systems and processes involved with ESPP record-keeping. Compliance requirements are often tied to rigid timetables, which means that you must do much of the work in a very short period of time.

When a company and its workforce is growing rapidly, manual ESPP reporting processes can become overwhelming. Using equity management software to handle the election and enrollment process can ease the paperwork burden, and plan administrators can ensure accuracy, improve the timeliness of reports, and lighten the workload associated with ESPP tax administration. Stock plan administrators indicate that Certent Equity Management software enables them to generate administrative reports 75–85 percent faster and cut the time it takes to collect enrollment information  by 80-90 percent.

3. Eliminate the Risk of Spreadsheet Errors

Many companies rely on manual systems and processes for equity plan administration, capitalization management, and disclosure filings. Spreadsheets have many virtues, but for administering equity plans, cap tables, and financial disclosures, spreadsheets have significant drawbacks.

Managing critical ESPP data in a spreadsheet is time-consuming and has the potential to introduce errors—for example, if you enter a formula incorrectly, key in the wrong data, or place a copy/paste process in the wrong location. Managing ESPP information in a spreadsheet quickly becomes unsustainable as the number of employees in your ESPP grows.

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Lack of integration between external systems and ESPP spreadsheets results in multiple documents and potential version-control issues. In addition, spreadsheets lack the necessary audit trails to ensure accuracy and trust. Finally, because spreadsheets lack proper security constraints, sensitive ESPP data and compensation information could fall into the wrong hands. In combination, these factors make security and auditing a nightmare when you’re managing ESPP data in a spreadsheet.

4. Plan for Scale

Many late-stage private companies make do with manual processes to manage financial reporting. As they prepare to go public, however, manual processes become increasingly untenable. Preparing for new types of equity compensation (such as ESPPs) once they go public introduces more complexity and makes the process of financial reporting more challenging than it has been in the past.

It is at this stage that company resources are often stretched too thin. The same people who are responsible for managing equity plans are deeply involved with advanced preparations for an IPO, preparation of financial statements, and more.

Company acquisitions add even more complexity to ESPP reporting, as the challenges of integrating data from acquired companies into your stock plan database consumes valuable resources at a time when finance and HR staff are already stretched very thin.

As companies grow, their reporting needs become more complex. That added complexity often requires an investment in purpose-built software that enables organizations to scale ESPP programs effectively and efficiently and get their equity management reporting under control without exposing their business to unnecessary risk.

Whether your company is still privately held or has already gone public, Certent Equity Management software and services from insightsoftware offer everything you need to manage, administer, account for, and report on equity compensation plans, including ESPP calculations. Streamline your equity management, tighten compliance, minimize risk, and improve your productivity. To learn more about Certent Equity Management, contact us today for a free demo.

Employee Stock Purchase Plan Management

Employee Stock Purchase Plan Management

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