Defining Stock Administration Business Rules

This chapter provides an overview of the steps for setting up stock administration business rules and discusses how to:

• Set up foundation tables.

• Set up stock rules.

• Define stock details.

• Create stock agreements and legends.

• Define blackout rules.

• Define process groups.

• Allocate shares to treasury pools, stock classes, and plans.

Understanding Business Rule Setup

Before you can use Stock Administration to administer your stock plans, you must define the fundamental business rules for your system, including the rules that are common to your stock option and stock purchase plans. This section provides an overview of the steps to follow to set up the stock administration business rules.

To define the basic stock administration business rules:

1. Set up foundation tables.

   Usually set up only during system implementation, data in the foundation tables seldom changes.

   1. Specify the governing body for your stock plans and the governing body rules, including ISO Section 422 rules for stock option plans and Section 423 rules for stock purchase plans.

   2. Define the stock exchanges on which your stock trades, if applicable.

   3. Define the agencies that provide escrow or transfer agent services.

   4. Define the brokerage firms and branches that handle participants' transactions.

   5. Define the different fair market value (FMV) methods to use for stock transactions.

2. Set up stock rules.

   Here, you create a profile for your stock and define various attributes, some of which you can override at the plan level or stock detail level.

   1. Define a unique stock ID for your stock and specify the currency, CUSIP number, and par value.

   2. Link the stock ID to escrow and transfer agents.

   3. Link the stock ID to brokerage branches.

   4. Link the stock ID to the stock exchanges on which it trades.

3. Define stock details, including the FMV method, rules for handling fractional shares and non-trading days, default rules for stock option and stock purchase plans, and the earnings codes to use when sending tax and income information to Payroll for North America.

4. Create agreements and legends to use on stock transaction documents.

5. Define the blackout periods for the stock and designate the groups or individuals who are blocked from buying or selling stock during blackout periods.

6. Define process groups to use for processing stock transactions and reporting.

7. Allocate shares to the treasury, stock classes, and stock plans.

Setting Up Foundation Tables

To set up foundation tables, use the Governing Body Rules (ST_GOVERN_BODY), Exchange Table (ST_EXCHANGE), Transfer/Escrow Agency (ST_AGENT), Brokerage Table (ST_BROKERAGE), Brokerage/Branch Table (ST_BRKR_BRANCH), and the FMV Method Table (ST_FMV_MTHD_TBL) components.

This section lists the reports that you can generate for foundation tables, lists prerequisites, and discusses how to:

• Specify the governing body for your stock plans.

• Define ISO Section 422 rules for stock options.

• Define Section 423 rules for stock purchases.

• Define the stock exchanges on which your stocks trade.

• Define the transfer/escrow agents for your stock.

• Define the brokerage branches that participants use.

• Define FMV (fair market value) methods.

Foundation Table Reports

You can generate the following reports to review information in the foundation tables:

• Governing Body Rules report (STUSU001)

• Exchange Table report (STSU002)

• Transfer/Escrow Agency report (STSU003)

• Brokerage Table report (STSU004)

• FMV Method Table report (STSU006)

See Also

Stock Administration Reports

Prerequisite

Before you define the stock exchanges on which your stock trades, set up a unique holiday schedule for each exchange.

See Also

Defining Holiday Schedules

Pages Used to Set Up Foundation Tables

Specifying the Governing Body for Your Stock Plans

Access the Governing Body Rules - General page.

Governing Body Rules — General page

Only IRS (USA) regulations are supported and the system displays amounts that comply with IRS requirements. You can enter other governing bodies, but they are not supported.

Defining ISO Section 422 Rules for Stock Options

Access the Governing Body Rules - Stock Option Rules page.

ISO Section 422 Rules

The system displays default amounts defined by the IRS for qualified stock option plans and employee stock purchase plans as of 1/1/1933, the date that IRS Section 422 regulations became effective. You can change the default amounts if, for example, you want to make all your equity plans more restrictive. If you make the amounts more generous, your plans may not comply with regulatory agency rules and securities laws.

Grace Period - Months

Disqual Disposn Hold Period (disqualifying disposition hold period)

An ISO grant must be held a minimum number of years from the grant date to be considered a qualifying disposition when it is sold.

Defining Section 423 Rules for Stock Purchases

Access the Governing Body Rules - Stock Purchase Rules page.

The system displays default amounts defined by the IRS for qualified stock option plans and employee stock purchase plans as of 1/1/1933, the date that IRS Section 423 regulations became effective. You can change the default amounts if, for example, you want to make all your equity plans more restrictive. If you make the amounts more generous, your plans may not comply with regulatory agency rules and securities laws.

Defining Stock Exchanges

Access the Exchange Table - General page.

Enter a description of the exchange, the currency code, and holiday schedule.

Defining Your Transfer/Escrow Agencies

Access the Transfer/Escrow Agency - General page.

DTC Account Nbr (Depository Trust Company account number)	Enter the electronic ID of the transfer agent, escrow agent, or institution for electronically issued shares. This ID can be alphanumeric.
Agency Type	Select the type of service that the agency provides. Values are Escrow, Transfer, and Escrow/Transfer.

Defining Brokerage Branches

Access the Brokerage/Branch Table page.

Enter the branch’s address information.

Defining FMV Methods

Access the FMV Method Table page.

Stock Administration enables you to select the same or different FMV methods for your various stock plans.

Trading Day

Select which day’s stock price to use for the FMV calculation.

Price

See Also

Setting Up and Working with Currencies

Setting Up Stock Rules

To set up stock rules, use the Stock Table (STOCK_TBL), Stock Agent Table (STOCK_AGENT), Stock Branch Table (STOCK_BRANCH), and the Stock Exchange Table (STOCK_EXCHANGE) components. This section provides an overview of stock rules and discusses how to:

• Create a stock ID.

• Link escrow and transfer agencies to a stock.

• Link brokerages and their branches to a stock.

• Define brokerage branch contacts.

• Link a stock exchange to a stock.

Stock Rules

After you set up foundation tables, create a key identifier for your company’s stock and add default values for your stock plans, including the stock's par value, CUSIP number, and the accounting standard for valuing stock options and purchases. You can override some of these values at the plan level to accommodate special circumstances or at the stock detail level as the profile of your stock changes over time. For instance, your stock exchange and symbol might change, but the key identifier remains the same.

Reports that are relevant to the tasks that are discussed in this section are:

• Stock Agent report (STSU017)

• Stock Branch report (STSU018)

See Also

Stock Administration Reports

Pages Used to Set Up Stock Rules

Creating a Stock ID

Access the Stock Table page.

Par Value	Enter the stock’s par value. This is informational only.
CUSIP Number	Enter the stock’s CUSIP number.
Accounting Standard	Select the financial accounting standard that your organization has adopted for valuing stock options and stock purchases. Values are: FAS 123 and APB 25.
FAS 123 Adoption Date	If applicable, enter the date your organization adopted FAS 123.
FAS 123 Disclosure Date	Enter the date your company either adopted the expense recognition requirements of FAS 123 or began to disclose the proforma impact of FAS 123. If you selected FAS 123 as the accounting standard, enter the first day of your company’s first fiscal year after 12/15/1995. If you selected APB 25 enter the first day of your company’s first fiscal year after 12/15/1994. Note. When you run the Valuation Audit report, the system identifies all grants issued after this date that do not have a valuation record.
Days to Display	Enter the number of days that you want to display on the Daily Prices page.

Displayed Tracking Numbers

These tracking numbers (Last Grant Number, Last Exercise Number, and so on) are display-only and are continuously updated to reflect transactions processed by Stock Administration. The numbers start at 0 (zero) for each new stock ID.

See Also

Accounting for Stock-Based Compensation Plans

Specifying Daily Stock Prices

Linking Escrow and Transfer Agencies to a Stock

Access the Stock Agent Table page.

Linking Brokerage Branches to Stock IDs

Access the Stock Branch Table - General page.

Last Control Nbr	This field displays the last control number used for this branch.
Control Number Prefix	Enter a prefix to associate with a last control number. The system will generate a sequential number with the prefix that you enter. For example, you may want to enter 2000 to identify the last control numbers from calendar year 2000. This field is optional.

Manage Fees

Select the fee fields to enable on the Exercise Sales and Release Sales pages. You may select more than one.

Captive Broker

Defining Brokerage Branch Contacts

Access the Stock Branch Table - Contact page.

Contact Type

Values are: Administrative, Broker, or Administrative/Broker. You can identify one person or different people to serve as the administrative and broker contact.

Linking a Stock ID to a Stock Exchange

Access the Stock Exchange Table - General page.

Trading Symbol	Enter the stock’s trading symbol.
Price Source	Enter the source used to report and track daily prices. This field is for information only.

Defining Stock Details

To define stock details, use the Stock Details (STOCK_DTL) component. This section discusses how to:

• Define the general characteristics of your stock.

• Define common rules for stock option and stock purchase plans.

• Define stock option plan rules.

• Define stock options earnings codes.

• Define stock purchase plan rules.

• Define stock purchase earnings codes.

Use the Stock Details component to define the attributes of your stock that can change over time, such as the transfer agent, rounding rules, and earnings codes. You can change a stock's attributes, such as when a stock changes from private to publicly traded, and maintain consistency of the other features of the stock.

Generate the Stock Detail report (STSU019) to view stock detail information.

See Also

Stock Administration Reports

Pages Used to Define Stock Details

Defining the General Characteristics of Your Stock

Access the Stock Details - General page.

Public/Private	Selecting Private indicates that the stock is not publicly traded on an exchange and the Daily Prices page displays only Private. The default is Public.
SEC Registered	Select if your company’s stock is registered with the SEC.

Defining Common Rules for Stock Option and Stock Purchase Plans

Access the Stock Details - Common Rules page.

FMV Method	Select the method to determine fair market value. FMV methods are defined on the FMV Method Table page.
Net Earnings Code	Select the earnings code that is used to net out the taxes sent to Payroll for North America so that a check is not generated.
Decimal Places	Specify how many decimal places to use for fractional shares and stock prices. Enter a number from 1 to 6.
Rounding Rule	Specify how to round the fractional shares and stock prices.
Holiday	Determine which day's price to use when an FMV calculation includes a holiday. Values are Previous Trading Day and Next Trading Day.
Weekend	Specify the combination of day's prices to use when an FMV calculation includes a weekend. Values are: Both Next Trading Day. The system uses the next trading day's price for both weekend days. Both Previous Trading Day Saturday Next - Sunday Previous Saturday Previous - Sunday Next

Defining Rules for Stock Option Plans

Access the Stock Details - Stock Options page.

Stock Option Earnings Codes	Click to access the Stock Option Earnings Code page, where you can define stock option earnings codes.
Year Rule	Select either Calendar Year or Fiscal Year to indicate how your company calculates any company-mandated annual share limits on stock option grants to optionees. Select Calendar Year if your company does not impose a share limit. If you select Fiscal Year, use the Stock Fiscal Year page to define the fiscal year.
Limit Rule	Select Stock Limit if your company limits the number of shares granted to each optionee for this stock ID. Select Stock Plan if your company limits the number of shares granted to each optionee by stock plan.
Optionee Limit	Enter the number of shares each optionee is limited to. This field is available if you select Stock Limit as the limit rule.
Vesting Rule	Specify the rule to use for handling the amount over the ISO limit. Select Even Distribution of ISO to use the same percentage over the limit to determine the total non-qualifying (NQ) shares. Select Maximum ISO limit each year to use the actual percentage over the limit to determine the total NQ shares.
Repricing Rule	Select the rule for determining how repriced grants contribute to the ISO limit. Select First Exercisable All Years to look at the shares first exercisable in all years. Select First Exercisable as of Reprice to look at the shares first exercisable the year of the reprice up to the reprice date.
Use Captive Broker	Select to require that participants use a captive broker for options transactions that require a broker.
Prompt Option Agreement	Select to have the system display a warning message for exercise transactions that do not have a related agreement on file.

See Also

Validation of ISO Limits

Defining Stock Option Earnings Codes

Access the Stock Option Earnings Codes page.

Select the earnings codes for sending option income and taxes to Payroll for North America. The payroll system can then include these amounts in the employee’s year-to-date earnings totals and taxes.

Calculate Taxes Earnings Code

Select the tax earnings code to use for stock option transactions.

Ordinary Income Earnings Codes

Select the ordinary income earnings code to use for each type of stock option transactions.

See Also

Defining Earnings Codes and Earnings Programs

Defining Stock Purchase Plan Rules

Access the Stock Details - Stock Purchases page.

Stock Purchase Earnings Codes	Click to access the Stock Purchase Earnings Codes page, where you can define ordinary income earnings codes for disqualifying and qualifying dispositions.
Governing Body	The regulatory body that governs equity compensation plans.
Purchase Limit	By default, this field displays the purchase value limit defined on the Governing Body Rules- Stock Purchase Rules page. You can change the value.
Interpretation	Select Calendar Year if the purchase limit spans a calendar year. Select Years Outstanding if the purchase limit spans an offering period greater than a calendar year.
Use Captive Broker	Select to require that participants use a captive broker for stock purchase transactions that require a broker.

See Also

Defining Earnings Codes and Earnings Programs

Defining Stock Purchase Earnings Codes

Access the Stock Purchase Earnings Codes page.

Creating Stock Agreements and Stock Legends

To create stock agreements and stock legends, use the Stock Agreement Table (STOCK_AGREEMENT) and Stock Legend Table (STOCK_LEGEND) components.

This section provides an overview of stock agreements and stock legends and discusses how to:

• Create stock agreements.

• Create stock legends.

Stock Agreements and Legends

Use the Stock Agreement Table page to create an agreement ID to include with participants’ stock agreements. Use the Stock Legend Table page to create boilerplate text for the Transfer Agent Issuance Instructions report. Later, for each stock plan participant, you’ll enter issuance instructions and select a stock legend on the Issuance Instructions page. You use the legends to communicate instructions to a transfer or escrow agent when you issue stock to participants.

You can generate the following reports for stock agreements and legends:

• Stock Agreement report (STSU012)

• Stock Legend report (STSU010)

See Also

Stock Administration Reports

Pages Used to Create Stock Agreements and Legends

Creating Stock Agreement IDs

Access the Stock Agreement Table page.

Agreement Type

Select Purchase if the agreement is related to stock purchase plans, or Option if the agreement is related to option plans.

Defining Stock Legends

Access the Stock Legend Table page.

Instructions

Enter the legend instructions for the transfer agent.

Defining Blackout Rules

To define blackout rules, use the Stock Blackout (ST_BLACKOUT) component.

This section provides an overview of blackout periods and discusses how to define blackout periods and affected participants.

Blackout Periods

Blackout periods specify when designated groups or individuals are blocked from buying or selling company stock. For the blackout periods that you define, you can select a combination of insiders, such as reporting persons, directors, officers, and individual participants, or you can blackout all participants. On the Insiders page, you associate individuals to the insider types. They are then subject to the defined blackout periods.

Generate the Stock Blackout report (STSU014) to view stock blackout information.

Pages Used to Define Blackout Rules

Defining Blackout Periods and Affected Participants

Access the Stock Blackout page.

Blackout All	Select to indicate that the blackout applies to all participants for a stock option or stock purchase plan. If you try to exercise or release an option using a method of same day sale or sell to cover, or you enter a disposition during a blackout period, the system displays a warning message. If you select this, the other check boxes default as selected and Additional Insiders(s) is made unavailable.
Reporting Person, Director, Office, Company Insider, and Beneficial Owner	Select to indicate that the blackout applies to persons given the same label on the Insider page. If you try to exercise or release an option using a method of same day sale or sell to cover, or you enter a disposition during a blackout period, the system displays a warning message.
Additional Insider(s)	Click to access the Additional Insider page, where you can designate additional individuals to be subject to the blackout period.

Defining Process Groups

To define process groups, use the Process Group (ST_PROCESS_GRP) component. This section provides an overview of the purpose of process groups and discusses how to set up process groups.

Purpose of Process Groups

You can use process groups to group participants for processing, reconciliation, and reporting. You assign participants based on the company and pay group of the contributions gathered from Payroll for North America or from manual contributions. For stock options, you can use process groups to run various stock option reports or to report stock options transactions by company and pay group. Process groups enable you to process groups based on company and pay group combinations.

Generate the Process Groups report (STSU026) to view process group information.

Page Used to Set Up Process Groups

Setting Up Process Groups

Access the Process Group page.

Contact	Select the employee ID of the process group contact.
Company	Select a company to include in the process group. All companies in a process group must have the same currency.
Pay Group	Select the pay group within the selected company to include in the process group. All pay groups in a process group must have the same currency. Note. The currency codes for the company and pay group must match.

See Also

Setting Up Organization Foundation Tables

Allocating Shares to the Treasury, Stock Classes, and Plans

To allocate shares to the treasury, stock classes, and plans, use the Stock Treasury Table (STOCK_TREASURY), Stock Class Table (STOCK_CLASS), and Stock Plan Table (STOCK_PLAN) components.

This section provides an overview of the share allocation procedure, lists common elements, and discusses how to:

• Define a treasury pool for a stock.

• Allocate shares to the treasury.

• Define stock classes for a stock.

• Allocate shares to a stock class.

• Define stock plans.

• Allocate shares to a stock plan.

Share Allocation Procedure

After you create a stock ID and define the attributes of your stock, define the stock's treasury pools, stock classes, and stock plans and allocate shares to each.

Use the Stock Treasury Table component to set up the initial stock allocation. Later, you can change the stock allocation based on board or shareholder approved actions, stock splits, or adjustments. You can set up a treasury ID for each class of SEC approved stock: common shares, preferred shares, and warrants.

The Stock Class Table component enables you to store and track different classes of equity securities. You can set up one class of common shares, multiple classes of preferred shares, and multiple classes of warrants. Then you allocate shares from your stock treasury to your various stock classes. You establish attributes related to the class of stock and track allocations to each individual stock class.

Use the Stock Plan Table component to allocate stock from your treasury to individual stock plans. You can create multiple plans for each stock plan types: stock option, stock purchase, and stock bonus.

Allocation Reports

You can generate the following reports to view stock allocations:

• Stock Treasury Table report (STSU015)

• Stock Plan report (STSU016)

• Stock Allocation report (STSU024)

See Also

Stock Administration Reports

Common Elements Used in this Section

Pages Used to Allocate Shares

Defining Treasury Pools for a Stock

Access the Stock Treasury Table - General page.

Approval Date	Enter the date that the treasury was approved.
Expiration Date	Enter the date that the treasury allocation will no longer be active.

Allocating Shares to the Treasury

Access the Stock Treasury Table - Allocation page

Approval Date	Enter the date that the SEC approved the plan.
Details	Click to access the Stock Treasury Details page, where you can add comments about the treasury allocation.

Associating Stock Classes with Stock IDs

Access the Stock Class Table - General page.

Approval Date

Enter the date that the stock class was approved.

Allocating Shares to a Stock Class

Access the Stock Class Table - Allocation page.

Allocation 1 Tab

Allocation 2 Tab

Defining Stock Plans

Access the Stock Plan Table - General page.

Approval Date	Enter the date the stock plan was approved.
Expiration Date	Enter stock plan’s expiration date. This field is not available if the plan type is common or preferred.

Note. For stock purchase plans, the stock plan ID must match the benefit plan ID set up by your benefits administrator on the Benefit Plan table.

Allocating Shares to a Stock Plan

Access the Stock Plan Table - Allocation page.

This page is similar to the Stock Class Table - Allocation page.