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EquiLink™ Features & Benefits

The movement of employees affects every aspect of equity compensation. For example, an employee who moves to a new department will trigger a re-allocation of equity compensation expense for budgetary purposes. If the employee accepts a transfer to another country or state, the tax department will need to know where to claim the deduction. There are a great number of these categories, which overlap and proliferate throughout the company.

 

Employee movements are nothing new; however, equity compensation is. The requirement to expense grants of equity to employees has only been around since 2006 and many of the computations remain off-line, usually on spreadsheets. Linking these spreadsheets to employee movements can be challenging, particularly when each department is interested in a different type of movement.

 

The solution is to capture employee movements in a system, which can then allocate compensation expense, taxable gains and deductions in line with time spent in each category. So, departmental budgets reflect a charge for the equity compensation expense of an employee as long as he/she works in the department. Tax deductions are claimed in the appropriate jurisdiction. Deferred tax assets are re-valued to reflect at the correct tax rates.

 

Vesting schedules are an important part of this puzzle and need to be considered closely. An employee who exercises an option in one state, but vested in another, may be subject to tax in the second state. The company, in turn, will have an obligation to withhold the correct taxes.

 

Employee mobility creates a number of audit issues. External auditors are interested in verifying both locations and allocations that impact the financial statements, such as the disclosure of separate income statements for business units or markets. Boards are interested in performance, dilution and accountability, all of which are affected by mobility. The IRS will often demand a reconciliation between the employee’s W-2 and the deduction claimed on the corporate return as well as an understanding of the benefit generated by the employee in the U.S. State tax auditors have started looking into the location of employees during the vesting period in order to allocate a higher amount of the gain to their states. Tax inspectors outside the U.S. have always questioned the validity of intercompany charges, and will only grant a deduction for time spent in country. The documentation required to satisfy all of these constituents can be daunting, particularly as each is driven by a unique view of employee movements.

 

Rather than fight these issues out on audit, better to get them right from the start.

EquiLink is:

  • Used by Operations to manage their budgets.
  • Used by Human Resources to compute withholding taxes and analyze equity compensation across salary grades.
  • Used by Accounting to prepare journal entries and general ledgers.
  • Used by Tax to claim tax deductions and deferred tax assets in the correct jurisdiction.

EquiLink Key Features:

  • Creates an environment to store employee movements (Human Resources).
  • Allocates equity compensation expense for budgets and journal entries. (Accounting)
  • Supports compensation analytics, by country, pay grade, market, business unit.(Human Resources)
  • Links vesting schedules with time spent by each employee in country. (Tax, Accounting, Human Resources)
  • Allocates taxable gain by jurisdiction (Tax)
  • Generates intercompany charge-outs to foreign entities (Tax)
  • Values deferred tax assets based on where the deduction will be claimed. (Tax)
  • Provides solid audit defense for any allocation. (Accounting and Tax)
 
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