For share scheme administrators, the vesting process has remained predominantly a segregated task, relying on specialised input from various stakeholders and often outsourced parties. However, cloud-based digital solutions offer a unique approach to this delicate process, designed not only to assist administrators with the annihilation of repetitive tasks, but also with the accuracy of the awards to employees. Ultimately, employees’ pay-out relies on the vesting process for 100% accuracy so any innovation that can help achieve this should be a welcome solution.
Testing the limits of a manual vesting process
To add to the already gathering list of complexities in the management of share-based schemes, additional intricacies include the management of appropriate deferred profiles, retention conditions and performance vesting conditions.
Ongoing vesting management is reliant on key skills, transparency, and human precision. In addition, it involves many complex calculations which have a direct impact on your employees’ payouts. Unfortunately, vesting calculations can’t always reliably be performed in-house without a live data source. Furthermore, looking to outsource this is usually expensive.
Where does this leave the vesting administration team? Well, it means a perpetual cycle of extremely tedious and error-prone tasks. Ultimately, the vesting election process, the collating of settlement instructions and the communication with staff stand to suffer delays to vesting and releases.
It is also difficult to manage and maintain bespoke limits and rules (especially for companies with a large participant base) because there are so many rules, tax and accounting implications that govern these.
Where can technology help the vesting process?
But these complexities shouldn’t prevent you from issuing a scheme that is most appropriate to your business. The introduction of technology into the vesting process can aid in all areas of administration and calculation. There really is no need to pay eye-watering consultation costs for tasks that can be fully automated and run by your highly-skilled team. The below are only some of the areas in which technology can streamline, automate and execute tasks and act as a strong member of the administration team.
Something to watch the “many moving parts”
With technology, task management mechanisms and system controls are used to remind administrators of upcoming tasks and prompt proper processes to be followed. Since there are many moving parts to this process, digital tech can allow access to many stakeholders with different access rights to perform and approve tasks.
Transparent vesting reports at the click of a button
In terms of calculations, you need to make sure that you have a robust solution to assist with vesting estimates and vesting result calculations during the life of, or at the end of, a vesting period. These calculations should ideally be automated and pull live data to produce fully transparent vesting reports that can then be shared with the RemCo and other stakeholders. This will essentially bring in subject matter experts without the high costs.
Trackable, digital communication with your employees
For any cliff vesting election process, you need to be able to collate instructions from employees digitally by allowing participants to submit instructions online. These can include the option to sell for tax, sell all, or retain all your shares. These processes can then be tracked without phone calls or manual follow-ups.
Without technology, it’s difficult to control releases and holding periods – with technology it’s easy because limits and restrictions are maintained either on an employee level or a grant level, or both.
But wait, there’s more…
Other areas in which technology can significantly reduce the administrative burden for the share scheme administrators are:
- Vesting task management: Tech that updates information automatically and ensures all type of good, no-fault or all-forfeit leavers have been captured before the vesting date.
- In-flight vesting estimates: auto-generate reports on expected vesting estimates for good leavers for your accounting and tax teams.
- Vesting results: Generate vesting reports with all necessary details for RemCo to approve the final vesting results at the click of a button.
- Cliff vesting elections: Cloud-based live data makes the opening up of vesting elections and the tracking of settlement choices for each participant significantly easier, faster and more streamlined.
- Suspensions & holding periods: Digitally control the way awards are released to improve transparency and efficiency with public officers and directors.
- Releasing awards: a share scheme platform can automatically add any dividend equivalents once awards are made for exercise.
Testing today could improve vesting tomorrow
The investment into the exploration of a digital platform to assist with share incentive scheme management will not only eliminate administrative burden and free up skilled workers to apply themselves where it’s most important, it also saves significant costs. This is especially true if a business relies on outsourcing calculations and other tasks to consulting firms on a cyclical basis. Technological innovation and digital transformation are deeply needed in this task-heavy and complex process, and to ensure you are adopting the best scheme for your employees without the fear of overwhelming calculations and administration requirements. But it takes one simple step forward to stay ahead of the curve.