Due to the confidential nature and large monetary value attached to these awards, it is understandable why a senior employee is assigned the admin task. In our opinion, however, you should be focusing your time and energy on core and value adding contributions to your company rather than dealing with daily with onerous admin requests.
Why is share scheme administration so onerous?
- Over the years we have picked up that this additional workload is for most part insignificant in comparison to the other tasks bestowed on you and therefore requires ad hoc attention causing human errors to creep in due to the inconsistent nature of the task.
- One of your company’s accounting requirements is to report in your financial statements the IFRS2 (Share Based Payments) related transactions. This is another extremely time consuming exercise for your finance team (especially if you don’t have the appropriate software to perform this). This can prove rather costly should you get your auditors to provide the necessary information.
- Just to cause additional stress, employee awards normally have large monetary value attached to them, for both the company and the employee. Even small errors can cause large financial loss and / or disgruntled employees, coupled with potential SARS complications.
- Without relevant communication and available content, we have noticed there being a disconnect or disengagement between offering the award to an employee and when the vesting occurs. This has an impact on staff goal synergy and hesitancy to participant in such schemes.
These issues above detract from the reason why your scheme was set up in the first place.
Although the administration burden appears minimal initially and managing this via a simple spreadsheet appears sufficient, as soon as additional awards are made, staff move around and the vesting periods kick-in, the administration time and complexity increases significantly. We haven’t even mentioned the complexity around mobile employees working from foreign locations with different tax legislations – this is another topic on its own…
If we consider the organisation’s costs of accurately processing and accounting for your scheme related transactions and minimizing the high level of risk associated with the scheme administration, as well as absorbing senior staff time on non-operational work the numbers add up incredibly quickly. In fact we believe the costs are much greater than you think.
This is where in our opinion a strategic outsource partner can assist with an end to end administration solution, as well as provide valuable practical advice based on experience. An outsource partner also adds independence to the offering, a third party who your employees can engage with on ideas they may not feel comfortable to discuss internally. It is important to provide multiple communication channels (website, email, SMS and print) since not all employees may have access to all these means. By outsourcing you will also be provided with dedicated knowledgeable resources to assist your staff with queries rather than them having to rely on potentially only one person at your offices.
When reviewing outsource partners you need to determine your scheme requirements and how flexible their software is, since no two schemes are the same.. Your company needs software to fit your requirements (not the other way around). The outsource partner therefore needs to place particular importance on the software and business processes in order to deliver the outputs required by you. It is imperative that the administration platform has all the checks and balances in place to ensure data integrity and to minimise the inherent administrative risks.
The software is one element of the scheme administration, the other very important element is the available resources and expertise at the outsource partner’s disposal. The front office staff are crucial to the success of the scheme as their involvement and ability to assist all stakeholders is paramount and in our experience a massive value-add.
The size and complexity (or lack thereof) of your share scheme should not be the determinant of whether or not you outsource. The mere fact that you wish to engage better with your staff and drastically reduce your administrative risks should be your main considerations. Using a robust scalable piece of software that evolves with your needs and requirements allowing you to focus your attention on core strategic responsibilities can only have positive results. This logic applies to both listed and unlisted (private) companies.
What If I Don't Want To Outsource?
Some companies have a strong desire to maintain their scheme administration in-house because they have already setup the internal processes and employed staff to fulfill this function. In this case you will want to make sure you have the appropriate software to manage this entire process. The software provider you choose should provide experienced IT professionals who understand employee share schemes to ensure the accuracy of the development and reduce turnaround times.
As mentioned above, your will want a robust scalable piece of software that solves your needs and requirements and then has the ability to evolve with you as your needs and requirements change. Based on past experience we have noticed that an off-the-shelf product does not work because of the uniqueness of each scheme thereby causing manual workarounds and more frustration than if you had no software product.
The employee share scheme administration software developed and maintained by Singular Systems currently manages the share schemes of a number of large JSE listed companies as well as small to medium listed and unlisted companies. The combination of our professional IT staff and share scheme administrators, who all have extensive experience in this field, makes for a great fit. This gives our clients access to a superior product with a professional personal service tailored to their needs. Ultimately this gives our clients piece of mind that one area of their business is taken care of and they can focus on other key critical areas.
Grant Bailey - Senior Manager, Share Management & Outsourcing