When a large number of employees have company options, either the payroll or human resources departments will be the target of ongoing questions about the vesting, valuation, and tax implications of these options. Because the tax laws are so complex in this area, employees keep asking follow-up clarification questions, as well as requests to run “what if” scenarios on what they should do under various circumstances. Given a large number of employees with many option grants, this can turn into a major drain on company resources. In addition, a company runs the risk of giving bad advice to its employees, which may have legal repercussions if employees using this advice lose money through the exercise of options.
A solution for larger companies is to purchase an options tracking package, which they can use alternatively as an in-house solution or as a featured service on the external site of an application service provider. An example of such software is Express Options, which is sold by Transcentive, Inc. The system stores all options information in a single database, allowing one to handle multiple grant types, determine vesting schedules, track option exercises and cancellations, and provide employees with tax-related information. It also calculates option valuations, exports data to the company stock transfer agent, and provides a variety of reports for regulatory purposes. By using Transcentive’s add-on product, Express Desktop, employees can access such information about their options as portfolio valuations based on different stock pricing assumptions, “what if” modeling, transaction histories, and frequently asked questions. They can also place orders to exercise their options through the system.
For this type of service, one can expect to pay a minimum of $15,000 annually, with the price exceeding one-third of a million dollars per year for larger installations. Given its cost, this best practice is most applicable to corporations with at least several hundred option holders.