Tracking Global Equity: The Role of Automation in Cost Savings and Compliance

How to manage global equity compensation is an increasingly complicated question. The answer? Automation.

The world is getting smaller, and while the emergence of a globally mobile workforce has allowed companies to maximize talent where it’s most needed, it has simultaneously generated a host of challenges when it comes to managing executive compensation. The taxation of equity awards is particularly complex, and can vary greatly depending on the type of award, the structure of the organization, the tax attributes of the recipient, and their location(s). This complexity is further exacerbated by new compliance and reporting requirements.

Companies are approaching these challenges in a variety of ways. Some are burying their heads in the sand and hoping that they won’t receive a violation notice. Others know they need to address these issues but aren’t sure how to get started. Even the most proactive businesses can fall into the trap of just repeating what’s been done in prior years instead of adjusting their processes to match the new regulations.

There’s a reason for this hesitation: Getting their procedures up-to-date and compliant isn’t easy. Businesses face steep costs in terms of both dollars and manpower. Many struggle to identify and dedicate the appropriate resources needed to develop and execute a comprehensive compliance plan—including maintaining the internal bench strength needed to gather and update information, acquiring the necessary tools to collect data, and operating payroll in every jurisdiction where employees are present. With new regulations released on a near-daily basis, centralizing and adjusting information in real-time is an uphill battle.

But it’s important to remember that while getting things done right the first time isn’t cheap, neither is going back to correct it later.  
Incorrectly reporting global equity typically leads to underreporting in some jurisdictions and overreporting in others, but these aren’t the only consequences. There can also be significant hard costs, including both penalties and interest payments, which, depending on the scale, could lead to a significant cash flow problem for the business.

Another, possibly more critical, consequence of incorrectly tracking global equity is damaging the employer-employee relationship. If businesses generate compliance issues related to equity awards, employees face problems with their personal income tax returns. With talent at a premium, companies should avoid generating significant problems for their workers and seek to minimize the risk as much as possible.

Companies would also be remiss to discount the potential reputational damage they might incur as well. For smaller businesses expanding into new markets, being reprimanded by a foreign tax authority may cast doubt on future growth potential. For larger companies, media and shareholder indignation can generate concerns that go beyond just the tax and accounting departments.

At the core of this problem, businesses are dealing with myriad compliance requirements and fragmented data, complicated by manual processes with a high potential for human error that can lead to disastrous consequences.
Enter automation.

Automated programs can assist companies in combating many of the challenges related to the taxation of global equity plans. Automated software can place all the equity compensation and payroll information from across a company into one place, rather than being spread across different offices and jurisdictions. By utilizing transaction data and cross-border travel information, automated tools can provide calculations of tax withholdings for an organization’s mobile employees in real-time using data from jurisdictions around the world. Doing so helps companies avoid costly fines, end-of-year scrambles, and time-consuming payroll report amendments and corrected W-2s. And, with global compliance requirements changing at a rapid pace, automating tax withholding enables taxation estimates to pivot and adjust on a dime to keep up with new regulations. (Read more about BDO’s own automated tax withholding solution.)

Some companies might think that they’re too small to own an automated solution, or that adopting one will be an expensive endeavor. However, a good program can be adjusted to the size of your company and scale with it. Over the long run, the cost of adopting an automated solution pales in comparison to the financial and intangible costs of noncompliance.

It’s important to note that while automation provides a potential solution to a critical challenge of managing global compensation, it’s still just one tool in the toolbox of compensation professionals and consultants. It’s critical to have experienced professionals designing competitive and cost-effective compensation plans customized to each company and individual employee. Software merely eliminates time spent on collecting, scrubbing, and aggregating data.

Companies can no longer afford to ignore compliance issues related to global equity compensation. With seasoned professionals equipped with automation, businesses can increase the efficiency of their processes, reduce costly errors, and maintain the focus on developing compensation plans that work for them and their employees, regardless of where they’re located.