GPS
Guidance - Procedures - Systems
NOTE: The CEPI has released Phase One, Phase Two and Phase Three of the GPS research project on risks and controls for equity compensation.
The Certified Equity Professional Institute (CEPI) at Santa Clara University, the only certification body for equity compensation professionals, announced its intent to undertake a landmark research project, GPS, designed to provide guidance on risk and appropriate controls for stock plan administration.
Recent major changes have substantially impacted how stock plans are administered and audited. Stock Administration was previously a low risk area because the financial statement impact was limited to footnote disclosure. The unique requirements of stock administration may not be understood; the function is complex and often intervention is required. Activities in this function may not always be transparent to others. Significant operational and compliance breakdowns could have a material impact on the financial statements. The option backdating cases reveal that issuers and auditors alike can benefit from guidance, and this project will address those needs.
Scope
The publication will address issues associated with stock options granted to US employees that vest over time. Subsequent releases will address non-US employees, performance vesting, and other types of equity awards. The publication will summarize areas of risk, discuss the issues, present examples, and identify appropriate controls to mitigate the risk. The publication will be released in three phases:
Stakeholders
The project has a broad group of stakeholders including companies issuing equity compensation, internal and external auditors, outsource vendors, and regulatory bodies. We have discussed the project with representatives from each group to better understand their needs and ensure that we have their support for the project. All stakeholders will have the opportunity to fully participate in the project by sharing their ideas and challenges they face. In addition all stakeholders will be invited to comment on the draft publication.
Benefits
This project will be a forum for the industry to provide thoughtful guidance for itself. Appropriate checks and balances will be identified. Internal and external auditors will be able to better understand function/process and focus on relevant issues and areas of risk. The net result will be that the expense associated with equity compensation will be more accurate. In addition administrative costs will be saved through a more efficient and effective administrative process.
Oversight
To ensure the project meets the needs of the industry, a Board of Review and a Board of Technical Oversight comprised of broad industry representation will be formed to oversee the project. The Board of Review will solicit cooperation and commitment in the industry, identify industry needs, and ensure the publication meets the needs of the industry. The Board of Technical Oversight will provide a more substantive review of the publication.
Public Comment
In recognition of the broad industry interest, the CEPI will include an open comment process to provide interaction between the CEPI and the various stakeholders. The feedback solicited in this process will be an important way to ensure the publication meets the needs of the industry.
Support
In order to be successful, this project requires broad industry support. We are soliciting comments on issues and critical areas to include in the project. We have established the Board of Review and the Board of Technical Oversight. As the project progresses, we are also counting on all industry stakeholders to fully participate in the public comment process. This research project of the CEPI is sponsored by Fidelity Investments.
