International Adventures – Navigating
the Globe to find your ESPP’s Perfect
Path
Charles Russo, Computershare
Sean Ahern, Prudential
Jack McArthur, Aon
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Introduction
Global Plans
– Overview
– Plan Design
– Plan Administration
– Tax & Legal
New Global Plans
– Overview
– Design
– Case Study
Agenda
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Broad based in nature
Enhanced “benefits” package (rather than “compensation”)
Global appeal
Appreciation of value – with right combination of discount, look-back, and offering
Employee motivation, loyalty, engagement
High participant satisfaction
Opportunity for employee ownership outside of constraints of 401(k)
Non-Excessive
Expense efficient
Minimal share usage (no ISS concerns)
Corporate tax deduction
Why ESPP?
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Prudential Financial, Inc.
For nearly 140 years, Prudential Financial, Inc., has helped individual and institutional customers grow and protect their wealth. Today, we are one of the world's largest financial services institutions with operations in the United States, Asia, Europe, and Latin America. We also have one of the most recognized and trusted brand symbols: The Rock ®, an icon of strength, stability, expertise, and innovation.
We strive to create long-term value for our stakeholders through strong business fundamentals, consistent with our mission guided by our vision and directed by our company's core values. We are committed to keeping our promises and to doing business the right way.
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U.S. – IRS 423 Plan Offered
Outside the U.S. – 423 Mirror Plan offered to allow more administrative flexibility
ESPP offered to employees in:
– United States
– Argentina
– Brazil (including Independent Contractors)
– Mexico
– Japan
– Korea (including Independent Contractors)
– Taiwan
– UK SAYE: as a replacement for an ESPP
Prudential Financial, Inc.
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423B Tax-Qualified plans showed higher average yearly contributions and higher participation rates
Plan Type
16%
17%
18%
19%
20%
Non-Qualified 423B Qualified
Average Participation Rate vs. Plan Type
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Approximately 25% participation for companies that offer a plan with a Look-Back feature
Look-Back
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
No Look-Back Look-Back
Average Participation Rate
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Plan design features
Look-Back
No Look-Back
Look-Back
Discounts
0% - Employer Match
0% - No Match
5%
10%
15%
Other
Plan Type
Non-qualified
423B Qualified
Length of Purchase Period
Annual
Monthly
Quarterly
Semi Annual
Other
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Discount
Larger discounts lead to higher contribution rates and participation rates
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
0% w/o Employer Match 0% w/ Employer Match 5% 10% 15%
Ave
rag
e P
arti
cip
atio
n R
ate
Discount
Participation Rates vs. Discount
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Length of Purchase Period Longer purchase periods lead to higher contributions and participation up to a point (semi-annual),
after which longer periods lead to lower contributions and participation
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Monthly Quarterly Semi Annual Annual
Ave
rag
e P
arti
cip
atio
n R
ates
Average Participation Rate vs. Purchase Period
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Length of Purchase Period
The presence of a look-back feature is a key determinant of whether increasing purchase period length increases or decreases participation
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
Monthly Quarterly Semi Annual Annual
Average Participation Rate w/ Look-Back
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
Monthly Quarterly Semi Annual Annual
Average Participation Rate (No Look-Back)
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Factors to Consider when Issuing an International Plan
Administration
– Tax and Legal Considerations
Provide reporting to assist with local taxation regulations (e.g. purchase detail report)
Exchange control – Ensure administrator can assist with regulatory hurdles in certain countries (China SAFE)
– Communication and Marketing
Leverage existing communication channels within an organization
Translate everything in terms that are easy to understand
Explore creative ways to promote your plan (videos, stand-alone websites)
Educate local HR representatives
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Cost is a factor and must be managed:
– Accounting charge
– Administration
External stock plan vendor
Tax & Legal Due Diligence
Communication/marketing of ESPP
– Perform periodic cost benefit analysis for CFO
Factors to Consider when Issuing an International Plan
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Prior experience is key
Multi-Lingual website
Ability to support a wide range of foreign currencies
Global payroll and funds management
Factors to Consider when Choosing a Stock Plan Provider
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Administration of International ESPP:
– Eligibility to participate: Countries should have at least 100 employees and have no significant/costly legal barriers (i.e. China SAFE, EU PD, Securities licensing requirements, foreign exchange restrictions) to be offered the ESPP
– Administration and offerings are managed locally, with support from Prudential HQ and external plan administrator
Local adjustments to administration are made to accommodate local work rules and payroll administration
– Communication/Education materials are created in the U.S. and translated, but the distribution and communication plans are administered at the local level
Market plan and also be clear on Plan rules
– Administrator’s web-sites are translated
– HR data capabilities
Prudential Financial - Administration/Local Considerations
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– Payroll – income reporting and tax withholding
– Computershare Maintenance: W8-BEN Forms
Wire maintenance
Account maintenance
Prudential Financial - Administration/Local Considerations
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Tax & Legal Compliance – annual due diligence
– Securities filings – Japan & Korea
– Labor Laws
– Foreign exchange controls for international plans
– Tax – different that 423 taxation once ESPP is exported outside of the U.S.
– Corporate Tax Charge-back
Prudential Financial – Tax & Legal Considerations
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With significant commitment (from parent and local subsidiary) to operating an efficient and effective ESPP, a “framework” can help assess the viability of rolling out ESPP in new jurisdictions
Assists various business partners in understanding country regulations and any other special requirements
Clearly communicates roles and responsibilities with regard to extending the ESPP to a new jurisdiction
Considers specifying targeted levels of participation
Removes ambiguity with respect to responsibilities and removes subjectivity with regard to the corporate guidelines relating to the appropriateness of ESPP in new jurisdictions
Holds senior level contacts at the subsidiary level accountable for process requirements
Navigating New Countries
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Detailed business requirements and standard operating procedures are prepared with the country HR teams to ensure standard processing is performed timely, accurately and under the rules of the Plan
Calendars are prepared for each plan event to ensure timely completion by all parties, including the country operations
Navigating New Countries
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0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
U.S. Territories West South Northeast Midwest International
Average Participation Rate by Region
Participation by Domicile
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0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Europe North America Oceania Africa Asia South America
Average Participation Rate by Continent
Participation by Continent
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0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Europe North America Oceania Africa Asia South America
Participation Rates vs. Look-back by Continent
Look-Back No Look-Back
Look-back by Continent
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Discount by Continent
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Europe North America Oceania Africa Asia South America
Participation Rates vs. Discount by Continent
0% w/o Employer Match 0% w/ Employer Match 5% 10% 15%
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Purchase Period by Continent
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
Europe North America Oceania Africa Asia South America
Participation Rates vs. Purchase Period by Continent
Monthly Quarterly Semi Annual Annual
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Client Need:
– Large global company with over 200 payroll files from 54 countries generated monthly
– Needed assistance for payroll and funds management
– Dividend and interest payments combined with employee deductions
– Refunds in local currency
– Enrollments / Purchase periods every 6 months
Case Study – Global Payroll & Funds Management
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Solution:
– Creation of database to support ongoing demographic/payroll data
– File collection/data processing of demographic files
– File collection/data processing of contribution files
– Facilitate and reconcile contribution funds movement (monthly)
– Demographic file provided in client format for open enrollment
– Contribution file provided for semi-annual purchase
Case Study – Global Payroll & Funds Management
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Contact Information
Sean Ahern
Director, International HR
Prudential
(973) 802-2619
Jack McArthur, ASA
Director
Aon Equity Consulting Services
(201) 460-6890
Charlie Russo
Vice President, Plan Managers
Computershare
(201) 680-4134