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Using Customized Equity Awards Solutions To Compensate For Covid Related Lost Wages Article Header

Using Customized Equity Awards Solutions to Compensate for Covid-Related Lost Wages

Monday, April 24, 2023

Retaining talented employees helps a company safeguard its value.

Due to this, many companies opted to temporarily reduce salaries and/or furlough employees rather than downsizing when the COVID-19 pandemic hit, impacting businesses last year.

Amid continued economic uncertainty, interest in creative equity awards solutions focused on supporting employees and retaining talent while preserving company cash is growing. This is especially true for small and mid-sized companies.

New Client Scorecard

  • Created new employee shareholders
  • Potentially retained talent
  • Preserved cash flow during economic uncertainty
  • Met tight grant deadline

Challenge

In late 2020, a Nasdaq-listed medical specialties company with about 6,000 employees approached a member of EQ's Equity Plan Solution (EPS) team. The company needed a customized solution to quickly pay employees who had been furloughed due to the COVID-19 pandemic.

To compensate furloughed employees for lost earnings, the company wanted to issue restricted stock, have it vest immediately, sell shares to cover taxes and deliver all net shares to the employees’ accounts. The company also wanted to complete the process (which usually may take up three months) within five weeks to meet an April 1 grant deadline.

Solution

EQ's EPS unit deployed an all-hands-on-deck approach to execute its new client’s plan and meet the tight grant deadline set by the company’s board of directors. The process usually begins by uploading and reconstructing the complete history of its new client’s equity awards plan prior to becoming its agent. In this case, EQ reversed its process and started by creating shell accounts
for the company’s furloughed employees.

EQ then added new grants, applied the appropriate tax rate for each account and sold the shares in the market on behalf of the account holders. The last step was loading the plan’s history into the EQ system.

“With such a short turnaround, changing the order of implementation was crucial to the success of the client’s plan,” said Jeff Cohen, Executive Vice President at EQ Equity Plan Solutions. “Typically, uploading and reconstructing a plan is a time-consuming process that involves detailed reconciliations.”

Results

EQ's new client is relieved to have their salary issue resolved. “Most importantly, EQ's solution offered a way for the company to use equity compensation as a vehicle to show loyalty to its employees,” said Cohen. Through this equity awards transaction, about $5 million worth of shares were transferred to the company’s roughly 3,000 employees who were furloughed during the pandemic.

“In addition to promoting loyalty by creating new employee shareholders, giving employees back lost wages with stock, instead of cash, preserved the company’s cash flow,” he explained.

Because the equity awards transaction went so well, the client asked EQ to execute a similar equity awards transaction for a larger group of employees. The next round in the equity awards program will transfer shares to 4,000 employees who experienced a salary reduction during the pandemic. According to Cohen, this second transaction affirms the client’s confidence in the process and support EQ's team of experts provides.

About EQ

EQ are specialists in helping you better understand and manage the ownership of your company through critical events across the corporate lifecycle. As trusted advisors, we provide strategic insight and operations expertise through our core business units in Private Company Services, Transfer Agent Services, Employee Plan Solutions, Proxy Services, and Bankruptcy. Globally we serve 6,700 clients (49% of the FTSE 100 UK and 35% of the S&P 500), with over 30 million shareholders, through 6,500 employees in 5 markets around the world.

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