Granting employees, officers and directors equity-based compensation is common among US businesses. In cases where a company does not have a ready store of cash on hand to hire top talent or in situations where management wishes to incentivize performance, equity-based incentive compensation is often used as a significant part of the total compensation package.
To give you an idea of how complex equity compensation is in the US alone, consider that equity incentive packages can include:
Each of these forms of equity compensation is subtly, but importantly, different from the others and each carries distinct tax consequences for the employee, officer, or director receiving them. Explaining how your company’s plan works in clear language, while also providing the necessary regulatory information requires legal and financial advice and no US company would consider putting such a plan together without some hefty consultation.
Now, imagine what transpires when a typical US company goes global and takes its equity compensation plan with it. When opening a foreign subsidiary or simply compensating employees in international markets, it’s typical for a company to compile a list of key documents and corporate assets that need translation and localization and then seek to have these documents “translated”. In really extremely horrible cases, they seek only to have a broad plan description translated and then trust in the employees’ command of English to help them decipher the “fine print” in the main plan documents.
If you fob this list off on an agency without giving thought to whether or not that agency has expertise in the different, specific markets you’ll be entering as well as expertise in the different types of translation and localization work you’ll be doing, you could be in for trouble.
1.) While your plan may offer great incentives at home, these incentives may not be clear to foreign employees.
In the US, “restricted stock” awards are increasingly common. (“Restricted stock” awards are nontransferable shares of employer stock that are subject to forfeiture unless certain service or performance requirements are met.) In the US, these awards are taxable at the time of vesting. This allows the employee to hold the restricted stock without tax consequences until the performance conditions have been met.
In other countries, these types of awards are much less common and may even be taxed at the time of the grant rather than when fully vested. While your legal and financial teams are responsible for helping you navigate the best option to use in a foreign market, your localization team’s experience can help you understand how best to explain what may be unfamiliar and highly complex topics in markets where they are not frequently encountered.
2.) US regulations still apply to foreign markets – but require different documents. While your legal team will tell you if your foreign equity plan needs to be registered in the countries you are entering, any US-based company that offers stock options or employee purchase plans needs to register those plans under the Securities Act of 1933. Part of this Act mandates that all such plans include a description of any local tax consequences for the plan. This means you’ll need separate inserts for employees in each of the different countries where your plan is offered.
3.) Work culture can require more engaged communication in foreign markets. While just about any college bound student has heard the term “stock option” and (at the very least) understands that having them with the right company at the right time can make them very rich, there are many countries where equity compensation is rare and employees there treat plans with suspicion. In these cases, you will need a knowledgeable localization and translation partner who can bridge the gap between our casual and ubiquitous understanding of various types of non-cash compensation and relevant ideas in the target locale.
You will want a clear and thoughtful communication plan that outlines the benefits of any unfamiliar types of compensation in the target language. This will mean that, at the very least, you’ll need to create explanatory documents to accompany your expertly translated plan summaries, offer letters and tax information in addition to the raft of plan documents, award agreements and enrollment forms. You will also want to be sure that if your foreign employees will be accessing plan data and balances online, that your interface and site offers localized options and copy.
Obviously, you don’t need a translation firm full of international lawyers and accountants. Nor do you need a firm that has experience with every market’s regulatory nuances. What you do need is a partner who understands the type of work you are doing and what the likely challenges will be in localizing it to a new country. Hiring experts with relevant knowledge and experience helps make your introduction to a new market both effective and cost efficient.Do you have any other great examples from specialized disciplines?