Stock Options: A Complete Guide

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FS-BOE-SO-AG-201408--R009.25

Stock Options: A Complete Guide

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Contents

Stock Options: A Complete Guide © Fairsail 2014 3

Contents

Introduction 4

Creating a New Stock Option Pattern 6

Creating a New Stock Option Period 8

Awarding a Stock Option to a Team Member 10

Creating a New Stock Vesting 15

Recording Options Exercised 17

Viewing Stock Options in the Collaboration Portal 19 Maintaining the Stock Price 20

Configuring Stock Options 21

Displaying Stock Options in the Employment Record 22 Displaying Stock Options in the Collaboration Portal 23 Setting the Stock Option Vesting Time 24

Translation Workbench: Stock Options 25

Glossary of Terms 27 Index 29

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Introduction

Employee Stock Options can be granted by a company to employees as part of an overall compensation and benefits package.

A stock option grants an employee a conditional right to buy company stock, typically at a pre-determined grant price, and at a future date or over a range of dates. Rights to buy an option are typically phased, with portions of the complete grant becoming available for purchase, or vesting, in line with a vesting schedule. Each stock purchase by the employee is known as exercising the option. No portion of the option can be exercised until after the first vesting date

This example shows a Stock Option that:

• Vests in three portions, of 25%, 25% and 50%.

• Has a vesting schedule with vesting dates at regular intervals.

• Is exercised by the employee in five portions of different amounts and at irregular intervals.

Fairsail enables you to set up, grant, and maintain Employee Stock Options. You can:

• Set up one or more Stock Option Patterns, with each Pattern defining the basic parameters for a stock option, including the stock price against which the value of the option is to be calculated (see page 6). Each Pattern defines how Stock Options are handled for Team Members who leave your organization during the life of a Stock Option.

Each Pattern includes one or more Stock Option Periods, together defining the vesting schedule for the option.

• Grant Stock Options based on a Pattern to Team Members (see page 10).

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Introduction Creating a New Stock Option Period

• View the current status of a Team Member's Stock Options through their Employment Record. Information displayed includes:

o Details of the original grant, including the currency equivalent of the grant. o The vesting schedule for the option.

o Quantities vested and exercised.

o Values of the quantities vested and exercised, enabling a quick view of the notional gain made over the grant.

• Enable Team Members to view their Stock Options through their Collaboration Portal Personal Profiles (see page 19).

• Configure Stock Options to display the information you need in the HR Manager's Portal and in the Collaboration Portal (see page 22).

You can also configure an automated Stock Option Vesting Time to set the time of day at which options with a vesting date of today will vest (see page 24).

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Creating a New Stock Option Pattern

A Stock Option Pattern defines the parameters for one or more stock options and includes the vesting

schedule defined with one or more Stock Option Periods. 1. Click the Stock Option Patterns tab.

Fairsail displays the Stock Option Patterns Home page. 2. Click New Stock Option Pattern.

Fairsail displays the Stock Option Pattern Edit page:

3. Complete the fields as follows:

Field Description

Stock Option

Pattern Name A name for this Stock Option Pattern. Typically, the Name follows a standard convention established for stock options in your organization and may include the year of issue and a price indicator.

Period After

Leaving To Vest For Team Members who have left your organization, the number of Period Units To Vest that must pass after the leaving date before stock options based on this Pattern vest.

Typically defined by legislative requirements. Period After

Leaving To Exercise

For Team Members who have left your organization, the maximum number of Period Units to Exercise that can pass after the leaving date before stock options based on this Pattern must be exercised.

Typically defined by legislative requirements.

Stock Price The Stock Price to be used to value stock options based on this Pattern. Typically Stock Price is the current market price, or a recently determined price of the stock. Individual Stock Options are awarded at a separately defined Grant Price. You can alter Stock Price through the life of the Stock Option Pattern, enabling the calculated value of the grant to be updated over time.

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Creating a New Stock Option Pattern Creating a New Stock Option Period

Period Units The units of time to be used for the period(s) between vesting dates. Click the picklist and select from:

• Day

• Month Period Units To

Vest The units of time to be used for the period between grant date and vesting date, and between leaving date and vesting date. Click the picklist and select from:

• Day

• Month Period Units To

Exercise The units of time to be used for the period between grant date and exercise date, and between leaving date and exercise date. Click the picklist and select from:

• Day

• Month 4. Click:

o Save to save the Pattern and display the Stock Option Pattern Detail page for the Pattern you have defined.

o Save and New to save the Pattern and display a blank Stock Option Pattern Edit page o Cancel to discard your changes and display the Stock Option Pattern Home page. The Stock Option Pattern Detail page shows the information you have entered as well as:

• The Total Percentage for which Stock Option Periods have been defined.

For a newly defined Stock Option Pattern, Total Percentage is 0.00%. As you add Stock Option Periods, the percentage increases until you have defined periods totaling 100%.

• The Stock Option Periods related list.

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Creating a New Stock Option Period

Stock Option Periods define the vesting schedule for the Pattern. Create as many Stock Option Periods as you need to define the complete vesting schedule for each Stock Option Pattern.

1. Click the Stock Option Patterns tab.

Fairsail displays the Stock Option Patterns Home page.

2. Open the Stock Option Pattern for which you want to create a new Stock Option Period. 3. In the Stock Option Periods Related List click New Stock Option Period.

Fairsail displays the Stock Option Period Edit page:

Stock Option

Pattern The name of the Stock Option Pattern for which you want to create this Stock Option Period. Automatically completed for you with the name of the Pattern you selected. To change to a different Pattern, click Stock Option Pattern Lookup , find and slect the Pattern you want.

Period The number of Period Units between the grant date and the vesting date for this part of the Stock Option.

Period Units are defined in the Stock Option Pattern.

Percentage The percentage of the total Stock Option that vests after the Period.

Percentages are summed for all Stock Option Periods defined for a Pattern and the Total Percentage displayed on the Stock Option Pattern Detail page. 5. Click:

o Save to save the Period and display the Stock Option Period page for the Period you have defined. o Save and New to save the Period and display a blank Stock Option Period Edit page

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Repeat the procedure to create all the Stock Option Periods you need to define the vesting schedule for this Pattern.

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Awarding a Stock Option to a Team

Member

When the Stock Option Pattern has been defined with its associated Stock Option Periods for the stock options you want to issue, you can award the options to individual Team Members. Stock Option records are attached to the Employment Record for each Team Member.

1. Open the Employment Record for the Team Member who has been granted the stock option. 2. Scroll down to the Stock Options related list section.

3. Click New Stock Option:

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Awarding a Stock Option to a Team Member Creating a New Stock Option Period

Field Description Information section

Employment The number of the Employment Record to which this Stock Option applies. Defaults to the Employment Record you selected at the start of this procedure. To change to a different record, click Employment Lookup , find and select the record you want.

Stock Option

Pattern The Pattern that applies to this Stock Option. The Stock Option Pattern must be set up before you can award a Stock Option. A Stock Option Pattern defines the parameters for one or more stock options and includes the vesting schedule defined with one or more Stock Option Periods. Click Stock Option Pattern Lookup , find and select the Pattern you want. Grant Date The date the option is granted to the employee. A past, present, or future date.

• Click today's date to the right of the field to insert today's date.

• Click in the field to display a date picker. Quantity The total number of shares the option represents.

Grant Price The unit price at which the employee can buy the shares represented by the option.

Expiry and Termination section

Expiration Date The date after which an employee can no longer purchase vested stock options they have been granted.

Vesting

Termination Date The date after which the option no longer vests for this Team Member. A manual override for the vesting schedule, typically used when a Team Member leaves your organization.

If you leave Vesting Termination Date blank, vesting for this option continues to completion as defined in the vesting schedule.

5. Click:

o Save to save the stock option you have entered. Fairsail displays the Stock Option Detail page. o Save & New to save the stock option and enter another Stock Option for this Team Member. Fairsail

displays the New Stock Option page.

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Below the Detail page are the Related Lists for the option:

As well as the information you entered for the Stock Option, the detail page displays:

Status section

Total Grant The currency equivalent of the stock option, calculated as: Quantity x Grant Price

Quantity Vested The number of shares that are available for the Team Member to purchase. For a newly granted Stock Option, Quantity Vested is likely to be zero. As the vesting schedule progresses, Quantity Vested increases until all granted shares are vested.

Total Vested The currency equivalent of the Quantity Vested, calculated as: Quantity Vested x Grant Price

Quantity Exercised The number of shares the Team Member has bought. For a newly granted Stock Option, Quantity Exercised is likely to be zero, and it is always less than or equal to Quantity Vested.

Total Exercised The currency equivalent of the Quantity Exercised, calculated as: Quantity Exercised x Grant Price

Value section

Grant Value The currency value of the stock option at the Stock Price defined in the Stock Option Pattern. Calculated as:

Quantity x Stock Price

Vested Value The currency value of the vested part of the stock option at the Stock Price defined in the Stock Option Pattern. Calculated as:

Quantity Vested x Stock Price

Exercised Value The currency value of the exercised part of the stock option at the Stock Price defined in the Stock Option Pattern. Calculated as:

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The Related Lists display:

Stock Vesting

You can configure the columns displayed:

•_{Click Edit Layout at the top of the page.}

•_{Click Properties on the Stock Vesting related list.}

This example describes a typical layout.

Stock Vest A unique reference ID for for this Vesting record. Each Stock Vest record represents one line in this Stock Vesting table.

Vesting Date The date this vesting becomes available for purchase by the Team Member. Quantity The number of shares made available in this vesting.

Total Price The total cost to the Team Member of this vesting. Calculated as: Quantity x Grant Price.

Vested Checkbox. Checked when the Vesting Date is past.

Stock Exercises

You can configure the columns displayed:

• Click Edit Layout at the top of the page.

•_{Click Properties on the Stock Exercises related list.}

This example describes a typical layout.

Stock Exercise A unique reference ID for for this Exercise record. Each Stock Exercise record represents one line in this Stock Exercises table

Exercise Date The date the purchase was made.

Quantity The number of shares purchased in this Exercise. Subject to the rules of the Stock Option scheme, Team Members can purchase part or all of the currently vested stock in a single transaction, and use multiple Exercises to purchase the total vested quantity.

Total Price The total cost to the Team Member of this Exercise. Calculated as: Quantity x Grant Price

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Awarding a Stock Option to a Team Member Creating a New Stock Vesting

Creating a New Stock Vesting

You can create a new stock vesting for a Stock Option granted to a Team Member. The New Stock Vesting is applied in addition to the vesting schedule defined through the Stock Option Periods for the Pattern and is typically used to make part of the option available to that Team Member at a date other than those defined in the schedule.

3. Click the Stock Option reference for the Option you want to modify. Fairsail displays the Stock Option Detail page.

4. Scroll down to the Stock Vesting related list and click New Stock Vesting:

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Awarding a Stock Option to a Team Member Creating a New Stock Vesting

Stock Option The Stock Option to which this vesting applies. Automatically completed by Fairsail.

Vesting Date The date you want this portion of the Stock Option to vest. Click the field to display a date picker and select the date you want or click today's date beside the field.

Quantity The quantity of stock you want to vest on the Vesting Date.

Vested Checkbox. If checked, the vesting date has passed and this portion of the Stock Option has vested.

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Recording Options Exercised

When an employee decides to exercise an option you must enter the details of their purchase on the Stock Option record.

3. Click the Stock Option reference for the option the Team Member wants to Exercise:

Fairsail displays the Stock Option Detail page. 4. Scroll down to the Stock Exercises Related List. 5. Click New Stock Exercise:

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Recording Options Exercised Creating a New Stock Vesting

Stock Option The number of the Stock Option to which this Exercise applies.

Defaults to the Stock Option record you selected. To change to a different option, click Stock Option Lookup , find and select the option you want.

Exercise Date The date the transaction to purchase is passed. A past date or today's date, typically not a future date.

Quantity The number of shares purchased in this Exercise. Less than or equal to the outstanding balance of vested options.

7. Click:

o Save to save the stock exercise you have entered. Fairsail displays the Stock Exercise Detail page. o Save & New to save the stock exercise and enter another Stock Exercise for this option. Fairsail

redisplays the New Stock Exercise page.

o Cancel to discard your changes. Fairsail returns you to the Stock Option Detail page. Stock Option Exercises are added to the Stock Exercises related list for the Stock Option:

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Viewing Stock Options in the

Collaboration Portal

By default, Stock Options are displayed in the Team Member's Personal Profile:

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Maintaining the Stock Price

The Stock Price is used to calculate a financial value for granted stock options:

• Grant Value = Quantity x Stock Price

• Vested Value = Quantity Vested x Stock Price

• Exercised Value = Quantity Exercised x Stock Price

You define an initial Stock Price when you create a Stock Option Pattern (see page 6). The initial Stock Price can be, for example:

• Your organization's quoted stock price at the date the Stock Option scheme is set up.

• Determined by a formula, based on the stock price at a specific date, and typically defined in the scheme rules.

You can leave the Stock Price at its initial value through the life of an option, or, more typically, maintain it over time to reflect the changing market value of your organization's stock.

To change the Stock Price:

1. Click the Stock Option Patterns tab.

2. Click Edit in the Action column next to the Stock Option Pattern you want to maintain. Fairsail displays the Stock Option Pattern Edit page.

3. Change the Stock Price to the value you want. 4. Click Save.

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Configuring Stock Options

To configure Stock Options: Display Stock Options in the Employment Record (see page 22). Display Stock Option in the Collaboration Portal (see page 23). Set the Stock Option Vesting Time (see page 24). Rename any field labels you need by using the Translation Workbench Override option (see page 25).

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Configuring Stock Options Displaying Stock Options in the Employment Record

Displaying Stock Options in the Employment Record

1. Go to Setup > App Setup > Objects > Employment Record. 2. Click Page Layout

3. Click Edit.

4. Click Related Lists.

5. Drag and Drop the Stock Options related list to the position you want it to display in the set of related lists for the Employment Record.

6. Click Properties on the Stock Options related list. Fairsail displays the Related List Properties dialog.

7. Select the fields you want to display from the list of Available Fields and click Add to move them to the list of Selected Fields.

8. Use the Up and Down arrows to sort the list of Selected Fields to display in the order you want.

9. Click OK to close the Related List Properties dialog. 10. Click Save to apply the changes you have made.

Fairsail closes the Page Layout editor.

11. Open a Team Member's Employment Record and check that the Stock Options related list is displayed as you want it.

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Configuring Stock Options Displaying Stock Options in the Collaboration Portal

Displaying Stock Options in the Collaboration Portal

1. In the policies for the Team Members for whom you want to display Stock Options, check Stock Options. By default, the Stock Options policy option is displayed in the Team Member section of the policy:

Stock Options Checkbox. If checked, stock options are visible to the Team Member through the Collaboration Portal Personal Profile .

2. Use the Team Member Details field set to control which fields are displayed in the Collaboration Portal.

Stock Option Object

Field Set Purpose

Team Member Details Fields displayed in the Collaboration Portal for Team Members Stock Options.

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Configuring Stock Options Setting the Stock Option Vesting Time

Setting the Stock Option Vesting Time

You can set the hour of the day at which to run a Stock Option Vesting batch. The Stock Option Vesting batch sets the Vested field on the Stock Vesting object to True for all Stock Vesting objects when the Vesting Date is today.

This means that Stock Options that vest today become available for purchase and can be exercised by Team Members.

1. Go to Setup > App Setup > Installed Packages

2. Click Configure next to Fairsail Human Capital Management. Fairsail displays the Fairsail HCM Configure page.

3. In Stock Option Vesting Time click the picklist and select the hour of the day you want the batch to run.

4. Click Save.

Fairsail saves your changes and runs the batch when the time you set next occurs. You can also run the Stock Option Vesting batch immediately by clicking Run Now.

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Configuring Stock Options Translation Workbench: Stock Options

Translation Workbench: Stock Options

Stock Exercise Object Use Setup > Administration Setup > Translation Workbench > _{Override to rename these custom fields} Default Field Label Field Label Override Field Type

Exercise Date Date

Quantity Number (18,0)

Stock Option Master-Detail (Stock Option)

Total Price Formula (Currency)

Stock Option Object Use Setup > Administration Setup > Translation Workbench > _{Override to rename these custom fields} Default Field Label Field Label Override Field Type

Employment Master-Detail (Employment

Record)

Exercised Value Formula (Currency)

Expiration Date Date

Grant Date Date

Grant Price Currency (16,2)

Grant Value Formula (Currency)

Last Exercise Formula (Date)

Last Vesting Formula (Date)

Quantity Exercised Roll-Up Summary (SUM Stock

Exercise)

Quantity Vested Roll-Up Summary (SUM Stock

Vesting)

Stock Option Pattern Lookup (Stock Option Pattern)

Total Exercised Formula (Currency)

Total Grant Formula (Currency)

Total Vested Formula (Currency)

Vested Value Formula (Currency)

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Configuring Stock Options Translation Workbench: Stock Options

Stock Option Pattern Object Use Setup > Administration Setup > Translation Workbench > _{Override to rename these custom fields} Default Field Label Field Label Override Field Type

Period After Leaving To Exercise Number (5,0)

Period After Leaving To Vest Number (5,0)

Period Units Picklist

Period Units To Exercise Picklist

Period Units To Vest Picklist

Stock Price Currency (16,2)

Total Percentage Roll-Up Summary (SUM Stock

Option Period)

Stock Option Period Object Use Setup > Administration Setup > Translation Workbench > _{Override to rename these custom fields} Default Field Label Field Label Override Field Type

Percentage Percent (3,2)

Period Number (18,0)

Stock Option Pattern Master-Detail (Stock Option

Pattern)

Stock Vesting Object Use Setup > Administration Setup > Translation Workbench > _{Override to rename these custom fields} Default Field Label Field Label Override Field Type

Stock Option Master-Detail (Stock Option)

Stock Option Period Lookup (Stock Option Period)

Total Price Formula (Currency)

Vested Checkbox

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Glossary of Terms

Exercise Date

The date an employee purchases some or all of the stock option they have been granted. Options can be purchased when they have vested, and there may be several vesting dates associated with an option, each releasing an additional portion of the total option for purchase. Vested options can also be exercised in more than one transaction. Thus there may be several exercise dates associated with a single option grant.

Exercise Price

The pre-determined price at which an employee can buy stock, typically ordinary shares, in the company for which they work as the result of a stock option they have been granted as part of their compensation and benefits package. The exercise price can be the current stock price of the company on the day the option is granted, the stock price less a discount, or it can be determined by a formula. The option sets a future date or range of dates when it can be exercised, enabling holders of the option to benefit from any increase in the company's stock price between the grant date and the exercise date.

Final Exercise Date

The date after which an employee can no longer purchase vested stock options they have been granted. The expiration date may be set when a stock option scheme is set up, defining an option term, or it may be entered by HR for a specific Team Member as a result of that employee leaving the company.

Stock Options: A Complete Guide