U.S.-Based Multinational Companies lack true Global Incentive Programs.

Even as more U.S. multinationals seek to become global, they remain highly U.S.-centric in their approach to delivering long-term equity-based incentives, such as stock options or restricted stock, to their global workforce.

In fact, according to the International Stock Plan Design and Administration Survey, released by Deloitte Tax LLP and the National Association of Stock Plan Professionals (NASPP), 70 percent of survey participants make no changes to their U.S. equity programs to reflect local pay practices or culture, and nearly two-thirds of survey participants do not utilize more tax efficient equity alternatives available in many jurisdictions.

“Long-term incentive programs are still the primary ‘global’ compensation program at most U.S. multinationals. However, the use of U.S.-based program designs continues to result in above-market compensation in many countries and a number of missed opportunities to deliver similar benefits at a lower cost,” said Matthew Davis a partner in the Global Remuneration & Reward service line of Deloitte Tax LLP.

Deloitte Tax and NASPP conducted the bi-annual survey of 291 respondents; including human resources, compensation and benefits professionals, as well as tax directors, last fall. The survey provides a more comprehensive look at the design and administrative practices of U.S.-based companies that grant stock compensation to employees outside the country. Survey questions addressed stock option plans, employee stock purchase plans, stock grants and country-specific practices covering nine countries.

The survey also indicates a lack of communication regarding compensation philosophies and plan mechanics. Sixty percent of companies do not communicate to non-U.S. participants regarding the personal financial impact of participating in these programs and only one percent of the survey respondents consistently customized their communications to ensure that they were delivered in the local language. Poor understanding of these programs often results in a significant reduction to their intended impact on executive behavior and retention. The impact of this communication failure is particularly acute in broad-based programs where voluntary participation rates are dramatically lower among non-U.S. employees. The survey revealed that although 62 percent of respondents offer an employee stock purchase plan to employees outside the U.S., only 15 percent of those eligible to participate choose to do so.

“Beyond developing and optimizing the design, delivery, risk management and tax effectiveness of reward programs for a global workforce,” said Marlene Zobayan, a director with Deloitte Tax’s Global Employment Services practice, “it is essential to ensure that the programs are communicated effectively and understood by employees globally if they are to be successful in attracting, retaining and motivating global talent.”

Despite efforts over the last five years to increase internal controls and enhance financial disclosure (i.e., Sarbanes-Oxley and FAS123), the survey revealed that many U.S. multinational companies continue to struggle to ensure the tax and regulatory compliance of their equity compensation programs outside the U.S. According to the survey, 89 percent of respondents administer their stock plans for non-U.S. employees almost exclusively from the U.S., but only 37 percent verify the local country tax and regulatory compliance requirements of these plans on an annual basis. Almost 50 percent of respondents manage this compliance process without external assistance, relying on publicly available Web sites and news bulletins for this information.