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California Rating Bureau WCIRB Equity Compensation

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Equity Compensation – California Rating Bureau WCIRB Provides New Rules

The California Rating Bureau WCIRB recently published an article which has been  the basis for many debates among carriers, rating bureaus, and premium auditors.

california rating bureau wcirb picture
Wikimedia Commons – Tonymas

When I attended the IAASE Conference last year in Columbia, SC, a part of the NCCI presentation was on this very subject.

Many large companies that had IPO’s in California decided to provide their employees with equity compensation.  The big debate here involves where or not to include this in an employer’s payroll figures during the premium audit process.

Equity-based compensation – which can include stock options, restricted stock, restricted stock units, phantom stock plans and stock appreciation rights – will in some cases receive very large amounts of money in connection with these IPOs.

California’s rating bureaus WCIRB recently enacted  new rules for these situation.  Effective January 1, 2019, the USRP was amended to include rules that direct when equity-based compensation may be excluded from reported payroll.

Almost all of the WCIRB articles on how any type of remuneration (payroll) would be handled was to add the benefit to the payroll.   The WCIRB decided to publish an article on a type of compensation that was considered a non-payroll item

I was going to write the next sections on equity compensation.   I decided just to quote California Rating Bureau WCIRB’s take on the matter.  This quote will lessen any confusion on the new rules.

Counted as Payroll (Remuneration) – California Rating Bureau WCIRB

Some equity-based compensation vests or is paid on a scheduled or annual basis or based on the achievement of performance goals or milestone anniversaries. These payments can represent a recurring portion of an employee’s overall compensation and, similar to a bonus, are included as reportable remuneration. Employee payroll-based contributions to fund equity-based compensation plans are similar to employee payroll-based contributions to fund pensions or deferred compensation plans and also must be included as reportable remuneration.

Not Counted as Payroll

Payment of equity-based compensation due to accelerated cliff vesting triggered by an IPO of stock, or a change in majority ownership, is typically a nonrecurring, infrequent event that can produce very large increases in payroll that can result in volatility in reported payrolls from year to year without similar shifts in underlying loss exposure. These amounts are not a regular or recurring portion of an employee’s overall compensation and are therefore not a reasonable proxy for workers’ compensation exposure during an individual policy period. Equity-based compensation that is triggered by an IPO of stock, or a change in majority ownership, is not included as reportable remuneration.

Differences

The remuneration is counted if it is:

  • Scheduled
  • Recurring
  • Similar to a bonus
  • Pensions or Deferred Compensation Plan

The remuneration is not counted if it is:

  • Non-recurring
  • Very infrequent
  • Triggered by an IPO or
  • Change in majority ownership – (interesting one)

Sometimes IPO stock given to an employee can be a very large sum of money.  Thanks to California’s Rating Bureau WCIRB for a clarification.

 

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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

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