Page 226 - Accounting Best Practices

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11–12 Automate 401(K) Plan Enrollment
circumstances. Given a large number of employees with many option grants, this
can turn into a major drain on company resources. In addition, a company runs the
risk of giving bad advice to its employees, which may have legal repercussions if
employees using this advice lose money through the exercise of options.
A solution for larger companies is to purchase an options tracking package,
which they can use alternatively as an in-house solution or as a featured service
on the external site of an application service provider. An example of such soft-
ware is Express Options, which is sold by Transcentive, Inc. The system stores all
options information in a single database, allowing one to handle multiple grant
types, determine vesting schedules, track option exercises and cancellations, and
provide employees with tax-related information. It also calculates option valua-
tions, exports data to the company stock transfer agent, and provides a variety of
reports for regulatory purposes. By using Transcentive’s add-on product, Express
Desktop, employees can access such information about their options as portfolio
valuations based on different stock pricing assumptions, “what if” modeling,
transaction histories, and frequently asked questions. They can also place orders
to exercise their options through the system.
For this type of service, one can expect to pay a minimum of $15,000 annu-
ally, with the price exceeding one-third of a million dollars per year for larger
installations. Given its cost, this best practice is most applicable to corporations
with at least several hundred option holders.
Cost: Installation time:

11–11 USE INTERNET-BASED OPTIONS PRICING SERVICES

Any accounting or treasury staff that deals with options knows that this is a difficult
area to analyze in terms of whether an options price is reasonable or excessive. One
can now gain assistance in this effort by accessing the excellent www.ivolatility.com
Web site. This site compares the historical volatility of a stock to its estimated
activity for the next few months, as determined through an examination of
options purchased. If the forward-looking volatility is greater than the historical
volatility, then the options on that stock may be overpriced. The site also includes
daily charts and statistics about market performance, as well as linkages to news
sources for each selected stock. There is a wealth of information at this site.
Cost: Installation time:

11–12 AUTOMATE 401(K) PLAN ENROLLMENT

In smaller organizations, the accounting department is tasked with the manage-
ment of 401(k) plan additions, changes, and deletions. This is not an efficient