The NASPP Blog

Monthly Archives: April 2014

April 30, 2014

NASPP To Do List

One Week Reprieve on Completing the Stock Plan Administration Survey
But don’t wait any longer! This is it–we won’t be able to extend the deadline again; issuers must complete the survey by this Friday, May 2 to have access to the full results.  The NASPP’s 2014 Domestic Stock Plan Design Survey (co-sponsored by Deloitte Consulting LLP) is the best source of data on stock plan administrative practices.  You’ll be sorry if you miss this chance: register to participate today.

NASPP Conference Price Goes Up after May 9
We’ve introduced phased-in pricing for this year’s NASPP Conference.  The earlier you register; the less you pay.  Don’t wait–register before the price goes up next Friday, May 9.

NASPP To Do List Here is your NASPP to do list for this week:

– Barbara


April 29, 2014

Performance Award Accounting Follow-up

For today’s blog entry, I have a couple of follow-up tidbits related to the recent EITF decision on accounting for awards with performance periods that are longer than the time-based service period.  I know you are thinking: “Yeesh, it was bad enough the first time, how much more could there be to say on this topic!” but you don’t write a blog.


To refresh your memory, this applies to performance awards that provide a payout to retirees at the end of the performance period contingent on achieving a non-market condition target (in other words, just about any goal other than stock price or TSR targets). Where awards like this are held by retirement-eligible employees, the awards will not be forfeited in the event of the employees’ terminations but could still be forfeited due to failure to achieve the performance targets.  The service component of the vesting requirements has been fulfilled but not the performance component.

This also applies to awards granted by private companies that vest based on both a time-based schedule and upon an IPO/CIC.

The EITF came to the same conclusion you probably would have come to on your own. Expense is adjusted for the likelihood that the performance conditions will be achieved; as this estimate changes throughout the performance period, the expense is adjusted commensurately until the end of the period, when the final amount of expense is trued up for the actual vesting outcome. (See “Performance Award Accounting,” April 15, for more information.)

The IASB Does It’s Own Thing

I thought it was just a few maverick practitioners that had taken an opposing position.  The alternative approach (which the EITF rejected), is to bake the likelihood of the performance condition/IPO/CIC being achieved into the initial fair value, with no adjustments to expense for changes in estimates or outcome (akin to how market conditions are accounted for).

It turns out, however, that the IASB is one of the maverick practitioners that takes this position.  Apparently, the IASB thinks that option pricing models can predict the likelihood of an IPO occurring or earnings targets or similar internal metrics being achieved.  Which makes this another area were US GAAP diverges from IFRS. Just something to keep in your back pocket in case conversation lags at the next dinner party you attend.

Mid-Cycle Performance Grants

As I was reading Mercer’s “Grist Report” on the IASB’s decision, I noticed that they also had made a determination with respect to grants made in the middle of a performance cycle. These are typically grants made to new-hire employees.  For example, the performance cycle starts in January and an executive is hired in February.  All the other execs were granted awards in January at the start of cycle, but the newly hired exec’s award can’t be granted until February.

Under ASC 718, the grant to the newly hired exec is accounted for just like any other performance award.  True, his award will have a different fair value than the awards granted in January and the expense of the award will be recorded over a shorter time period (by one month) than the other execs’ awards. But where the award is contingent on non-market conditions, the expense is adjusted based on the likelihood that the goals will be met and is trued up for the actual payout, just like any other performance-conditioned award.

The same treatment applies under IFRS 2, but only if the performance-conditioned award is granted shortly after the performance cycle has begun. Awards granted farther into the performance cycle (in my example, if the exec were hired in, say, June, rather than February) are accounted for in the manner applicable to market conditions (i.e., the vesting contingencies are baked into the initial grant date fair value, with no adjustment to expense for changes in estimates or outcome), even if the targets are internal metrics.

Hmmmm. I’m starting to wonder if discussions like this explain the dearth of dinner parties in my life.

Thanks to Susan Eichen at Mercer for bringing the IASB’s decision to my attention and for explaining the IASB’s positions with respect to mid-cycle performance grants.

– Barbara

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April 28, 2014

NASPP Chapter Meetings

Here’s what’s happening at your local NASPP chapter this week:

San Diego: Emily Cervino of Fidelity Stock Plan Services and John Wolff of GuideSpark present “Lights, Camera, Action! Viral Videos in Stock Compensation.” (Tuesday, April 29, 11:30 AM)

Orange County: Aaron Boyd of Equilar presents “At the Crossroads: Recapping Proxy Season and Anticipating Shareholder Meetings.” (Thursday, May 1, 11:30 AM)

April 24, 2014

5 Things I Wish I Knew

Last week I touched upon my early days in equity compensation, when many of the acronyms and jargon threw me for a loop. Reminiscing about some of the early days of my career got me thinking about the new additions we have to this industry on a regular basis. I love going to NASPP Chapter meetings and meeting people who are brand new to this profession. After all, we all share some kind of strange unspoken bond. Nearly all of us landed here by chance, luck of the draw, or some other random coincidence. In today’s blog, I’m speaking to those new people – offering up 5 things that I wish someone had told me when I first landed in this industry.

  1. Go to as many industry events as you can. There are two reasons for this one. First, this helps you gather information quickly – learning about many of the concepts that touch your world. New practices emerge, regulations change. The best way to keep on top of these changes is to get out and hear what the other experts in the industry are saying. Note that “industry event” can be a webcast, chapter meeting, conference, and so on. Second, you need to build a network of people that you can turn to when you have questions or require input. A great way to meet people is at chapter meetings and conferences. Don’t let the excuse of “I’m too busy” prevent you from getting out there.
  2. Pursue as many education opportunities as possible. There is a lot to learn – regulations, tax code, practices, and so on. Especially in the early days, this can be a case of “you don’t know what you don’t know.” You may think you’ve learned a lot, only to realize there are topics that haven’t even been discovered yet. Take advantage of fundamentals courses offered (yes, the NASPP  offers fundamentals courses every year – this year we’re doing two – Stock Plan Fundamentals and Employee Stock Purchase Plan Essentials).
  3. Get your CEP! The Certified Equity Professional Institute at Santa Clara University offers you the opportunity to become certified in your equity compensation knowledge.
  4. Find a mentor. Many seasoned equity compensation professionals are happy to share their knowledge and serve as a resource to others. Look for someone who is knowledgeable and approachable and ask them if they would mind if you contacted them with questions from time to time. Not only will you have a go-to person for your questions, but you’ll likely develop a great long term relationship. My early mentor actually hired me at one point! You just never know where those relationships will take you.
  5. Offer to speak. Yes, you heard me correctly. I hear this all the time – “but I haven’t been in this industry for a lot of years” or “I’m not sure what I could speak about.” Make it a goal to get to the point where you can share your knowledge or experience on a particular topic. You probably already have plenty to speak about – you just don’t know it. Did you recently tackle a project and have great success? Are you a great writer and you turned out some amazing employee communications? You don’t have to be an expert in every single area of equity compensation in order to speak. What you do need to have is an experience or know-how that will be helpful to others. Taking on a speaking opportunity will also push you to dig even deeper into your topic, leaving you with more information as well.


To those who are newer to this field, there are many of us who have been in your shoes. It may feel like you are sometimes lost in a sea of information and concepts, but as you learn more you will come to realize what the rest of us have – this is a pretty awesome industry to put your stake in the ground. There’s never a dull moment – regulations change, new practices and people come onto the horizon. You know what they say – “variety is the spice of life”, and we certainly don’t lack in variety. So if you’re new to the industry and wondering where to start, try the 5 steps above and you should be well on your way to making your own mark in this wild field called equity compensation.


April 23, 2014

NASPP To Do List

Time Is Running Out to Complete the Stock Plan Administration Survey The NASPP’s 2014 Domestic Stock Plan Design Survey (co-sponsored by Deloitte Consulting LLP) is now open for participation. If you are an issuer, you have to complete the survey by this Friday, April 25 to access the full results.  You’ll be sorry if you miss this chance: register to participate today.

NASPP To Do List Here is your NASPP to do list for this week:

– Barbara


April 22, 2014

Substantial Risk of Forfeiture

At the same time that the IRS released regulations designed to clarify which restrictions constitute a substantial risk of forfeiture under Section 83 (see my blog entry “IRS Issues Final Regs Under Section 83,” March 4), a recent tax court decision casts doubt on the definition in the context of employees that are eligible to retire.


As my readers know, where an employee is eligible to retire and holds restricted stock that provides for accelerated or continued vesting upon retirement, the awards are considered to no longer be subject to a substantial risk of forfeiture, and, consequently, are subject to tax under Section 83. This also applies to RSUs, because for FICA purposes, RSUs are subject to tax when no longer subject to a substantial risk of forfeiture and the regs in this area look to Section 83 to determine what constitutes a substantial risk of forfeiture.

Although there’s usually some limited risk of forfeiture in the event that the retirement-eligible employee is terminated for cause, that risk isn’t considered to be substantial. As a practical matter, at many companies just about any termination after achieving retirement age is treated as a retirement.

Austin v. Commissioner

In Austin v. Commissioner however, the court held that an employee’s awards were still subject to a substantial risk of forfeiture even though the only circumstance in which the awards could be forfeited was termination due to cause.  In this case, in addition to the typical definition of commission of a crime, “cause” included failure on the part of the employee to perform his job or to comply with company policies, standards, etc.


Up until now, most practitioners have assumed that providing for forfeiture solely in the event of termination due to cause is not sufficient to establish a substantial risk of forfeiture, regardless of how broad the definition of “cause” is.  Austin seems to suggest, however, that, in some circumstances, defining “cause” more broadly (e.g., as more than just the commission of a crime) could implicate a substantial risk of forfeiture, thereby delaying taxation (for both income and FICA purposes in the case of restricted stock, for FICA purposes in the case of RSUs) until the award vests.

On the other hand, there are several aspects to this case that I think make the application of the court’s decision to other situations somewhat unclear.  First, and most important, the termination provisions of the award in question were remarkably convoluted. So much so that resignation on the part of the employee would have constituted “cause” under the award agreement. There were not any special provisions relating to retirement; all voluntary terminations by the employee were treated the same under the agreement.  In addition, the employee was subject to an employment agreement and the forfeiture provisions of the award were intended to ensure that the employee fulfilled the terms of this agreement.

Finally, the decision notes that, for a substantial risk of forfeiture to exist, it must be likely that the forfeiture provision would be enforced.  I think that, for retirees, this often isn’t the case–the only time a forfeiture provision would be enforced would be in the event of some sort of crime or other egregious behavior. Termination for cause is likely to be met with resistance from the otherwise retirement-eligible employee; many companies feel that, with the exception of circumstances involving clearly egregious acts, it is preferable to simply pay out retirement benefits than to incur the cost of a lawsuit.

Never-the-less, it is worth noting that 26% of respondents to the NASPP’s recent quick survey on retirement provisions believe that awards held by retirees are subject to a substantial risk of forfeiture.

– Barbara

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April 21, 2014

NASPP Chapter Meetings

Here’s what’s happening at your local NASPP chapter this week:

Denver: Jon Doyle of International Law Solutions presents “What You Need to Know About Global Equity Compensation.” (Tuesday, April 22, noon)

DC/VA/MD: Bill Dunn of PwC presents “Is Equity Compensation Relevant to the New Workforce?” (Wednesday, April 23, 5:00 PM)

Connecticut: Richard Fischer of Morgan Stanley presents “Executive Services: Trends & Challenges with 10b5-1 Plans.” (Friday, April 25, noon)


April 17, 2014

The Acronym Challenge

I have a vivid memory of a moment that occurred during my first few weeks in the world of equity compensation. Freshly moved into the role of Stock Administrator, I was attending a meeting about the company’s upcoming IPO. I recall the General Counsel saying something like “…and we’ll need to figure out how we are going to keep track of the ISO QDs and DDs to make sure we properly report on the W-2 to the IRS.” That was a head scratching moment for me. Huh? What is an “ISO”? What is a “QD”? What is a “DD”? I think I’ve heard of the W-2 and the IRS.That moment was captured in my mind, because I left the meeting thinking to myself “with all these darn acronyms, I am never going to understand this stuff.” Fortunately, I did eventually get it figured out – but only after much confusion along the way. Of course, we’ve added so many new acronyms since that time. I often wonder how we can keep track of it all, and what new professionals in our industry must think about our heavy use of acronyms. In today’s blog I’m going to stick to the lighter side of things and offer up a quiz – for new and tenured stock compensation professionals. Can you pass the ECAC (Equity Compensation Acronym Challenge)?

The Rules of the Game

This is just for fun. There’s not even a prize. Yes, the answers are written in tiny print at the end of the blog. No, you can’t cheat.

All you need to do is answer the questions, check your answers, and have a bit of fun!

Here Goes…

Create your free online surveys with SurveyMonkey , the world’s leading questionnaire tool.

Check your answers below!



    1. ISO = Incentive Stock Option
    2. PSU = Performance Stock Unit
    3. MSU = Market Stock Unit
    4. DOMA = Defense of Marriage Act
    5. DRO = Domestic Relations Order
    6. EE = Employee
    7. TSR = Total Shareholder Return
    8. ESPP = Employee Stock Purchase Plan
    9. HSR Act = Hart-Scott-Rodino Act
    10. IFRS = International Financial Reporting Standards
    11. FICA = Federal Insurance Contributions Act
    12. SOX = Sarbanes-Oxley (as in the Sarbanes-Oxley Act of 2002 – and yes, there was a white house cat named “Socks” – different spelling!)
    13. SEC = Securities and Exchange Commission (for those who picked “Southeastern Conference”, remember – this is an equity compensation, not sports, quiz!)
    14. DRIP = Dividend Reinvestment Plan
    15. IRC = Internal Revenue Code
    16. MTM = Mark to Market

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April 16, 2014

NASPP To Do List

Time Is Running Out to Complete the Stock Plan Administration Survey
The NASPP’s 2014 Domestic Stock Plan Design Survey (co-sponsored by Deloitte Consulting LLP) is now open for participation. If you are an issuer, you have to complete the survey by April 25 to access the full results.  You’ll be sorry if you miss this chance: register to participate today.

NASPP To Do List
Here is your NASPP to do list for this week:

– Barbara


April 15, 2014

Performance Award Accounting

The FASB recently ratified an EITF decision and approved issuance of an Accounting Standards Update on “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (their words, not mine). 

What the Heck?

I was completely baffled as to when an award would have a performance condition that could be met after the end of the service period. After all, isn’t the period over which the performance goals can be met the very definition of a service period?  So I spoke with Ken Stoler of PwC, who translated this into English for me.

Turns out, it’s a situation where the award is no longer subject to forfeiture due to termination of employment but is still subject to some sort of performance condition.  Here are two situations where we see this occur with some regularity:

  • Retirement-Eligible Employees: It is not uncommon for companies to provide that, to the extent the goals are met, performance awards will be paid out to retirees at the end of the performance period. Where this is the case, a retirement-eligible employee generally doesn’t have a substantial risk of forfeiture due to termination but could still forfeit the award if the performance goals aren’t met. 
  • IPOs:  Privately held companies sometimes grant options or awards that are exercisable/pay out only in the event of an IPO or CIC.  The awards are still subject to a time-based vesting schedule and, once those vesting requirements have been fulfilled, are no longer subject to forfeiture upon termination.  But employees could still forfeit the grants if the company never goes public nor is acquired by a publicly held company.

The EITF’s Decision

The accounting treatment that the EITF decided on is probably what you would have guessed.  You estimate the likelihood that the goal will be met and recognize expense commensurate with that estimate.  For retirement-eligible employees, the expense is based on the total award (whereas, for other employees, the expense is also commensurate with the portion of the service period that has elapsed and is haircut by the company’s estimate of forfeitures due to termination of employment).  

For example, say that a company has issued a performance award with a grant date fair value of $10,000, three-fourths of the service period has elapsed, and the award is expected to pay out at 80% of target.  In the case of a retirement-eligible employee, the total expense recognized to date should be $8,000 (80% of $10,000).  In the case of an employee that isn’t yet eligible to retire, the to-date expense would be, at most, $6,000 ($80% of $10,000, then multiplied by 75% because only three-fourths of the service period has elapsed).  Moreover, the expense for the non-retirement-eligible employee would be somewhat less than $6,000 because the company would further reduce it for the likelihood of forfeiture due to termination of employment.

The same concept applies in the case of the awards that are exercisable only in the event of an IPO/CIC, except that, in this situation, the IPO/CIC is considered to have a 0% chance of occurring until pretty much just before the event occurs. So the company doesn’t recognize any expense for the awards until just before the IPO/CIC and then recognizes all the expense all at once.

Doesn’t the EITF Have Anything Better to Do?

I had no idea that anyone thought any other approach was acceptable and was surprised that the EITF felt the need to address this. But Ken tells me that there were some practitioners (not PwC) suggesting that these situations could be accounted for in a manner akin to market conditions (e.g., haircut the grant date fair value for the likelihood of the performance condition being met and then no further adjustments). 

I have no idea how you estimate the likelihood of an IPO/CIC occurring (it seems to me that if you could do that, you’d be getting paid big bucks by some venture capitalist rather than toiling away at stock plan accounting).  And in the case of performance awards held by retirement-eligible employees, my understanding is that the reason ASC 718 differentiates between market conditions and other types of performance conditions is that it’s not really possible for today’s pricing models to assess the likelihood that targets that aren’t related to stock price will be achieved.  Which I guess is why the EITF ended up where they did on the accounting treatment for these awards. You might not like the FASB/EITF but at least they are consistent.

– Barbara

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