A chart comparing the key considerations for common types of modifications to equity awards.
Written for readers without an accounting background, this article provides a summary of the treatment of stock compensation under US GAAP. Also includes highlights of differences between the US GAAP and IFRS with respect to stock compensation.
Proxy advisory firm ISS provides an FAQ addressing questions about how they evaluate U.S. equity plans.
Many companies, knowing that out-of-the-money, or underwater, share options can affect
the morale and retention of key employees, are considering whether and how to modify
outstanding awards. Companies exploring strategies should understand their accounting
implications as well as the business, organizational, and regulatory concerns that are the
context for the strategies. This edition of Defining Issues describes the accounting implications
of the more common approaches and some basic factors that should be considered when a
company tailors a strategy to its specific circumstances.
As a result of declines in employer stock prices, companies may consider strategies intended to maintain value or
provide alternative incentives associated with employee share-based awards that are "under water" (i.e., the award's
exercise price is greater than the current market price of the stock). Careful consideration should be given to the
accounting for such strategies. This HRS Insight discusses the accounting for various strategies that may be
considered and provides practical examples for each strategy.
Five things to be aware of before you modify equity awards. You for sure don't want to forget about #4.
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