Cancellations and Modifications of Underwater Stock Options Require Careful Consideration

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.