Data Informatics, LLC
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Many boards and compensation committees
make well intentioned modifications to existing
equity awards. However, they may not realize
that even the slightest modification could trigger
additional procedures, calculations and expense
under ASC 718 (FAS 123R).
Essentially, if the modification makes an existing equity award more valuable to the recipient, its cost must be re-measured as if the old award was turned in and a new award was then granted. Typically, this results in recognition of the unrecognized cost from the existing award plus the incremental cost of the "new" award.
Play it safe - before any modifications are made, seek appropriate advice from your accountant or attorney. Do not assume that modifying underwater grants is a simple, no-cost and straightforward process.
Click Here to download our Overview of Equity Award Modification.
Typical tasks should include the following:
To assist with the update process, you may wish to download the Stock Informatics Maintenance Checklist by clicking Here.
Throughout the year it is wise to update your Equity Grant Accounting so that adjustments can be made to your monthly expense accruals and to insure that there are no year-end surprises.
Stay in contact with your Human Resources Department concerning terminations. Terminated employees and directors should promptly receive current equity grant transaction statements along with clear instructions for initiating exercises and the related cost.
Prompt communication of vested grants is crucial to quickly resolving any misunderstandings - particularly if your company has had any stock splits or stock dividends which can have a significant impact on exercise prices and the number of grants.
Unfortunately, equity award plan administrators may not always be informed of important changes to equity grant plans and learn of new awards after they have been approved.
Without the proper involvement of plan administrators in the design and implementation of equity awards, additional costs and expenses may be incurred unnecessarily.
It is important to document
Black Scholes compensation
cost assumptions for your
As preparation for year end audit,
you are encouraged to maintain documentation substantiating your assumptions for each grant.
Remember for each grant made, you should reconsider each variable, not merely carrying forward assumptions from the last grant.