711 Louisiana Street, Suite 3100, Houston, Texas 77002 [email protected] 713.490.5050
Home / Capabilities / Complex Financial Reporting / Share-Based Compensation
To incentivize employee performance and align the interests of employees and shareholders, entities often grant share-based payment awards in exchange for their services. Examples of common awards include stock options, restricted stock, restricted stock units, stock appreciation rights, profits interests, and total shareholder return awards.
Appropriately accounting for these awards requires a full understanding of the vesting, forfeiture, settlement, and repurchase features within the award agreements. These features help determine the appropriate accounting model to apply, the classification of the award as equity versus liability, and the expense attribution. Additionally, the U.S GAAP requires entities to use a fair-value based measure when recognizing the cost associated with these awards in the financial statements.
Opportune blends valuation and accounting subject matter experts to appropriately value and account for share-based compensation and helps streamline the audit process.
With the SEC’s “Pay vs. Performance” (“PvP”) disclosure rules, public companies’ proxy statements are required to include a new compensation actually paid table. Opportune’s PvP services include:
Assist in the identification of equity awards subject to the PvP table
Perform interim fair value measurements for all equity awards, including options, TSR-based awards, and other performance equity
Prepare compensation actually paid table along with supporting workbook
Support buildout of the footnote components to the disclosure in collaboration with legal counsel
One way companies look to match executive pay with performance is through granting awards that vest based on market conditions. As such, the use of award that vest based on the achievement of a specified total shareholder return (“TSR”) of the company or based on a specified TSR relative to a peer group have increased in popularity. Opportune provides the following services related to market and TSR awards:
Build custom Monte Carlo simulation models to determine the grant date fair value
Discussions with client and auditor to support internal controls and streamline audit review
Calculate current performance status for earnings per share calculations
Nonpublic limited partnerships, limited liability companies, and other pass-through entities oftenestablish special classes of equity, referred to as profits interests. While the features of a profits interest award can vary, such an award should be accounted for on the basis of its substance. The proper accounting and valuation of these awards can often be more challenging that that of public companies. Opportune assists our private companies with accounting for equity compensation as follows:
Determining proper classification of the award (i.e., equity versus liability)
409A valuation reports
Identify vesting conditions and requite service period for proper expense attribution
Outsourced ongoing stock-based compensation accounting services
A modification is accounted for exchange of the original award for a new award. The nuances around this analysis is that it is dependent on the probability of vesting both before and after the modification. Opportune’s services for award modifications are as follows:
Determination of modification type (i.e., probable to probable)
Valuations to determine incremental fair value
Accounting for equity restructurings
Repurchases and settlements
SPACs, or so-called “blank check companies”, are an alternative and expedient route to going public, but the financial reporting, tax, and governance aspects of the SPAC’s future investments must be considered.
When you choose Opportune, you gain access to seasoned professionals who not only listen to your needs, but who will work hand in hand with you to achieve established goals. With a sense of urgency and a can-do mindset, we focus on taking the steps necessary to create a higher impact and achieve maximum results for your organization.
I consent to receive communications (which may include, phone and email) from Opportune. I understand I may proactively manage my preferences or opt-out of communications with Opportune at any time using the unsubscribe link provided in all of Opportune’s email communications.
