Translating Compensation “Actually Paid” into Realizable Pay:
How to Not Only Comply with 402(v) but add Strategic Value
The SEC announced the adoption of new pay versus performance rules, or Item 402(v) on August 25, 2022. A detailed summary of the new rules can be found within our Alert found here. The biggest challenge of the rules is a new definition of pay called “Compensation Actually Paid” (“CAP”). Although the CAP calculation itself is new, the theory…
Understanding Volatility in Stock-Based Compensation Valuation: A Guide to ASC 718 and SEC SAB #107
Volatility is one of the key assumptions that goes into the valuation of stock-based compensation. This brief will reference literature from ASC 718, SEC Staff Accounting Bulletin #107, and Infinite Equity’s research. FASB ASC paragraph 718-10-55-36 describes volatility as “a measure of the amount by which a financial variable such as a share price has…
Understanding Volatility: A Key Driver in Option and Performance Award Valuation
Volatility is one of the most impactful assumption inputs when valuing employee equity. It also requires judgement, as ASC 718 lays out criteria to consider, versus a prescribed methodology. The following summary highlights the impact of volatility on different types of employee equity: We discuss each of these different instruments in detail below. Impact of…
Relative Total Shareholder Return (“TSR”) Modifier Programs
Considerations and Accounting Implications Companies considering a relative TSR plan or a change to a current program may want to evaluate a Relative Total Shareholder Return Modifier. As a company matures, it may face pressure from shareholders and other stakeholders to implement a performance program that utilizes relative total shareholder return “TSR” as a metric.…
Commentary on SEC’s Newly Released Compliance & Disclosure Interpretations
On September 27, 2023, the SEC released 9 new Compliance & Disclosure Interpretations (“C&DIs”) that provide clarification on the new Pay Versus Performance rules (Questions 128D.14 – 128D.22). These new C&DIs primarily focus on the details for vesting requirements and valuation techniques to calculate Compensation Actually Paid (“CAP”). Many of the questions and answers are…
Navigating PvP for Newly Public Companies
The SEC’s Pay Versus Performance (“PVP”) disclosure rules contain a variety of nuances and complexities, especially for companies that recently went public and must comply with the new rules. The SEC announced the adoption of its pay versus performance rules, or Item 402(v), on August 25, 2022. A detailed summary of the rules can be found within…
Unexpected Expense
Is Your Stock-Based Compensation Program about to Cause a Second Wave of Expense? The first quarter of 2020 was one of the worst quarters for the stock market since the Great Recession, with the S&P 500 Index dropping over 20%. Many companies are preparing for reduced revenue and earnings with shelter in place orders slowing…
Alternative Types of RTSR Plans
Once a company decides that it is going to grant performance shares contingent on Relative Total Shareholder Return (“RTSR”), one of the initial plan design considerations is the “classification” of RTSR plan you are considering, of which there are generally three: Each of the classifications have their own pros and cons, which we have summarized…
TSR Calculation – Best Practice
Section 1 – TSR Calculation Considerations One of the benefits of using Relative Total Shareholder Return (“RTSR”) as a performance metric is the transparency of the calculation. It is based on empirical stock price data which is published daily from many different objective financial data sources. Nonetheless a wide variance of methodologies for calculating Total…