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.
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 ensure that there are no year-end surprises.
Typical tasks should include the following:
To assist with the update process, you may wish to download the Stock Informatics Maintenance Checklist below:
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.
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 for vested grants.
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.
It is important to document Black Scholes compensation cost assumptions for your new awards.
As preparation for the year-end audit, you are encouraged to maintain documentation substantiating your assumptions for each grant.
Remember for each new grant made, you should reconsider each variable, not merely carry forward assumptions from the last grant.