Management Reporting

After tens of thousands of hours spent with financial reporting executives, we understand that equity award reporting is much more than properly applying a forfeiture rate or correctly truing up expense on performance-based awards. Every company and every functional group therein maintain specific reporting requirements, ranging from automated general ledger posting needs to forecasting future period compensation expense.

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As you consider the complexity of your equity award programs, some of the following questions and topics may resonate:

Do you spend time manipulating system outputs or a manual spreadsheet in order to post expense to your ledger?

Most companies undergo considerable effort translating system calculations into the format/structure needed to actually post expense to their general ledger.
Our custom solutions are built with an understanding of your end-state and by working backward. We don’t hand you off-the-shelf reports with the hopes that they are simple to translate into your required report structures.

Do you forecast future period compensation expense?

Best practice is to maintain detailed waterfall sheets containing both existing grants and anticipated future grants. These waterfall forecasts should track expense by detailed indicative data categories on a monthly or quarterly basis.
Our forecasting solutions begin with your internal forecasting process in mind – granularity of forecast periods (monthly/quarterly) and indicative data categories (individual cost centers or strategic business units).

Do you forecast future period diluted EPS expansion?

An increasingly important objective among finance executives is appropriately considering the non-linear rate at which awards settle and the possibility that many or few will hit basic EPS.
Best practice is to apply expected exercise and cancellation rates to the pool of outstanding awards to track both the rate at which they settle and the proportion that will become common shares versus canceling and ceasing to exist.

Do you forecast expected deferred tax shortfalls based on assumed stock price scenarios?

Increasingly important given the depressed stock prices as a result of the recession. The result is a large pool of outstanding options and restricted awards that are likely to settle at an intrinsic value less than their grant date fair value.
The result is going to be significant stress on the APIC Pool, and once it is depleted, charges to the P&L. Forecasting these potential shortfalls is important in understanding how likely such income statement charges are, and when they might occur.

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