Accounting for Performance Awards with Catch-Up Provisions

“Catch-up” awards are on the rise. A catch-up award gives recipients multiple opportunities to earn shares—if performance is low at one measurement point, they can recoup missed shares at the next measurement point. This mitigates the risk of a single win-or-lose measurement, where short-term outcomes can scuttle payouts for what was otherwise solid long-term performance.

Catch-up awards create powerful incentives, but they’re not without their challenges. In this issue brief, we highlight commonly-observed pitfalls and surprises that accounting and financial reporting professionals should know about when implementing these awards.

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