Grant Date and Performance Period: To Align or Not to Align?

Companies are often surprised by how different the accounting grant date fair value can be from one relative total shareholder return (rTSR) award to another. The identical award, measuring the same performance period, can have a significantly different fair value depending on when the company issues it.

This disparity can give rise to some challenging situations. One is the havoc that large swings in fair value can cause. Another is confusion among grantees when they don’t get the number of awards they expect. Then there’s the uncertainty of not knowing how much value the company is actually giving to employees—or what, in the end, will show up in the proxy table—until the grant date finally arrives.

One way to mitigate these challenges is to align the performance period start date with the grant date. In this issue brief, we look at the practicalities of implementing this important mitigating strategy.