Anticipate the proxy and accounting outcomes of these highly scrutinized transactions.
Modifications are among the most challenging areas of equity compensation award design, valuation, and accounting under ASC 718 and IFRS 2. Every modification is unique to the company and its situation. The technical aspects are also challenging. Meanwhile, key executive hires and terminations often require special grants (to new hires) or modifications (to departing executives), usually in an extremely compressed timeframe.
As a result, modifications, key hires, and terminations all can cause considerable accounting and proxy surprises.
We help companies understand the different choices and levers available. How might a transaction depart from prior practice? How would it flow through the proxy? How should you account for it? Our models show the potential proxy and accounting (ASC 718) outcomes so you can move forward with confidence.
How We Help: Modification Analysis
Whether you have a small modification affecting a single employee or enormous modifications driven by corporate control transactions, we help you:
- Model contemplated modifications before the business decision is finalized, helping to set stakeholder expectations about accounting cost while proactively identifying pitfalls that lead to unfavorable outcomes
- Determine fair value and incremental expense impact for awards modified as part of a termination, such as accelerations, extensions to exercise windows, and continuation of vesting
- Capture the impact of changes to performance targets, whether based on total shareholder return (TSR) or other metrics
- Model repricings and option exchanges ahead of such major transactions in order to minimize incremental compensation cost and align expectations between HR, finance, legal, and participants
- Value awards converted as part of major corporate transactions, including acquisitions, mergers, spin-offs, and special dividends
- Perform custom modeling and valuation for any unique modifications contemplated or enacted, tailored to your specific situation
How We Help: Key Hires and Terminations
Using a cross-functional approach, we do the following:
- Evaluate the transaction under consideration
- Share an overview of the accounting implications for the proxy
- Share any ideas for similar ways to achieve the same outcome while avoiding one or more problems
- Produce pro forma snapshots of the accounting ramifications for the proxy for you to review and share with interested stakeholders