The NASPP Blog

With so many proposed, pending, or newly finalized pieces of legislation right now, I feel a little overwhelmed trying to keep up. Fortunately, we have a couple great resources on our site to help me keep it all straight. First, there is the “Cheat Sheet” provided by OnSecurities.com (posted to the Say on Pay portal). There is also this article by Choate, which has a great chart that details the legislation and which parts of corporate governance it impacts.

Here are a couple of the latest developments, along with a little newsworthy item that caught my eye.

FASB Exposure Draft

As I’m sure you are all aware, the U.S. is moving toward the adoption of IFRS. Nobody is sure when we will adopt IFRS as the U.S. accounting standard, but we do occasionally see signs that progress is being made in that direction. The Exposure Draft issued by FASB on December 17th is a perfect example.

The Exposure Draft is a proposed clarification regarding companies that issue equity awards that are denominated in a foreign currency. If enacted, the amendment in this exposure draft won’t impact very many companies at all. This is because Topic 718 (formerly FAS123R) already addresses the more common situations of companies denominating their equity awards in a foreign currency: using the functional or the payroll currency of the foreign entity. The scenario missing from the current wording in Topic 718 is where a company denominates their equity awards in a currency that is neither the functional nor the payroll currency, but is instead the currency of the market in which a substantial amount of the company’s shares trade. This draft clarifies that such an award would also be considered an equity award, providing that it would otherwise qualify for equity treatment. (For more information, check out our alert.)

What FASB is attempting to do with the clarification offered in this proposed change to Topic 718 is create uniformity with respect to the expensing of certain equity awards. More importantly to me, however, is the fact that FASB specifically addresses how the proposed amendments compare with IFRS. The trouble is that neither Topic 718 nor IFRS currently specifically call out the situations in which this amendment would be applicable, but it is likely that if IFRS were to be updated to include this situation, it would be the same. This is because, as stated in the Exposure Draft, most companies currently reporting under IFRS already expense these awards as equity awards.

Facilitating Shareholder Director Nominations

The SEC recently reopened the comment period for the proposed rule, Facilitating Shareholder Director Nominations. The proposed rule is designed to empower certain shareholders (based on ownership thresholds and minimum holding periods) to influence (presumably to improve) corporate governance by means of introducing both director nominations and proposals to amend director nomination process or disclosure requirements.

Existing comments can be viewed here. One of the concerns being voiced are that the bar for determining which shareholders may submit nominations and proposals is set too low, which could potentially allow short-term investors (like hedge funds) to encourage inappropriate risk-taking. Another concern is the amount of time and energy boards may potentially need to divert from day-to-day business decisions in order to deal with the politicization of board elections.

Although it is unlikely that this rule, if adopted, would impact the daily responsibilities of most stock plan managers, it does highlight SEC efforts to create better corporate governance by giving shareholders more power to influence corporate business strategy. Maybe what it does mean for you stock plan managers out there is that it’s time to renew (or initiate) your relationship with your company’s investor relations group.

FAR Out!

I came across this interesting article in the Hedge Fund Law Report on the merits of granting hedge fund managers appreciation rights that would be similar to a stock appreciation right (although the article compares them to stock options), but track against the increase in the fund’s value.

Two things really struck me about this article. First, it’s encouraging and powerful to keep seeing the conviction that creating an ownership mentality improves the long-term success of a company by aligning employee interests with shareholder interests. Much like the Treasury Special Master’s determinations highlighted the preference of performance-based equity compensation over cash compensation, the idea of granting an appreciation right that pays out with the success of a hedge fund really highlights the importance of appropriate equity compensation as a motivating vehicle.

The second thing that really caught my eye is that the name “Fund Appreciation Right” (FAR) has actually been trademarked by a particular compensation administration company (Optcapital). So, it’s not that other administrators (or funds) can’t issue an equity vehicle that is in the form of an appreciation right; they just can’t call it a FAR. It makes me wonder what our conversations would sound like if someone had trademarked “stock option” or “restricted stock unit”, forcing each company to come up with their own nomenclature!

We have several fantastic webcasts planned between now and the end of April; two in January alone! All our webcasts are a complementary benefit provided to our members. Don’t miss out; renew today.

January 20th we’ve got a webcast on the Final Regulations on Sections 6039 and 423: Implications and Action Items and the 28th members will have free access to Alan Dye’s annual Latest Section 16 Developments.

-Rachel