The NASPP Blog

Let’s face it: it’s hard to be a jack-of-all trades in equity compensation. In some ways we need to take on that role, because we have to know at least a little bit about a lot of things. The saying “you don’t know what you don’t know” really applies, and with that comes a quest to continue to learn about the many different areas that fit together to make up the components of administering an equity incentive program. One thing I’ve found incredibly helpful over the years is to have access to industry experts – for all those things I don’t know about a particular topic. On that note, I recently caught up with Elizabeth Dodge of Stock & Option Solutions, an expert in most things related to accounting for equity compensation. Keep reading to find out some of the things she wished more people would ask her!

Ask the Expert

Before I touch on some of the accounting things that companies should be thinking about, I want to remind everyone that one of the most popular type of NASPP webcasts is the Ask the Expert series of webcasts. Essentially, a topic is picked and people can submit questions to the panel of experts in advance of the webcast. The presentation is a compilation of questions and answers. This has always been a popular webcast format for us, and I can see why. It’s a great opportunity for people to get perspective on their real life questions. Our next Ask the Expert webcast will be next week on April 29th. It’s an accounting topic, Ask the Experts: Accounting for Equity Compensation. The deadline has passed to submit questions, but if you have burning accounting questions, it’s possible others may have submitted yours.

Forfeiture Rates and Disclosure Mistakes

In preparation for next week’s webcast, I caught up with Elizabeth to ask her some of my burning questions. You can hear her full interview (it’s short – about 10 minutes long) in the latest episode of our Equity Expert podcast series. All episodes are free to NASPP members and non-members.

I asked Elizabeth about forfeiture rates and whether companies should be using multiple forfeiture rates to haircut their accounting expense. Elizabeth’s bottom line answer was that if companies want to use two forfeiture rates they can do so – one for executives and one for everyone else. But ultimately the forfeiture rate is a game of estimates, and it’s likely not accurate anyway. In her opinion, there’s no need to spend eons of time and energy breaking dissecting things using multiple forfeiture rates (anything more than two rates).

My next question centered on common mistakes she sees companies make in accounting for non-employees. Elizabeth reports that this is an area where she sees lots of mistakes. One reason for this may be technology limitations, as many systems were designed based on older accounting guidance that required accelerated attribution of the accounting for non-employees (pre-FAS 123(R), now ASC 718). Current accounting regulations permit but do not require accelerated attribution of expense. What’s most important now is that companies (in an ideal world) use the same methodology for recognizing expense across the board – for both employee and non-employee grants. So if companies are using straight line expensing for their employee grants, they should use straight line expensing for their non-employee grants. The same applies if the accelerated attribution approach is taken. Some systems may still default to the accelerated attribution method of accounting for non-employees, even if the company is using straight-line accounting for employee and non-employee awards. This is an area of caution in ensuring non-employee grants are accounted for properly.

To hear more of Elizabeth’s tidbits, including common mistakes she sees in ASC 718 disclosures, check out her full podcast interview. And don’t forget to join Elizabeth and her co-panelists in answering many more accounting questions in next week’s Ask the Experts webcast.

-Jenn