The Securities and Exchange Commission (SEC) on Monday released new guidance for listed companies on how to properly recognize and disclose compensation costs for “spring-loaded” awards made to executives.
Spring-loaded awards, as defined by the SEC, are “share-based compensation arrangements where a company grants stock options or other awards shortly before it announces market-moving information, such as an earnings release with better-than-expected results or the disclosure of a significant transaction.”
The SEC said its staff accounting bulletin is meant to provide guidance to companies estimating the fair value of share-based payment transactions in accordance with GAAP under Accounting Standards Codification Topic 718 (Compensation—Stock Compensation). The bulletin brings the SEC’s message in line with several recent updates to Topic 718 by the Financial Accounting Standards Board (FASB).
“[A]s companies measure compensation actually paid to executives, they must consider the impact that the material nonpublic information will have upon release,” the SEC stated. “… Companies should not grant spring-loaded awards under any mistaken belief that they do not have to reflect any of the additional value conveyed to the recipients from the anticipated announcement of material information when recognizing compensation cost for the awards.”
In another move related to executive compensation, the SEC is expected to pass a proposed rule that would require public companies to recover incentive-based compensation from current and former executive officers where the company has restated its finances within the previous three fiscal years. The proposed rule was supposed to be implemented under the Dodd-Frank Act of 2010.