Much of the attention paid to FAS 123R, the Financial Accounting Standards Board’s hotly debated stock option expensing rule, has focused on the regulation’s impact on employee stock option plans. Less noticed has been 123R’s impact on employee stock purchase plans.
In fact, the rule—officially called “Share-Based Payment”—significantly alters the accounting of ESPPs by determining that most employee share purchase plans are “compensatory”; that is, they give rise to a recognizable compensation cost. The only plans that do not require expensing are ones that basically are “no more favorable” than those available to all shareholders of the same class of shares.
