Home » Publications » Equity Compensation Plans »
Advanced Topics in Equity Compensation Accounting
by Takis Makridis
$35.00 for NCEO members; $50.00 for nonmembers
A 20% quantity discount will be applied if you are a member (or join now) and order 10 or more of this publication. If you need to order more than the maximum number in the drop-down list below, change the quantity once you have added it to your shopping cart.
Accounting is one of the most crucial areas in the equity compensation field. This book is not a general guide to the subject (for that, see our book Accounting for Equity Compensation by Barbara Baksa) but rather is an advanced study of some of the most important topics that arise. Author Takis Makridis, a leading expert in the field, selects a handful of valuation issues (models, expected term, and volatility), one reporting issue (expense amortization for awards with performance and/or market conditions), and a hybrid of the above (valuation and accounting treatment of exchanges of underwater options) and subjects them to close scrutiny.
Publication Details
Format: Perfect-bound book, 210 pages
Publication date: February 2009
Status: In stock
Contents
Preface
Chapter 1: Valuation Models
Chapter 2: Expected Term
Chapter 3: Volatility Estimation
Chapter 4: Expense Recognition for Market and Performance Awards
Chapter 5: Underwater Option Exchanges: Baseline Theory and Implementation Approaches
Index
Chapter 1: Valuation Models
Chapter 2: Expected Term
Chapter 3: Volatility Estimation
Chapter 4: Expense Recognition for Market and Performance Awards
Chapter 5: Underwater Option Exchanges: Baseline Theory and Implementation Approaches
Index
Excerpts
From Chapter 5, "Underwater Option Exchanges: Baseline Theory and Implementation Approaches"
Table 5-4 illustrates how an exchange ratio not based on a formal valuation methodology can give rise to incremental cost. First consider columns E, F and G, representing the stock price on the date in which the exchange ratio is solidified, the value of the underwater options on this date, and the resulting exchange ratio, respectively. As noted, Column F (value on which exchange ratio is based) may or may not be developed using formal valuation techniques. Column K shows the number of restricted stock units exchanged for underwater options based on this exchange ratio.Then consider columns H, I, and J, representing the stock price on the modification date, fair value on the modification date, and ratio between these two values, respectively. The exchange ratio is based on a valuation that assigns a higher value to the underwater options than that used in the valuation performed on the modification date. While it may be tempting to attribute this to changes in the stock price between the dates in which the valuations were performed (the stock prices did change), it would not be correct because the stock price actually climbed between the dates the exchange ratio was solidified and the modification was completed.
This particular pattern results in significant incremental cost because far more RSUs are given to employees than the value of the underwater options as determined using a formal valuation technique. Column L presents the before value, equal to the value of the underwater options exchanged times their fair value on the modification date. Column M presents the after value, equal to the value of the restricted stock units times the number given in exchange for the underwater options.
