Way back when, the FASB proposed a Exposure Draft that would provide that ESPPs be deemed noncompensatory only if: (1) its terms are no more favorable than those available to all holders of the same class of shares; and (2) substantially all eligible employees that meet limited employment qualifications may participate on an equitable basis.
At its August 25 meeting, the FASB Board tentatively decided to modify that guidance, and at its September 8th meeting made further modifications. FASB cautions that these conclusions are tentative and may be changed – and become final only after a final Statement is issued.
Thanks to Mike Holliday for providing the current tentative conclusion on accounting for ESPPs after these meetings: An ESPP is not compensatory and does not involve recognizable compensation cost if all three of the following conditions are met:
1. (a) The terms of the ESPP are no more favorable than those available to all holders of the same class of shares OR (b) any discount under the plan results in proceeds not less than proceeds that would be received in an offering of shares issued to third parties by other means, e.g., through an underwriter. A discount of 5% or less from market price complies with this criterion without further justification. [The addition of (b) is a change from the Exposure Draft.]
2. Substantially all eligible employees that meet limited employment qualifications may participate on an equitable basis.
3. The ESPP does not incorporate option features. An example is given for a plan where the purchase price is based on the share price at date of grant and permits an employee to cancel participation before the purchase date and get a refund, which is considered a compensatory plan. [This condition is not in the Exposure Draft.]
Everything You Wanted to Know About SOX
Now that Sarbanes-Oxley is more than two years old – and some younger lawyers might need a primer in the new law – we have created a Sarbanes-Oxley Practice Area, complete with a list of comprehensive memos (some more than 200-pages long!).
How to Get Your Name on the SEC’s Website – Submit a Rule-Making Petition?
Here is proof that the Web now makes it easier to get your name in lights, even on government websites. Recently, an enterprising pair submitted a rule-making petition to the SEC that seeks a new listing standard forcing companies to have an “Earnings Rating.” “Earnings Rating” is a trade-marked term (hmmm, I wonder by whom?), which is an assessment of the quality of a company’s reported earnings. Like a credit rating, Earnings Ratings would be a secondary look at auditors’ work and be publicly available. The issuance of these ratings would be made by a private enterprise (hmmm, I wonder who would run this enterprise?).