Share-Based Compensation

To incentivize employee performance and align the interests of employees and shareholders, entities often grant share-based payment awards in exchange for their services. Examples of common awards include stock options, restricted stock, restricted stock units, stock appreciation rights, profits interests, and total shareholder return awards.

Appropriately accounting for these awards requires a full understanding of the vesting, forfeiture, settlement, and repurchase features within the award agreements. These features help determine the appropriate accounting model to apply, the classification of the award as equity versus liability, and the expense attribution. Additionally, the U.S GAAP requires entities to use a fair-value based measure when recognizing the cost associated with these awards in the financial statements.

Opportune blends valuation and accounting subject matter experts to appropriately value and account for share-based compensation and helps streamline the audit process.

Pay vs. Performance

With the SEC’s “Pay vs. Performance” (“PvP”) disclosure rules, public companies’ proxy statements are required to include a new compensation actually paid table. Opportune’s PvP services include:

  • Assist in the identification of equity awards subject to the PvP table

  • Perform interim fair value measurements for all equity awards, including options, TSR-based awards, and other performance equity

  • Prepare compensation actually paid table along with supporting workbook

  • Support buildout of the footnote components to the disclosure in collaboration with legal counsel

Market and TSR Awards

One way companies look to match executive pay with performance is through granting awards that vest based on market conditions. As such, the use of award that vest based on the achievement of a specified total shareholder return (“TSR”) of the company or based on a specified TSR relative to a peer group have increased in popularity. Opportune provides the following services related to market and TSR awards:

  • Build custom Monte Carlo simulation models to determine the grant date fair value

  • Discussions with client and auditor to support internal controls and streamline audit review

  • Calculate current performance status for earnings per share calculations

Profits Interest and other Private Company Awards

Nonpublic limited partnerships, limited liability companies, and other pass-through entities often
establish special classes of equity, referred to as profits interests. While the features of a profits interest award can vary, such an award should be accounted for on the basis of its substance. The proper accounting and valuation of these awards can often be more challenging that that of public companies. Opportune assists our private companies with accounting for equity compensation as follows:

  • Determining proper classification of the award (i.e., equity versus liability)

  • 409A valuation reports

  • Identify vesting conditions and requite service period for proper expense attribution

  • Outsourced ongoing stock-based compensation accounting services

Award Modifications

A modification is accounted for exchange of the original award for a new award. The nuances around this analysis is that it is dependent on the probability of vesting both before and after the modification. Opportune’s services for award modifications are as follows:

  • Determination of modification type (i.e., probable to probable)

  • Valuations to determine incremental fair value

  • Accounting for equity restructurings

  • Repurchases and settlements

Shane Randolph

Shane Randolph

Matt Smith

Matt Smith

Managing Director

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