FASB Updates Accounting Rules for Stock Compensation

From the FASB’s April 16, 2010 e-mail release:

Today the FASB issued Accounting Standards Update No. 2010-13, Compensation—Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades (a consensus of the FASB Emerging Issues Task Force).

The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010.

Link to the Accounting Standards Update: http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176156807475

Key takeaways:

  • Applies to employee share-based payment awards with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades that differs from the functional currency of the employer entity or payroll currency of the employee.
  • The amendments clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, such an award should not be classified as a liability if it otherwise qualifies as equity.
  • The amendments to Topic 718 will be effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010.
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RiskMetrics Issues FAQs for Tax and Governance Havens

On January 4, 2010, RiskMetrics issued a set of Frequently Asked Questions on Tax and Governance Havens: International Incorporation Issues.

RiskMetrics identifies the following countries as tax and governance havens:

  • Anguilla
  • Antigua/Barbuda
  • Bahamas
  • Barbados
  • Cayman Islands
  • Guernsey
  • Isle of Man
  • Jamaica
  • Jersey
  • Liberia
  • Marshall Islands
  • Mauritius
  • Monaco
  • Netherland Antilles
  • Panama
  • Virgin Islands (UK)

So what exactly is the consequence for a company to be incorporated in a tax and governance haven? RiskMetrics’ policy response depends on the type of company involved.  Further details along with some examples involving director elections are set forth on page 3 of the FAQs.

RiskMetrics also stats that some countries traditionally thought of as tax havens (such as Switzerland, Luxembourg and Ireland) are not included in the above list because they do not meet both conditions, i.e., they are tax havens, but they do not qualify as governance havens since they have well-defined corporate laws and codes and do not offer the governance flexibility of the governance havens listed. As such, these countries would fall under RiskMetrics’ international voting guidelines.

In the FAQs RiskMetrics indicates that certain companeis are incorporated in these traditional tax havens that do not also qualify as governance havens and may be listed in the U.S. However, RiskMetrics is unwilling to apply its policies on a one-off basis to companies incorporated in such countries that are listed in the U.S. and not to the rest of the companies incorporated there for which sufficient information necessary to undertake a U.S. policy-style analysis is unavailable.

So for companies that had reincorporated to places like Switzerland or Ireland and were hoping RiskMetrics might be persuaded this yer to apply the U.S. policies to their proxies, it looks like they’ll have to wait a bit longer.  Interestingly, RiskMetrics concludes  the FAQs by looking at the results of its issuer and institution surveys about what policies to apply and concludes that there appears to be no consensus.  I take that to mean that until there is a clear desire to have U.S. listed companies that happen to be incorporated in tax havens that are not also governance havens analyzed under U.S. policies, as demonstrated by its annual survey, RiskMetrics will be unlikely to change its position regarding what policy it will apply to such companies.

Full text of the FAQs can be found on RiskMetrics’ website at:

http://www.riskmetrics.com/sites/default/files/RMG_TaxGovernanceHavenFAQ2010.pdf

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CEPI Issues Draft Report on Global Stock Plans

Last week, the Certified Equity Professional Institute (CEPI) at Santa Clara University released a draft version of its 2009 research project – GPS | Global Stock Plans. “GPS” stands for Guidance, Procedures, and Systems. The draft research report is open for public comment until September 30, 2009

The report covers several different areas of global plan design and administration, and includes “Action Items” at the end of each section to emphasize what a company should consider from a global plan perspective. Several charts laying out processes and responsibilities are also included. Also includes a glossary of common equity compensation terms in the Appendix.

Some of the suggestions detailed in the report include:

  • Undertake country-specific due-diligence to understand the cost of a plan before making final design decisions;
  • Any equity plan should incorporate flexibility to accommodate the needs of non-US locations;
  • Determining the local legal and filing requirements for plan awards;
  • Following global plan “best practices” in order to ensure a plan operates and functions better.

You can find a copy of the report at:

www.scu.edu/business/cepi/gps_draft_releases.cfm

For more information about the CEPI, visit its website at:

www.scu.edu/business/cepi/

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