FASB Changes Option Grant Date Interpretation

August 12, 2005 (PLANSPONSOR.com) - Officials at a national compensation manager trade group are warning of a potential problem with a new interpretation by the Financial Accounting Standards Board (FASB) defining a stock option's grant date.

According to a WorldatWork report, FASB staff said in recent private discussions with major accounting firms that the option grant occurs when the terms of the award have been communicated to the affected employee.

WorldatWork pointed out that that differs from past interpretations of the option award date issue which have held that grant date was the date of a board meeting or a compensation committee meeting formally approving the equity awards.

“The new requirement that the award recipient have an understanding of the award complicates matters greatly,” WorldatWork said in its report.

According to WorldatWork Executive Compensation Manager Don Lindner, companies could have a different grant date for each individual award recipient. “Prior practice was the board or comp committee approved the award, and a few weeks later you sat down with the employee, talked about job performance and whatnot, then informed him or her of the stock option grant,” Linder said. “The grant date was usually the same for all recipients. Now, if you want to sit down with each employee, you may wind up with a different grant date for each recipient. Talk about an accounting nightmare.”

More information about the FASB’s equity based compensation decisions are  here .