The survey report said a higher percentage of respondents
from certain industries were in favor of the SEC’s proposed amendment.
Specifically, approximately three-fourths of the respondents from the financial
services, banking, manufacturing, and technology industries prefer the SEC’s
proposed amendment to the SCT, as opposed to the current requirements.
Grant Thornton explained that in July 2009, the SEC
released proposed amendments to the proxy disclosure rules to enhance the
reporting of executive compensation by public companies in their annual proxy
statement filing with the SEC. If adopted, these proposed changes would be
effective for the 2010 proxy season. Included in the proposed amendments is a
major change in how equity-based awards are to be reported in the Summary
Compensation Table (SCT) and Director Compensation Table.
Almost two-thirds of survey participants said the most appropriate
way to measure the value of the equity award if it is reported over the vesting
period (the method under current SEC rules) is under ASC 718 on the grant date.
This method generally results in a fixed amortization of the award’s fair value
over the vesting period, as opposed to re-measuring the value each year.
Among the survey respondents, 19% support reporting the
award’s value as the intrinsic value of the award. The intrinsic value is the
difference between the fair market value of the stock underlying the award and
the amount paid, or that will be paid (such as the exercise price), for the
award. However, for stock options, approximately 20% of the respondents believe
it would be better to remeasure the intrinsic value of the award each year
covered throughout the vesting period.
The report said re-measuring the value of the
equity-based award from year to year over the vesting period is another alternative
that the SEC might consider, regardless of whether the value is based on the
rules under ASC 718 or the intrinsic value of the underlying stock. Under this
method, any increase in the value of the award from one year to the next would
be reported as compensation on the SCT. Assuming that this approach is taken,
the majority of surveyed companies believe that any decrease in the value of an
award should also be reported on the SCT.
If the value of the award is remeasured from year to
year, over three-quarters of respondents said it is appropriate to remeasure
the value only during years in which the award is vesting. That is, the value
should no longer be measured when the award has become fully vested. In
addition, 76% of respondents do not believe it is appropriate to re-measure the
value of an unexercised stock option after it has vested or re-measure the
value of fully vested stock that has not yet have been issued to the executive