The staff at the Securities and Exchange Commission released guidance Monday for companies about how to properly recognize and disclose compensation costs for “spring-loaded awards” they hand out to executives.
Spring-loaded awards are share-based compensation arrangements in which a company grants stock options or other awards shortly before announcing market-moving information, such as an earnings release with better-than-expected results or the disclosure of a significant transaction.
The SEC's Office of the Chief Accountant and the Division of Corporation Finance released
The SEC staff thinks that as companies measure the compensation they actually pay to corporate executives, they should also consider the impact that the material nonpublic information will have upon release.
That essentially means companies shouldn’t grant spring-loaded awards under any mistaken belief they don’t have to reflect any of the extra value conveyed to the recipients from the expected announcement of material information when recognizing compensation cost for the awards.
“It is important that companies' accounting and disclosures reflect the economics and terms of these compensation arrangements,” SEC Chair Gary Gensler said in a statement. “This gets to the SEC's remit to protect investors.”
The guidance could be a sign of the SEC under Gensler and the Biden administration moving to require stricter regulation of companies’ accounting disclosures to better protect investors.
However, the statements in Staff Accounting Bulletins aren’t the same as rules or interpretations of the SEC, nor are they published bearing the SEC’s official approval. Instead, they represent interpretations and practices followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the federal securities laws.
