World at Work: New Common LTI Valuation Methodology
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See the attached published by World at Work and GEO regarding a new common LTI valuation methodology. Members can post comments and reactions to the article on the WAW website for review.
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Thanks for posting this John. I think everyone in the ECE should take a look at this and give their opinion. This is a rare chance to fix a big problem with support of major industry professional groups (both WorldatWork and GEO)
I feel the lack of consistency in market data is a big contributor to the wide swings in grant values.
I have already posted my comments on the WorldatWork site. Among them:
1. I think that using the ASC 718 safe harbor grant term for options makes more sense than then using the full term. Currently the proposed standard is Full Term
2. I think that if there is going to be an assumption that goals will be met on performance contingent awards, then the same assumption should be made for Performance Accelerated awards. Both for Appreciation-only and Full Value. Currently the proposed standard is: Assume goals are met at target for performance-contingent, but assum they won;t be met (only use time) for performance-accelerated.
This is a case where finance/accounting professionals look at HR practitioners like we are from Mars.
If there is a set way this will appear in the financials, why are we proposing something here that is materially different? Why suggest something as imprecise and arbitrary as volatility based on quarterly observations and full term award term duration assumptions? A full term assumption implies that vesting has no impact on an award's relative value - is this a best practice for an equity compensation expert?
There is a flip side to this argument -- should HR practitioners care if our award value assumptions resemble those that are used for the financials? Why limit ourselves to assumptions that are as volatile as grant date-ending stock prices for determining grant sizes or market comparisons? Using stock price average assumptions would somewhat limit the reduction of shares awarded due to increases in share price (and the reverse) for companies that calculate target award values for each equity-based award.