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December 23rd, 2010
Volume 3, No. 12

In this Issue:

Season's Greetings From SOS

SOS Spotlight

Free Educational Webcast: Tackle Your Proxy with Moxie: Updates on Equity Compensation Issues for Your 2011 Proxy Statement

Free Marketing Webcast: Resolutions and Solutions for Accounting for Equity Awards

Accounting for Terminations?? What?

ShareComp 2011

Product Spotlight: Training in Accounting for Equity Compensation

Rosen Ownership Opportunities Fund

SOS Across Our Desk

SOS Xposé

Subscribe to Xtra!

Follow us on

Join us on

Watch us on

From the SOS Webcast Archive:

Best Practices for RSUs: Rewards Simplified & Understood

SOS Employment Opportunities
From the SOS Library:

Top Three Stock Plan Taxation "Surprises"

A recorded demo of "Email Xpress", the SOS automated solution for emailing participant stock plan confirmations and statements, is now available:

Email Xpress Demo

Our Services:


Equity Compensation Projects/Consulting

SOS-TEAM Outsourcing

Contact Us:


Check out the new SOS Website
Ideas or Questions:

Do you have ideas for our next newsletter or webcast? Topics you're dying to see addressed but haven't yet? Please send us an e-mail with your ideas to:

"The best and most beautiful things in the world cannot be seen or even touched. They must be felt with the heart. Wishing you happiness."
- Helen Keller

During this holiday season our hearts are filled with appreciation for all those that have helped make our success possible. All of us at Stock & Option Solutions thank you for your support and wish you happiness and joy into the coming New Year!

The SOS Team

Need an easy way to stay up-to-date on industry news? Follow us on Twitter or become a fan on Facebook.

SOS Spotlight

News and notes about the people of SOS, and the things we've been doing.



Free SOS Educational Webcast

Tackle Your Proxy with Moxie: Updates on Equity Compensation Issues for Your 2011 Proxy Statement

January 20th, 2011

Click here to register.

Please join us for our next educational webcast on January 20th at 11am Pacific Time, 2pm Eastern Time.


Proxy season 2011 is almost here! Are you ready?

Join this expert panel to review the new developments which impact equity compensation proxy disclosure such as:

  • Say on Pay
    This new regulation doesn't directly impact the content of the stock plan disclosures, but is likely to increase scrutiny on your proxy statements, making it an issue worth some attention.
  • Recent SEC guidance
    The SEC is constantly publishing updates to its guidance via Compliance & Disclosure Interpretations (C&DIs). This session will review some of the latest and greatest that impact stock plans.
  • Institutional shareholder polices
    The institutional shareholder advisory groups have updated their guidance...again. How do the changes impact your disclosures?
The session will also cover developing practices and practical tips that will help you complete your proxy disclosures accurately and quickly.

Please submit your advance questions to our panelists to (You can also ask panelists questions live on the webcast, but submitting them in advance will allow for some additional research, if needed, beforehand.)


(One hour of Certified Equity Professional continuing education credit is available for attending. See the CEPI website for more information on CEP continuing education requirements.)

Free SOS Marketing Webcast

Resolutions and Solutions for Accounting for Equity Awards

January 25th, 2011

Click here to register.

Please join us for our next marketing webcast on January 25th at 11am Pacific Time, 2pm Eastern Time.


The objective of this webinar is to review a few complex accounting issues for equity awards and demonstrate how Stock & Option Solutions' best practices and creative solutions can help solve these issues.

  • Best practices for challenging accounting situations:
    • M&A transactions
    • Modifications of equity awards
    • Impact of transactional data issues on ASC Topic 718 (FAS123R) Reporting

  • SOS solutions for complex accrual, tax, and EPS equity calculations
    • Implementing accounting audits and roll forwards
    • SOS accounting programs
      • Crystal Reports
      • Automation of reporting

(As this is a webcast dealing with SOS products and services, no continuing education credit is available for attending.)

Accounting for Terminations?? What?

A recent email from a colleague reminded me yet again how common this occurrence is (it had been at least a month since my last work for a client on a termination charge in equity compensation accounting).

"A charge for terminations?!", you cry, "Don't we just reverse expense? What is this charge of which you speak?"

Well not ALL terminations require special calculations and occasionally some "extra" expense, just those that involve a modification to an option or award in conjunction with the termination, which happens a lot more often than you might think (especially for executives). Depending on the type of the modification and the current status of the award, you can end up with a Type I or a Type III modification, per ASC Topic 718 (nee FAS 123R). And in some cases, you may actually end up with less expense instead of more.

The chart below summarizes the various modification types provided for under ASC Topic 718. The only types that are actually common are Type I and Type III.

Now let's consider some examples.

Acceleration at Termination

Let's say an executive is leaving and he has a grant that is partially vested and partially unvested. The company decides to accelerate the unvested shares so that the exec can exercise before the shares expire. In this case, we have a Type III modification - only the unvested shares are being modified - improbable to probable. The shares were improbable of vesting before the modification (since they were about to be cancelled), but since the modification accelerated (vested) them, they are now "probable" of vesting. For a Type III modification, as you can see above, you should actually reverse the expense previously accrued under the original grant date fair value. The only fair value that should be recognized is the fair value of the new (modified) grant. So you revalue the grant immediately after its modification. If the grant is an option use the appropriate option-pricing inputs (pay careful attention to expected term, since the employee is terminating you may need to use contractual term as with non-employee accounting). If the grant is an RSU, use the current market value. If the market value has remained relatively flat during the time since the grant, for options the expense is likely be lower since the market value and price will be similar to the original grant, but the expected term may be shorter (and therefore interest rate and volatility are likely to also be lower), resulting in a lower fair value.

Only Extension of Term at Termination

I received this question twice this week: if a participant is leaving and we're not modifying the grant EXCEPT to change the term, and all the shares being modified are already vested, what is the accounting treatment?

Acceleration and Extension of Term at Termination

In our next example again some of the shares were vested and some unvested, but instead of simply accelerating the grant, the time to exercise is also extended from the standard 90-day grace period to one year. Here we have two different types of modifications in one transaction: as in the extension example above, the vested shares are a Type I modification (probable to probable, since they were already vested) and the unvested shares are a Type III modification (improbable to probable, as above). For the vested shares, the grant is valued immediately before the modification and immediately after. The 90-day term should be used as the expected term for the before fair value and up to the full one-year term used for the after fair value. The original grant-date fair value is not used. If the "after" fair value is greater than the "before" fair value, the modification has resulted in incremental expense and since the grant is now vested, all the incremental expense should be recognized immediately. For the unvested shares, since this is a Type III modification, the expense previously recognized from the original grant-date fair value should be reversed. The new expense, using the new fair value computed using the same inputs for the "after" fair value should be booked. (In practical terms you don't really "reverse" what you booked before. You calculate what you've accrued to date and then true up / down to the new fair value.)

For the vested shares it is a Type I modification, so you perform a before and after valuation, using the original term for the before fair value - often a 90-day post-termination grace period, and the full, modified term (one year for example) for the after fair value, to determine incremental expense. And, since the shares are all vested, you'd book the expense in the current quarter. If the stock price has risen since grant and an option is in-the-money, these types of changes can result in substantial expense.

Special Thanks: Thank you to Jon Burg of Radford for his review and contributions to this article.

Elizabeth Dodge, CEP, Vice President
Stock & Option Solutions

Elizabeth is the Vice President of Product Management for Stock & Option Solutions, Inc. (SOS). Her responsibilities include monitoring new developments in the equity compensation arena, performing market research, speaking at industry events and helping to define the product roadmap for SOS.

Elizabeth regularly speaks on industry trends and product development at client and industry events including NASPP and NCEO webcasts, GEO and NASPP Chapter meetings, and the NASPP Annual Conference. She was also selected to speak at the West Coast FASB Roundtable on FAS 123(R) and has recently co-authored the chapter on accounting for equity compensation in The Stock Options Book, 11th edition, by Alisa Baker. She became a Certified Equity Professional in 1999 and continues to volunteer for the Certified Equity Professional Institute. She also volunteers for the Silicon Valley Chapter of the NASPP and serves on the Board of Directors of the NCEO.

ShareComp 2011

Have you taken advantage of FREE registration for the upcoming ShareComp 2011 conference, courtesy of SOS?

After a very successful 2010, ShareComp is back! ShareComp 2011 is the only fully virtual conference for share-based compensation information, solutions and access to the industry's leading experts. The presentation and moderated chat topics were selected by a large panel of industry experts who focused on current issues and practical solutions. This event for stock plan professionals will be held on February 23, 2011.

As a founding sponsor, SOS is able to offer you a free registration. Register now using our sponsor pass "SOS" to secure your free attendance at this exciting, market-leading event. Feel free to share this sponsor pass with others within your company...And up to 16 hours of CEP credit will be available for attended sessions!

For more information, or to register today, please go to:

Product Spotlight: Training in Accounting for Equity Compensation

Do the complexities of Topic 718 (nee 123R) continue to baffle you? Are you squeaking by your audits without really understanding all the details? Are you sure you're getting the most out of your system and standard reports?

SOS's accounting experts can help! Whether you need a quick "check up" to make sure you're using the settings in your software / system appropriately for your plan, or a full-scale customized training on fair value, accrual, forfeiture rates, tax accounting, and diluted EPS calculations, we have the expertise that can increase your confidence and take accounting challenges out of your way.

Training Topics May Include:

  • Fair Values
    • Basics
    • More Complex Inputs
      • Expected Term
      • Volatility
  • Accrual
    • Methods
      • Straight-line
        • Ratable
        • Service Period Begins before Grant Date
      • Tranche-by-Tranche (FIN 28)
    • Forfeitures
    • Expirations
    • Auditing Your Software
  • Forfeiture Rates
    • Estimating
    • Application Methods
      • Static
      • Dynamic
    • Truing Up
    • Auditing Your Software
  • Disclosures (A240 & A241)
    • Options/RSUs
    • RSAs
  • Tax Accounting (Topic 805/FAS 109)
    • APIC Pool
    • Beginning Balance
      • Shortcut vs. Long Form
    • Booking DTA
    • True Up at Settlement (APIC Impact)
    • ISOs and ESPPs
  • EPS Calculations
    • Basic
    • Diluted
      • Weighting
      • Assumed Proceeds
        • Exercise Price
        • Tax Benefit (or deficiency - reduction to assumed proceeds)
        • Average Unamortized Expense
      • Dilutive vs. Anti-dilutive
        • Subtracting Negative Dilutive
        • Tying out totals
    • Modification Accounting
      • Types (Type I and Type III)
        • Modifications at termination
        • Extensions of term
        • Acceleration of vesting
      • Incremental Expense
      • Accrual
      • True Up
    • Accounting for 423-Qualified ESPPs
      • Fair Value (Three Components)
      • Tax Accounting
      • EPS (Basic & Diluted)
      • Modifications (for contribution increases, resets, rollovers)
      • Share true ups after Purchase
      • Auditing Your Software
    • Accounting for Mergers (FAS 141R)
      • Accrual
      • True Up at Termination
      • Tax Accounting
      • Diluted EPS Impact
      • Manual Workarounds/Custom Reports for System Challenges
    • Accounting for Repricings/Option Exchanges
      • Accrual
      • True Up at Termination
      • Tax Accounting
      • Diluted EPS Impact
      • Manual Workarounds/Custom Reports for System Challenges
To learn more about SOS equity compensation accounting training, please call us at 408-979-8700 or email us at

Rosen Ownership Opportunities Fund

To honor Corey Rosen for his 30 years of dedication to the employee ownership community, the National Center for Employee Ownership (NCEO) has recently established the Rosen Ownership Opportunities Fund (ROOF) to further its goal of expanding employee ownership through a number of initiatives. Corey is transitioning from the role of Executive Director of the NCEO to a Senior Staff Member in 2011. ROOF is seeking one-time establishment funds (tax-deductible) from individuals, corporations, or other legal entities. ROOF projects are designed to increase the number of employee owners in the US and abroad, to encourage best management practices in these companies, and to deepen the understanding of the scope and impact of employee ownership. The fund focuses on projects that otherwise could not be funded. They are also seeking people who would be interesting in participating in these projects.

The NCEO has been a tremendous force for the cause of employee ownership and equity compensation over the past 30 years. Please take a moment to read more about the fund and the projects it is planning, and to consider how you might contribute to its success.

SOS Across Our Desk: Equity Compensation in the News...

From Performensation: Equity Compensation in the News 2010

IRS releases 2011 withholding tables...Speaking of the IRS, a good blog posting: Tax reporting for equity compensation outlining the top tax mistakes from the employee perspective

Examples, thoughts and observations here...From the NASPP Blog:Say-on-Pay: What Can You Do

Performance Awards
CEPI GPS publication on Performance Awards is now available

From International Law Partners: New Developments in Global Equity Compensation

SEC settles Vitesse backdating case

Higher Education
If SOS webcasts on equity accounting are not enough to quench your thirst, here is a website with a goal to compile an unbiased and updated list of every school that offers an accounting master's degree in the US

Eleventh Circuit rules on valuation of RSUs under Section 409A

The SOS "Wayback" Machine
6039 compliance has been the hot topic in the equity compensation industry. From the SOS archives, in the very first issue of Xtra in May 2008, take a trip down memory lane to a time when dealing with the regulations seemed so far away...and remember, it is not too late to call SOS if you need help

Want to get these updates as we find them? Follow us on Twitter or become a fan on Facebook.

SOS Xposé

...tender tidbits about people and players in our industry...

On the Move...Cassandra Martin has taken a new position as Senior Stock Plan Administrator at Gilead. As a long time SOS employee and friend, and former Employee of the Year, she will definitely be missed...Lydia Terrill recently took a position with Gunderson Dettmer Stough in their Executive Compensation group as an Equity Specialist...Kenn Lara is joining Deloitte Consulting, as a member of the firm's Total Rewards practice...Megan Buckley is the new Stock Administration Manager at Aviat Networks...Good Luck to everyone!

New Arrivals...Tara Tays of Deloitte Consulting has a new baby boy...Jon Burg of Radford has a new addition as well...a dog named Joey(see picture). Joey snores, but is surely a good dog in every other way possible.

Future Deliveries...Carrie Kovac of Symantec is expecting a baby girl in March...Greg Snyder of Merrill Lynch and his wife Carrie are expecting a new addition at the end of May. She's about 4 months along and everything looks healthy and happy so far...Congratulations to all the new and future parents!

Engaged...Erin Fitzpatrick, a Financial Reporting Specialist at Solium Transcentive is engaged to be married. The big event occurs on July 3rd. Congratulations Erin!

Silicon Valley NASPP Chapter Elections...We already mentioned Elizabeth Dodge's new position as President. View the rest of the election results here.

Stocking Stuffer...Join or renew your NASPP membership by December 31 and you receive the audio for one NASPP Conference session for free.

We'd love to hear from you for our next newsletter. If you or someone you know is taking a new job, expecting a child, getting married, releasing a new product, or has just done something that might be interesting to the good readers of this publication, please drop us a line:

Happy New Year!

Did you miss an issue of Xtra? View our complete newsletter archive from our new website here
Miss a webcast? You can find links to recordings, as well as the materials, on our Webcast page

Information provided in this newsletter is designed for educational and entertainment purposes only and is not provided as professional service or advice. Moreover, this newsletter should not be relied on as legal, accounting, auditing, or tax advice. Anyone reading this newsletter should not act upon this information without seeking professional counsel and/or input from their advisors. The preceding information does not necessarily represent the official views of Stock & Option Solutions, Inc. with respect to any of the issues addressed. The Happy Holiday image at the top of the newsletter is courtesy of: Simon Howden /
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