Law Commons^™

Reconsidering Realization-Based Accounting For Equity Compensation, David I. Walker

Faculty Scholarship

The U.S. equity compensation landscape continues to evolve. Recent innovations have improved the linkage between pay and firm-specific performance, but have added complexity. Against that backdrop, this Article urges reconsideration of the accounting rules for equity pay. Under current rules, most equity pay awards are expensed based on grant date valuation with no updating for changes in value post grant. This Article advocates the adoption of a mark-to-market or realization-based approach under which the expense recorded for all equity pay awards would ultimately be trued to the value received by employees. Increasingly, equity pay awards are more analogous to commissions …