US securities regulator onto practice of executive remuneration “free kick”

The US Securities Exchange Commission (SEC) released accounting guidance indicating that the practice of granting stock prior to a market moving announcement should be reflected in the compensation accounting treatment.

“Spring-loaded” awards are share-based compensation arrangements where a company grants stock options or other awards shortly before it announces market-moving information such as an earnings release with better-than-expected results or the disclosure of a significant transaction.

While the statements are not SEC rules or interpretations, they represent interpretations and practices followed by the SEC’s Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the federal securities laws.

Non-routine stock grants prior to positive news releases is not unusual in the US. If there was a requirement that each executive director stock grant receive shareholder approval it may not be so rife.

While the SEC accountants may want it recognised in expensing (although there are some technical issues that the SEC statement does not address), there is no discouragement of the practice. Some in Australia may see this as akin to insider trading. It demonstrates the regulatory arbitrage possible when considering listing standards and securities laws on company incorporation and listing location.

See the SEC advice HERE.

© Guerdon Associates 2024
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