KMK Law Corporate & Securities Blog

On November 29, 2021, the SEC updated accounting guidance for public companies issuing equity awards to executives ahead of market-moving information. Staff Accounting Bulletin (SAB) No. 120 cautions issuers to pay particular attention to non-routine spring-loaded awards.

Spring-loaded awards are a type of equity compensation granted by a public company shortly before the announcement of material non-public information such as an earnings release with positive results or the announcement of a material transaction.

The FASB rule known as Topic 718 generally requires that all equity awards granted to employees be accounted for at “fair value.” The updated SEC guidance is intended to help companies estimate the fair value of share-based compensation regarding the determination of the current price of the underlying share and estimating the expected volatility of the price of the underlying share when the issuer is in possession of positive material non-public information.

SAB No. 120 notes several instances where issuers have granted share-based compensation while in possession of positive material non-public information. The Bulletin also includes examples where adjustments may be necessary and reminds issuers of their corporate governance and disclosure obligations with respect to share-based transactions as well as the requirement to maintain effective internal controls over financial reporting.

The full Bulletin can be found here.