Our equity awards include a provision whereby the Compensation Committee has discretion to modify the performance targets after they are issued. How does this impact the accounting for the awards?
Comp Committee Discretion
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This discretionary clause calls into question whether the grant date has been established because the mutual understanding of the key terms may have not been reached. The key to establishing a grant date is that the employer and employee have reached a mutual understanding of the key terms and conditions of the award. You would need to assess management’s intent and the purpose for the provision, including whether management believes it will exercise its right, whether management has exercised its right in the past, how frequently the right has been exercised, and the employees’ awareness of the discretion provision.