Our stock options have a clause that in the event that the holder no longer meets the conditions for the exercise of the stock options, the Company may reacquire the options at zero cost. How would you account for this?
Reacquisition rights
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This is akin to a clawback feature, which is a protective clause. Clawback features do not affect the classification of an award and are only recognized if and when the contingent event occurs (i.e. when the employee leaves during the vesting window). If the clawback feature is triggered, then the holder must return the shares and a gain should be recognized in the income statement in an amount equal to the lesser of (1) the recognized compensation cost related to the share-based payment that contains the contingent feature or (2) the fair value of the consideration received.