Post Vest Holding Periods: No Consensus on the Impact on Grant-Date Fair Value

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Our previous two blog posts have addressed the inclusion of post-vest holding period restrictions in share-based payment awards. We are beginning to see such provisions in the awards our clients submit to us for valuation. We have implemented a number of models for the valuation of such provisions as part of a share-based payment award, and are ready and able to apply these models whenever they are called for. In light of the somewhat vague comments made by an employee of the Securities and Exchange Commission, we sought some clarification on the issue.

Upon reaching out to the FASB and knowledgeable people in “Big 4” accounting firms, we were unable to elicit a definitive statement on how post-vest holding periods should be treated in the grant-date valuation of share-based payment awards. Since we are aware that the FASB, SEC, and other agencies may issue updated guidance from time to time, we continue to closely monitor this issue.

Meanwhile, we welcome any input from our existing and prospective clients. If you have recently adopted a post-vest holding period restriction in one of your incentive compensation programs, we would like to discuss it with you and offer our current best understanding as to how the restriction should be treated in a valuation. If your independent auditors have offered any comments or guidance, we would like to hear from you. Please feel free to call or write to us at any time. Your information will be held on a strictly confidential basis, and used only for the purpose of increasing our understanding of the real-world impact of post vest holding period restrictions. Also, at such time that we are able to obtain a definitive statement of policy from any regulatory agency, we will share the information with our clients.

April 18, 2016

About the Author:

Greg is a Derivative Valuation Consultant with Montgomery Investment Technology, Inc. He holds a BS from Carnegie-Mellon University and a PhD in Chemical Engineering with a concentration in Applied Mathematics from Princeton University. His experience spans management at both public and privately held companies, as well as teaching finance at the university level. Greg is a Chartered Alternative Investment Analyst (CAIA) and a Financial Risk Manager (FRM)