Comments on: More lumps of coal… http://www.footnoted.com/sec-stuff/more-lumps-of-coal/ Morningstar's guide to what's hiding in SEC filings Fri, 10 Feb 2012 20:24:57 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: David Harper http://www.footnoted.com/sec-stuff/more-lumps-of-coal/comment-page-1/#comment-1338 David Harper Wed, 27 Dec 2006 18:56:41 +0000 http://www.footnoted.com/more-lumps-of-coal/#comment-1338 The silver lining in this approach is congruence with accrual: under the alternative approach, if a new CEO receives a megagrant in FY 2005 then you might miss the entire unvested value of that grant in the FY 2006 proxy. The prior approach implies lumpy disclosures which means you need to analyze several years of grant data. As a consultant in my prior life, we used to manually amortize the grants (not unlike amortization over the service period) in order to get a more accurate representation of annualized comp value... My bigger beef with the rule rule is (a) you really can't total the different comp elements into one summary number. It's inevitably subjective to determine a single present value, risk adjusted number - you are adding hard (salary) cash to performance-based cash to contingent derivative instruments (options). When i look at the comp package, i want to decompose the elements; and (b, which follows from FAS 123R) these are still essentially fixed expenses (i.e., grant date fair value) for option where the true cost is unlikely to equal the accounting expense. If you are doing a cash flow analysis, these remain current period expenses that are allocations for future expected cash flows...as such, you don't necessarily want to depend on the expense number any more than you'd depend on depreciation. All I am saying is, politics aside, the SEC following FAS 123 is consistent with GAAP framework, you've got to give them that. The silver lining in this approach is congruence with accrual: under the alternative approach, if a new CEO receives a megagrant in FY 2005 then you might miss the entire unvested value of that grant in the FY 2006 proxy. The prior approach implies lumpy disclosures which means you need to analyze several years of grant data. As a consultant in my prior life, we used to manually amortize the grants (not unlike amortization over the service period) in order to get a more accurate representation of annualized comp value…

My bigger beef with the rule rule is (a) you really can’t total the different comp elements into one summary number. It’s inevitably subjective to determine a single present value, risk adjusted number – you are adding hard (salary) cash to performance-based cash to contingent derivative instruments (options). When i look at the comp package, i want to decompose the elements; and (b, which follows from FAS 123R) these are still essentially fixed expenses (i.e., grant date fair value) for option where the true cost is unlikely to equal the accounting expense. If you are doing a cash flow analysis, these remain current period expenses that are allocations for future expected cash flows…as such, you don’t necessarily want to depend on the expense number any more than you’d depend on depreciation.

All I am saying is, politics aside, the SEC following FAS 123 is consistent with GAAP framework, you’ve got to give them that.

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