RSU Grants for New Employees
Can we arrange an equity grant for new hires in their offer letter so that the grant date for Accounting purposes is a predetermined date in the future (for example, the first day of the month after their employment starts)? Or does ASC 718’s mutual understanding requirement dictate that the grant date must be the employee’s start date, since it has been communicated?
One response
When structuring RSU grants for new hires, it’s essential to consider the guidance provided by ASC 718 regarding the determination of the grant date. Under ASC 718, the grant date is typically considered to be the date when the company and the employee have a mutual understanding of the key terms and conditions of the award, and this often coincides with the employee’s start date, particularly if the award is communicated to the employee as part of their offer of employment.
If you specify in the offer letter that the grant date will be the first day of the next month following the start of employment, it could raise questions about the mutual understanding aspect. Generally, if the RSU grant is communicated as part of the offer and linked directly to the employee’s start date, the grant date is likely to be considered as the employee’s first day of employment.
However, if you want to establish a specific grant date in the future, it’s suggested to clearly state this in the offer letter, ensuring that both parties have a mutual understanding of the terms. Additionally, it’s advisable to consult legal and Accounting counsel to ensure compliance with ASC 718 and to mitigate any potential implications arising from this approach.
In summary, while it may be possible to set a future grant date, doing so requires careful wording and consideration of ASC 718 to ensure it aligns with the principles of mutual understanding.