Equity Grant Dates for New Hires
Can we structure an equity grant for new hires in such a way that the grant date for Accounting purposes is a predetermined future date (for example, the first day of the month following their start date)? Or does the mutual understanding aspect of ASC 718 necessitate that the grant date be established as the employee’s first day of work, since that has already been communicated?
One response
Under ASC 718, the grant date for equity awards is defined as the date at which a company and an employee reach a mutual understanding on the terms of the award, meaning the employee is aware of the terms and intends to accept them. If the offer letter specifies that the grant date will be the first day of the next month following the start of employment, there’s a risk that ASC 718’s criteria for a grant date may not be met because the employee has already been made aware of the grant terms before their start date.
To structure the equity grant effectively, you could consider the following options:
Delay Communication of Terms: If you intend to use a future grant date, you must ensure that the employee is not made aware of the specific terms of the equity grant until after their start date. This way, the mutual understanding doesn’t exist until the proper time.
State Terms in Offer Letter with Conditions: You might include a clause in the offer letter that indicates the grant will be awarded as of a specific future date contingent upon their start date, but this can still lead to complications if the employee perceives they have an existing grant prior to starting.
Document the Terms Clearly: Ensure that the terms surrounding the grant date and any conditions are well documented during the hiring process to avoid misunderstandings that could affect the grant date determination.
It’s advisable to consult with your legal and finance teams to craft the language appropriately and ensure compliance with ASC 718 while achieving your equity award strategy.