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Compensation toolkit: Unraveling complex vesting conditions · PwC's accounting podcast

• 0:00
  SPEAKER_00: Thought Leadership from PWC.
• 0:05
  SPEAKER_01: Welcome to PWC's Accounting Podcast.
• 0:08
  SPEAKER_01: I'm Heather Horn.
• 0:10
  SPEAKER_01: Thanks for tuning in to a brand new Toolkit series this month.
• 0:15
  SPEAKER_01: In this series, we're taking a deep dive each month into a single topic, recapping the basics, but also focusing in on frequently asked questions and judgmental areas.
• 0:26
  SPEAKER_01: This month, we're all about stock compensation.
• 0:29
  SPEAKER_01: Our previous stock comp podcasts have been some of our most popular episodes.
• 0:34
  SPEAKER_01: So in this series, we'll recap some of what we've talked about before, but mostly we'll be diving deeper into some of the areas where we get the most questions.
• 0:45
  SPEAKER_02: Just advise folks to make sure they read the terms of the agreement that even though it's called a performance target in the agreement, it may not be a performance condition from an accounting perspective.
• 0:56
  SPEAKER_02: So you do have to kind of pay attention to what it really is getting at.
• 1:00
  SPEAKER_03: But it's probably worth mentioning one kind of common issue that we do see with performance and market awards.
• 1:07
  SPEAKER_03: So, in general, in order to have a grant date and therefore fix the measurement of the award and to start recognizing expense, you've got to have a mutual understanding of the key terms and conditions between the company and the recipient, the employee, usually.
• 1:46
  SPEAKER_01: Ken, Jay, welcome.
• 1:47
  SPEAKER_01: Thanks so much for joining me.
• 1:49
  SPEAKER_01: And it's an interesting topic we have this month because it's one we've talked about before on Past Podcast.
• 1:56
  SPEAKER_01: We've talked about Stock Comp, but it definitely continues to come up and it is one of our more popular guides.
• 2:02
  SPEAKER_01: And so over this upcoming month, uh we have some great episodes diving a little deeper into some of the topics, but thought it would make sense to start off the series with a bit of a baseline on one of the core topics that drives a lot of the things in the accounting model, uh, just to make sure we're all on sort of the same page and talk about the impact of vesting conditions.
• 2:24
  SPEAKER_01: Probably something people are also personally interested in, not just, you know, from an accounting point of view in some ways.
• 2:31
  SPEAKER_01: Um, so I know there are a lot of different awards out there that have various kinds of vesting terms.
• 2:37
  SPEAKER_01: Jay, maybe just to start things off, what are some of the terms that we see or some of the types that we see here?
• 2:44
  SPEAKER_02: Sure.
• 2:45
  SPEAKER_02: Thanks for having us here, Heather.
• 2:47
  SPEAKER_02: Uh, we're we're excited to be here and and uh sort of kick off compensation month.
• 2:53
  SPEAKER_02: Um so, although before jumping into your specific question, maybe I should give a little bit of a disclaimer or clarifier about terminology that maybe our listeners will hear us use throughout the series.
• 3:07
  SPEAKER_02: Uh when we're talking about the people who receive awards, we're likely to just call them employees here for simplicity.
• 3:16
  SPEAKER_02: But we don't want to mislead people because in reality the stock compensation guidance applies to all types of recipients or grantees who either provide or sell goods or services to the company.
• 3:29
  SPEAKER_02: So that could be employees, consultants, board members, customers, vendors, or anything like that.
• 3:35
  SPEAKER_02: Uh it doesn't apply to awards that are issued to lenders or investors, but really everything else.
• 3:41
  SPEAKER_02: So, but again, we're probably just gonna say employees here, just to be simple.
• 3:45
  SPEAKER_02: Uh and then also when we're talking about recognizing the cost of stock compensation awards, we're probably just gonna refer to that as an expense because that's what most people are used to.
• 3:56
  SPEAKER_02: But again, since stock compensation costs are viewed like any other type of compensation, they could be capitalized, for example, if the person getting it is a factory worker or a programmer who's working on internal use software, or if they're it's a customer, then maybe the cost is just a reduction of revenue over time.
• 4:15
  SPEAKER_02: But again, just for simplicity, where I think we're just gonna call it uh expense during these podcasts.
• 4:20
  SPEAKER_01: All right, so definitely a good reminder.
• 4:22
  SPEAKER_01: And I'm thinking, Jay, we may want to put this fat disclaimer at the beginning of all five podcasts in this series, uh, but good reminder for today.
• 4:30
  SPEAKER_01: So then with that said, let's go back to my question on the vesting and what do we see there?
• 4:36
  SPEAKER_02: Sure, sure.
• 4:37
  SPEAKER_02: So the guidance talks about three types of vesting conditions.
• 4:41
  SPEAKER_02: It talks about service conditions, performance conditions, and market conditions.
• 4:46
  SPEAKER_02: So let me let me take those one by one.
• 4:49
  SPEAKER_02: So the first one is service conditions, and those are probably the most common and probably the easiest one to deal with from a sort of a conceptual as well as accounting perspective.
• 4:58
  SPEAKER_02: And that's when the award vests simply if the employee works for an agreed upon period of time.
• 5:06
  SPEAKER_02: So, for example, a stock option may vest after three years of service, or could also be things like when the employee meets the criteria that the company defines in its policies to be eligible to retire.
• 5:18
  SPEAKER_02: That would be those would be examples of service conditions.
• 5:22
  SPEAKER_02: The second kind is performance conditions.
• 5:25
  SPEAKER_02: And those are when an award vests if the company or the employee reach a specified performance target.
• 5:33
  SPEAKER_02: So that could be things like meeting a revenue or earnings target or getting a new product launched or through FDA approval, or perhaps we'll start to see ones tied into meeting a specific ESG metric as more companies prioritize those too.
• 5:49
  SPEAKER_02: A lot of times the target is just tied into the company's own results, but it can also be based on a comparison to peer company results like relative revenue or earnings per share growth compared to a list of competitors.
• 6:04
  SPEAKER_02: Vesting could also be tied into more of an event, like completing an IPO or having a change in control of the company.
• 6:11
  SPEAKER_02: And lastly, it could also be more of an individual employee goal, like having a succession plan in place that meets certain criteria, or a salesperson meeting a particular sales target.
• 6:22
  SPEAKER_02: So these are all uh various kinds of performance conditions that the guidance talks about.
• 6:28
  SPEAKER_02: And then the third kind is market conditions.
• 6:32
  SPEAKER_02: And so those are vesting terms that are linked to the value of the company's stock.
• 6:37
  SPEAKER_02: So, for example, an award may vest if the company's stock price reaches$50 or if the total shareholder return for the company over a period of time exceeds the company's peer group index by 10%.
• 6:52
  SPEAKER_02: Now it's not limited to public companies with quota market prices either.
• 6:56
  SPEAKER_02: Uh a private company could have a target based upon the investor's internal rate of return, for example.
• 7:02
  SPEAKER_02: That could be another example of a market condition because it's largely a function of the ultimate price of the stock upon a sale of the stock down the road.
• 7:11
  SPEAKER_02: So those are the three.
• 7:12
  SPEAKER_02: Uh actually, the guidance talks about a fourth scenario, too.
• 7:16
  SPEAKER_02: Uh so awards that have vesting or other conditions that are indexed as something other than either the service performance or market conditions that I described.
• 7:27
  SPEAKER_02: So that could be things like interest rates or indexed to the price of some commodity like gold or oil, even if that's kind of core to what the company's operations are.
• 7:37
  SPEAKER_02: Uh those the guidance say have to be accounted for as a liability award with a mark-to-market expense being calculated for it.
• 7:45
  SPEAKER_02: But we'll we'll get more into liability awards in a future podcast.
• 7:48
  SPEAKER_02: So we'll leave that out for today.
• 7:50
  SPEAKER_01: All right.
• 7:50
  SPEAKER_01: So good background there, Jay.
• 7:52
  SPEAKER_01: So I actually have two follow-up questions, and Ken, definitely happy to have you jump in here too.
• 7:57
  SPEAKER_01: Um, and I'll ask them together because I think there may be some correlation with the answers.
• 8:02
  SPEAKER_01: So the first is if there's a type of these that you would say is more common or you know that we tend to see more of.
• 8:09
  SPEAKER_01: And then related to that, how do we generally see people deciding which of these types of awards they're going to give?
• 8:18
  SPEAKER_01: Is it just based on specific company circumstance?
• 8:20
  SPEAKER_01: Or again, is there sort of common patterns that we tend to see?
• 8:25
  SPEAKER_02: Well, maybe I'll I'll take the first one of those, maybe Ken, if you want to take the second.
• 8:30
  SPEAKER_02: So I think we probably tend to still see more service condition awards, right?
• 8:36
  SPEAKER_02: That's probably the most historically common uh a little simpler to uh grasp and understand and maybe account for.
• 8:45
  SPEAKER_02: But I think we've been seeing progressively more performance and market conditions come along.
• 8:51
  SPEAKER_02: Um, some of that, frankly, might even be like a hang-a-ron of old accounting guidance.
• 8:57
  SPEAKER_02: You know, those of us who remember the guidance before what we have today, there was a very much a distinction, a hard distinction between awards that just had a service condition where you might be able to have a fixed award that didn't have to get marked to market, and anything tied into a contingency, either performance or market condition, what we now call those, caused it to be a variable or mark to market award.
• 9:21
  SPEAKER_02: So people were very much focused on keeping it to service to keep that fixed accounting.
• 9:26
  SPEAKER_02: And it's taken some time, even though this standard's been around for a long time now, it's taken some time for people to kind of move away from that.
• 9:32
  SPEAKER_02: The current model, I know we'll get into the accounting model a little bit more, um, you know, isn't that isn't as challenging for those other ones, but it's still a little challenging.
• 9:40
  SPEAKER_02: So I think we still see, you know, probably most companies still do some form of just time-based service awards, but we definitely see a growing number, particularly at the higher executive level, perhaps, of the other kinds, the performance and market conditions.
• 9:55
  SPEAKER_03: Right, because I think a lot of it is based on what the company is trying to incentivize when they give the award to the employee.
• 10:04
  SPEAKER_03: And so if it's important that we're trying to incentivize growth in certain operating metrics, then maybe we're going to grant share-based awards that include some of those goals.
• 10:16
  SPEAKER_03: Uh, or if we're trying to align kind of investor interests with the employees, then maybe we want to include some share price goals.
• 10:25
  SPEAKER_03: So employees are only going to invest to the extent we're able to grow share price, which uh obviously investors are very interested in.
• 10:32
  SPEAKER_03: And as Jay pointed out, uh sometimes we'll have a difference between some of our higher-level executives who might have more influence over whether we achieve some of those either operating goals or share price goals than with some of the other employees of the company.
• 10:46
  SPEAKER_01: All right, that's helpful.
• 10:47
  SPEAKER_01: And again, I know this is not a podcast about compensation design.
• 10:51
  SPEAKER_01: However, I do think it's helpful to at least have a bit of background there before we just jump straight into the accounting.
• 10:57
  SPEAKER_01: So people are kind of thinking about the substance of what it is that we're accounting for.
• 11:01
  SPEAKER_01: So, with all that said then, Ken, I'm going to turn to you officially with a question.
• 11:07
  SPEAKER_01: And um, this would be if you could please share a little about how each type of condition then impacts how an award is measured and how expense is recognized.
• 11:18
  SPEAKER_03: Sure.
• 11:19
  SPEAKER_03: So uh let's start with the most basic, uh, which would be an award with only a service condition.
• 11:26
  SPEAKER_03: Uh, and so maybe a company grants an employee a hundred restricted stock units that vest in three years.
• 11:35
  SPEAKER_03: Uh, right, so only service is required in order to vest.
• 11:39
  SPEAKER_03: So the award is measured and fixed at the grant date, and that assumes it's equity classified, as Jay said.
• 11:48
  SPEAKER_03: We'll get into liability awards in a in a future episode.
• 11:53
  SPEAKER_03: Uh so the probability of whether the employee will vest is not included in the grant date value.
• 12:00
  SPEAKER_03: So, in this example, the the fair value of those hundred restricted stock units in general is just going to be based on whatever the share price is on that day.
• 12:12
  SPEAKER_03: Uh and if if the employee had received a stock option, then in most cases a Black Scholes model, sometimes a binomial model, but usually usually a Black Shoals model is used to come up with the grant date fair value.
• 12:28
  SPEAKER_03: And then once we've measured the fair value, the cost is recognized over that service or vesting period.
• 12:37
  SPEAKER_02: You know, maybe one thing I'd add in here, you you alluded to, Ken, this was an example was an award that vests over three years.
• 12:44
  SPEAKER_02: But we see two different uh flavors of those.
• 12:47
  SPEAKER_02: Uh some awards uh vest over what we often uh refer to as graded vesting, meaning they legally vest in tranches over time.
• 12:56
  SPEAKER_02: So that could mean in your example that one-third of the award vests each year during that three-year period.
• 13:04
  SPEAKER_02: That would be graded vesting.
• 13:06
  SPEAKER_02: Uh the alternative, which a lot of people call cliff vesting, is when the entire award only legally vests at the end of the three years.
• 13:15
  SPEAKER_02: So if you left two and a half years into it, you would actually get nothing.
• 13:19
  SPEAKER_02: So we we hear we we see both of those types of awards in practice.
• 13:24
  SPEAKER_02: Uh and and the that's sort of the terminology we tend to hear around a graded versus cliff vesting.
• 13:29
  SPEAKER_03: Right.
• 13:30
  SPEAKER_03: Yeah, good point, Jay.
• 13:31
  SPEAKER_03: And so so when an award has graded vesting and importantly only has service conditions, uh, then a policy choice for recognizing uh the comp cost is available.
• 13:44
  SPEAKER_03: So either the company could elect a straight line method uh or an accelerated trunche by trunche attribution.
• 13:54
  SPEAKER_03: So under straight line, uh the entire value is recognized evenly or on a straight line over the service period.
• 14:01
  SPEAKER_03: So in my earlier example, we've got 100 restricted stock units, they best in three years.
• 14:06
  SPEAKER_03: So if the total value was, say,$300, then we're just gonna expense$100,$100,$100 over the three years.
• 14:15
  SPEAKER_03: Um but under the tranche by tranche method, the expense is recognized separately for uh for each tranche over the service period of each of those tranches.
• 14:28
  SPEAKER_03: So for example, if if the award vests a third in year one, a third in year two, a third in year three, then in year one we'd recognize all of the cost of the first tranche because it vests in one year, so that's$100, and half of the second tranche because it vests over two years, so$50, and then a third of the third tranche, or$33, all in the first year.
• 14:52
  SPEAKER_03: So that'd be$183 out of the$300 in the first year.
• 14:56
  SPEAKER_03: And so all more of the overall expense is recognized in the earlier years, which is why it's sometimes referred to as an accelerated or front-loaded expense model.
• 15:09
  SPEAKER_03: Uh and again, important to note that this policy election is only allowed when awards have only service conditions.
• 15:17
  SPEAKER_03: It's not available to awards with performance or market conditions, as we're going to get into here.
• 15:23
  SPEAKER_01: All right, that's helpful, and I can actually picture some of those schedules from my days back when I was an audit partner.
• 15:29
  SPEAKER_01: Uh, but two questions for you, just looping back.
• 15:32
  SPEAKER_01: Um, well, I'll start from the back first.
• 15:34
  SPEAKER_01: So, do you see any sort of again trend between people picking the accelerated and front loaded or more straight line, or does it just again depend on company circumstances?
• 15:44
  SPEAKER_03: Yeah, I would say it's it's more common for these awards that have only service conditions for companies to elect straight line.
• 15:51
  SPEAKER_03: Um sometimes maybe if they've also got awards with performance or market conditions where they're not allowed to use straight line, then maybe they will elect that front-loaded attribution for their service awards as well, just for that kind of consistency.
• 16:06
  SPEAKER_01: So then, Ken, I you know, I said this wasn't a comp design podcast.
• 16:10
  SPEAKER_01: It's also not a valuation podcast, but I do hate using terminology that we just use and don't, you know, don't explain at all.
• 16:17
  SPEAKER_01: So you mentioned Black Shoals versus binomial.
• 16:20
  SPEAKER_01: Is there a quick explanation you can give us of those two models, or is that way beyond what we might want to cover here?
• 16:27
  SPEAKER_03: Um probably too far in the weeds.
• 16:31
  SPEAKER_03: Maybe for our purposes, it's sufficient to say the Black Shoals model is generally much more straightforward to use in practice.
• 16:39
  SPEAKER_03: We have a variety of assumptions that need to be developed in order to kind of run the valuation, which includes things like the volatility of the company's stock price, the expected term over which maybe the option will be held before it gets exercised, the stock price, the exercise price, etc.
• 16:58
  SPEAKER_03: So once we have those assumptions, we can input it into the model and it kind of generates the value pretty easily.
• 17:03
  SPEAKER_03: Binomial is uh much more involved and generally would require a third-party valuation expert.
• 17:10
  SPEAKER_03: And again, in most cases, if we're dealing with a straightforward option, uh I find in practice most companies will use the Black Shoals model rather than the more sophisticated models.
• 17:21
  SPEAKER_01: All right, so it sounds like for our listeners who are primarily coming from the accounting or auditing side, they're probably more focused on the assumptions versus actually understanding the workings of these models.
• 17:32
  SPEAKER_01: So I think that's that's helpful.
• 17:34
  SPEAKER_01: All right, so then obviously we service conditions sounds, even with those tables that I can picture sounds relatively straightforward to be recognized and expense related to.
• 17:46
  SPEAKER_01: But I do know things get a bit more complicated when we start talking about performance and market conditions.
• 17:51
  SPEAKER_01: So maybe starting with performance conditions, what can you share with us there?
• 17:56
  SPEAKER_03: Sure.
• 17:56
  SPEAKER_03: So yeah, it'll start to get uh a bit more complicated now as we as we move along.
• 18:01
  SPEAKER_03: Um so as Jay described, um performance conditions are based in some part on the company's operations or performance.
• 18:11
  SPEAKER_03: And in general, just like with the service condition awards, uh when we're measuring the grant date fair value, the probability of achieving that performance condition doesn't impact our measurement.
• 18:26
  SPEAKER_03: Instead, the probability of achieving the condition impacts our recognition of expense.
• 18:32
  SPEAKER_03: So it's more like an on-off switch, right?
• 18:35
  SPEAKER_03: Expense will be recognized if that condition is probable, and if it's not probable, then we're not recognizing expense.
• 18:43
  SPEAKER_03: So for example, let's say we had 100 performance restricted stock units, which vests over three years, if we have, say, aggregate revenue for the company over that period of 100 million bucks.
• 18:59
  SPEAKER_03: So the grant date fair value is still just going to be based on the share price.
• 19:04
  SPEAKER_03: So let's say share price was$10 on day one, just like in the service award example.
• 19:11
  SPEAKER_03: Uh and so the total grant date for fair value for this award is the 100 performance units times$10 or$1,000.
• 19:18
  SPEAKER_03: And then each reporting period, management will assess whether it's probable that that revenue target will be achieved at the end of the three years.
• 19:29
  SPEAKER_03: So if they believe it's probable, then we're going to start recognizing that expense of$1,000 over the service period.
• 19:37
  SPEAKER_03: And if it's not probable, then we're not going to recognize any expense.
• 19:42
  SPEAKER_03: And then we'd continue to update this assessment each period.
• 19:46
  SPEAKER_03: Uh, and ultimately, if the performance target is met, and so the award vests, then that entire grant date fair value is recognized as expense.
• 19:55
  SPEAKER_03: And if the target isn't met and nothing vests, then uh the expense is not recognized at all.
• 20:03
  SPEAKER_01: So, Ken, on that, do you from a practical point of view then see that maybe you recognize maybe the next period the probability goes down?
• 20:12
  SPEAKER_01: So now you unrecognize or de-recognize, or is is there any sort of pattern to this, or is it just again facts and circumstances?
• 20:22
  SPEAKER_03: Yeah, I mean that that is that does happen and that can happen.
• 20:26
  SPEAKER_03: Uh, you know, we we all need to make sure companies and auditors of companies that we're comfortable with that probability assessment, so we don't have kind of that flip-flopping that you're referring to.
• 20:36
  SPEAKER_03: Um but certainly it can happen, and oftentimes with the awards where we've got kind of this on-off switch where you know we just have a target revenue goal, uh, we might think that that is probable from the beginning, and so we're starting to recognize expense, but of course, at some point along the way, we might realize uh that we don't think we're going to achieve it.
• 20:54
  SPEAKER_03: And yeah, then we would reverse the expense that we've already recognized and discontinue recognizing any further expense unless that probability changes again.
• 21:04
  SPEAKER_01: And then not to be overly simplistic here, but if you had a condition that it's just absolutely, you know, there's almost no chance you're not going to meet, does that mean then you could wind up with all the expense recognized in one period?
• 21:17
  SPEAKER_01: Or how does that work?
• 21:19
  SPEAKER_03: Yeah, yeah.
• 21:19
  SPEAKER_03: I mean, if we have uh, and that's not uncommon where it's a stretch goal, right?
• 21:23
  SPEAKER_03: And so at the beginning, we might not be able to say that it's probable, and so we're not recognizing any expense, and it might be unclear as to whether we're going to achieve it until relatively far down the path, then we could end up with something like you described, where it's you know, zero, zero, zero for maybe the first year or two.
• 21:39
  SPEAKER_03: And then as we start getting much closer than if it's probable, then we start recognizing the expense, and we would have a cumulative catch up adjustment in whatever period we first say it's probable to kind of catch us up, uh, which could be a big charge in that period, as you're alluding to.
• 21:56
  SPEAKER_02: Maybe another example of that that we might see.
• 22:00
  SPEAKER_02: Would be if it's tied to maybe like FDA approval of some drug, right?
• 22:04
  SPEAKER_02: If it's a company in that industry where it may be very difficult to predict in advance whether the FDA is going to ultimately approve a drug compound.
• 22:14
  SPEAKER_02: And so it might be more of a bullet type of charge when the FDA approval happens or is really close to happening.
• 22:21
  SPEAKER_01: All right, definitely a good example there.
• 22:23
  SPEAKER_01: And I'm sure there's many other scenarios I could come up with, but rather than dwelling on that, I know Ken, you said that's what's the so-called all or nothing performance condition.
• 22:32
  SPEAKER_01: I'm sure there's other types.
• 22:33
  SPEAKER_01: So what else do we commonly see?
• 22:35
  SPEAKER_03: Yeah, it is common to have what we refer to as a sliding scale performance condition rather than an all or nothing.
• 22:44
  SPEAKER_03: So that might be something like employees granted 100 performance units, just like in the all or nothing example, with a target revenue goal of$100 million, same kind of target goal, and so 100 shares will be earned if we have revenue of 100 million.
• 23:02
  SPEAKER_03: But let's say if revenue is below 70 million, then you get nothing.
• 23:07
  SPEAKER_03: But if it's between 70 and 100, then maybe you'll just get 50 shares.
• 23:12
  SPEAKER_03: And then maybe if it's over 125 million, uh you'll get 150 shares.
• 23:18
  SPEAKER_03: And then sometimes there might be interpolation between those points, so you could kind of get anywhere between the 50 shares and the 150, depending on where you fall out.
• 23:24
  SPEAKER_03: So we call that a sliding scale.
• 23:27
  SPEAKER_03: In that case, the grant date measurement is still the same, it's still based on that$10 per share.
• 23:36
  SPEAKER_03: Um, but now management's probability assessment is based on the sliding scale.
• 23:42
  SPEAKER_03: And so if management's current uh best estimate of the probable outcome is that revenue is going to exceed the 125 million, the maximum, then expense would be recognized based on the shares that would best at that point, which is 150 shares.
• 23:59
  SPEAKER_03: And again, as we were talking about, that estimate is updated each period.
• 24:02
  SPEAKER_03: And so if that changes at some point, then we'd have to adjust and with a cumulative catch-up adjustment to whatever the probable expected outcome is at that time.
• 24:13
  SPEAKER_01: All right, so definitely a lot to think about there.
• 24:15
  SPEAKER_01: And then maybe Jay, pulling you back in, I and my sense would be that as we start to think about expense recognition for these, that could also get a lot more complicated depending on sort of the vesting and otherwise.
• 24:29
  SPEAKER_01: So, what can you share with us there?
• 24:31
  SPEAKER_02: Right, right, and and sort of tying on what Ken, I think, was sort of um foreshadowing that the when we talk about graded vesting awards, that this sort of policy choice of straight line or that accelerated or tranche by tranche approach is only allowable as a policy choice for service condition only awards.
• 24:52
  SPEAKER_02: Once you have performance targets or market conditions, as we get it, we'll get into as well.
• 24:57
  SPEAKER_02: Uh if you have graded vesting terms, so for example, instead of being one revenue target at the end of three years or cumulatively over the end of three years, maybe there's three individual yearly revenue targets, and you earn some awards in year one, you can earn some awards in year two, you can earn some awards in year three based upon each year's revenue target.
• 25:19
  SPEAKER_02: So now you have a graded vesting for that.
• 25:23
  SPEAKER_02: The guidance says you have to use that accelerated or tranche by tranche approach when you're recognizing the expense for those awards.
• 25:31
  SPEAKER_02: Uh, you can't use the straight line method once there's performance or market conditions.
• 25:36
  SPEAKER_02: So it's easy to see when you kind of think those through that you you get pretty complicated expense recognition, you know, and then it's then you layer in the sliding scale that Ken mentions.
• 25:46
  SPEAKER_02: Now you have lots of different potential numbers for each period, recognize simultaneously or concurrently.
• 25:53
  SPEAKER_02: So it can get pretty complicated pretty fast.
• 25:56
  SPEAKER_01: Exactly.
• 25:56
  SPEAKER_01: I was literally thinking that I try to avoid controls discussion on this podcast for the most part.
• 26:03
  SPEAKER_01: We it comes up here and there, but clearly this is a place where you need some good controls because it's so easy to make a mistake, you know, one place in that spreadsheet, and you know, something can go wrong.
• 26:15
  SPEAKER_01: Now that was performance conditions.
• 26:17
  SPEAKER_01: Jay, maybe sticking with you, what happens when we turn to market conditions?
• 26:22
  SPEAKER_02: Well, we end up turning the model that we've been talking about completely on its side.
• 26:28
  SPEAKER_02: Um, and in the sense that so we said for both performance and service condition awards, you don't factor in the likelihood of achieving the condition into the day one grant aid fair value calculation, and you factor in probability more to the recognition, whether you do or don't recognize the award.
• 26:51
  SPEAKER_02: But when you have a market condition, it's actually the other way around.
• 26:54
  SPEAKER_02: You you factor the probability of achieving the condition, and that's probably a very simplified way of saying what's a more complicated valuation tech technique, but you factor in the likelihood of achieving the condition into the grant date fair value.
• 27:10
  SPEAKER_02: So you probably do need some more sophisticated valuations.
• 27:14
  SPEAKER_02: Ken mentioned Black Shoals binomial at the one end of the spectrum.
• 27:18
  SPEAKER_02: We also see other ones that people might refer to as Monte Carlo simulation methods, which is a more complicated model, but can contemplate much more, many different more scenarios.
• 27:28
  SPEAKER_02: And so that might be needed to be used to calculate the value.
• 27:33
  SPEAKER_02: Uh and then you actually have to recognize that expense over the service period, whether people end up hitting the target or not.
• 27:40
  SPEAKER_02: So the probability of hitting the target doesn't affect it.
• 27:44
  SPEAKER_02: So maybe as an example, so if you have an award uh of a hundred restricted stock units that would vest after three years if the stock price is above twenty dollars, let's say at that time.
• 28:00
  SPEAKER_02: And in this case, if the stock price is ten dollars at the grant date, whereas for service performance condition awards, we would have used$10 as our sort of grant date fair value to work with.
• 28:11
  SPEAKER_02: But in this case, the grant date fair value would be lower than$10.
• 28:16
  SPEAKER_02: Let's just say it's$7.
• 28:18
  SPEAKER_02: That incorporates the probability of achieving that target along the way.
• 28:24
  SPEAKER_02: But because you've baked it the probability on the front end, you don't factor probability into the recognition of it.
• 28:31
  SPEAKER_02: So whether you think you're going to hit the target or not, whether you do hit the target or not, you have to recognize that expense over the service period that people effectively have to work to uh to earn it.
• 28:45
  SPEAKER_02: And that's a little, that's another set of things to think about as to what are the different types of service um periods for those.
• 28:53
  SPEAKER_02: Uh, but it's a big difference, of course, from the performance awards, which are sort of if you hit it, you recognize it.
• 28:58
  SPEAKER_02: If you don't hit it, you don't.
• 28:59
  SPEAKER_02: With a market condition award, you have to recognize it either way.
• 29:04
  SPEAKER_03: You know, I was reflecting on Heather's earlier question about kind of what do we see in practice and what's common, and maybe one type of market award that is that is pretty common and worth mentioning, Jay, is uh uh what's referred to as a relative TSR award.
• 29:20
  SPEAKER_03: So TSR is total shareholder return, uh, which is just the change in the stock price plus any dividends that are paid over some period of time.
• 29:31
  SPEAKER_03: Uh and relative means compared to others.
• 29:35
  SPEAKER_03: And so relative TSR is a comparison of the company's TSR to a select group of other companies.
• 29:44
  SPEAKER_03: Uh and sometimes we see, you know, sometimes this will be a relatively small group of peer companies that uh that the company selects to compare itself to.
• 29:53
  SPEAKER_03: Sometimes it's the entire SP 500 and everything in between.
• 30:00
  SPEAKER_03: We see lots of flavors of uh who we're comparing to.
• 30:04
  SPEAKER_03: But the measurement and expense recognition uh generally follow the same concepts, Jada, you were just describing, with the more vanilla market awards.
• 30:13
  SPEAKER_03: Uh, but the valuations can be even more complex because now we're trying to model not just the company's own share price, but what you know, how it will compare to all of those peer companies that it's comparing to.
• 30:26
  SPEAKER_01: So, Ken, let me ask a follow-up question.
• 30:29
  SPEAKER_01: Um, we have a few follow-up questions, but Jay, if I understood Jay correctly, what Jay was saying is you come up, you know, sort of day one, this is the value of this award.
• 30:39
  SPEAKER_01: And then from there, no matter what happens, I as the company have to recognize that value, even if ultimately those targets aren't met.
• 30:46
  SPEAKER_01: So, Ken, in the circumstance you're describing, now you have all these additional variables, but you're saying, even so, put all those variables into this valuation.
• 30:57
  SPEAKER_01: You on day one, start rec you value it, and then you start recognizing you don't change values as you go along, and you don't sort of de-recognize if you miss the targets.
• 31:07
  SPEAKER_03: Right.
• 31:08
  SPEAKER_03: It's the same concept.
• 31:09
  SPEAKER_03: And and importantly, this notion of having to recognize the expense no matter what, um, is that is if the employee completes whatever service is required.
• 31:21
  SPEAKER_03: So a lot of like in the relative TSR example that I mentioned, that will usually be something like at the end of three years, we will compare the company's TSR to this group of peer companies.
• 31:32
  SPEAKER_03: Uh, and if you know, if we beat them, then you'll v.
• 31:35
  SPEAKER_03: If we don't beat them, then you won't.
• 31:36
  SPEAKER_03: Um, so we factor that probability into the value on day one, as you said, and that's a single fixed measurement, and then we recognize that amount over the service period.
• 31:47
  SPEAKER_03: If the employee completes the three years of service, then we have to keep the expense no matter what.
• 31:53
  SPEAKER_03: If the employee forfeits the award because they just leave the company maybe before the end of the three years, we can still reverse in that situation.
• 32:00
  SPEAKER_03: So they they still have to complete the service period, but in that case it's expense, regardless of whether anything passes.
• 32:06
  SPEAKER_01: All right, that's helpful.
• 32:07
  SPEAKER_01: And then, Jay, let me go back to you because I did think it was interesting that you said we could like basically completely flipped the model because we don't I mean, I guess we see that in GAP, but these seem relatively similar for us to have a completely different model.
• 32:22
  SPEAKER_01: So why is it that there is such a different model for these market condition awards?
• 32:27
  SPEAKER_02: No, it's fair, fair point, and it's always tough to keep track of and sort of you know the think about the why behind this.
• 32:34
  SPEAKER_02: And I guess I kind of view it as that the the FASB made a core decision when they developed the current stock compensation model that the value of an equity award would be established at the grant date and wouldn't get remeasured as the stock price changes.
• 32:53
  SPEAKER_02: So you don't have to market to market.
• 32:56
  SPEAKER_02: And they also made the decision that the expense for a regular old stock option wouldn't get reversed just because the company's stock price went down and the option never went in the money and became valuable to the employee.
• 33:10
  SPEAKER_02: So they didn't, because that kind of goes hand in hand, right?
• 33:13
  SPEAKER_02: That's sort of like almost like marking it to market.
• 33:14
  SPEAKER_02: If you um you have to if you don't have to recognize expense because the stock price went down, that's almost like saying, you know, that's more of a uh at least a one-directional mark-to-market type of type of item.
• 33:24
  SPEAKER_02: But if you think about it, even a basic stock option inherently has a market condition in it.
• 33:29
  SPEAKER_02: The stock price has to go up for it to be worth anything.
• 33:32
  SPEAKER_02: And the likelihood of it doing that is baked into the grant date fair value of the award.
• 33:38
  SPEAKER_02: And what the FASB didn't want to have happen was for companies to be able to grant a stock option that layered on a provision that said, well, it only vests and can be exercised if the stock price goes above the exercise price, which would be a market condition, because nobody was going to exercise anyways if it doesn't go up in value, and have that situation and then be able to say, oh, well, now I can reverse the expense or not recognize the expense if the stock price doesn't go up because it didn't vest, and so they didn't have the opportunity to exercise it.
• 34:09
  SPEAKER_02: So unlike the performance conditions, where the expense is kind of said is only recognized if the condition is achieved and assessed for profability along the way, the FASB said that the expense for market condition awards has to be recognized no matter what, as long as the employee works long enough to meet the service condition part, as you said, Ken.
• 34:30
  SPEAKER_02: And while the market condition awards that we're talking about here are obviously a little more complicated than my simple example, the the approach was basically logically extended to all of them.
• 34:42
  SPEAKER_01: All right, so Jay, I think that's helpful just to sort of understand how these models fit together.
• 34:47
  SPEAKER_01: And I know we've talked about some of the more, I'll call them common types of vesting conditions that we see.
• 34:53
  SPEAKER_01: But Ken, any other sort of nuances that you see in practice that you would highlight?
• 34:59
  SPEAKER_03: Yeah, maybe I'll maybe I'll just touch on as at the top of the podcast when Jay was describing the different types of performance conditions.
• 35:08
  SPEAKER_03: He mentioned uh one which is defined as a performance condition in uh in ASC 718, which is an IPO or a change of control event.
• 35:18
  SPEAKER_03: Those are specifically defined as uh performance conditions.
• 35:22
  SPEAKER_03: Um and we see those quite a bit um in in private companies generally, especially the IPO condition would only be in a private company.
• 35:32
  SPEAKER_03: Um and so because those are performance conditions, we are following this probability assessment model, right?
• 35:38
  SPEAKER_03: If it's probable, then we'll recognize expense and vice versa.
• 35:43
  SPEAKER_03: But under US GAAP, practice over time has developed that an IPO or a change of control is not considered probable until the event actually occurs.
• 35:57
  SPEAKER_03: And so no expense is recognized until we have the event.
• 36:02
  SPEAKER_03: Uh and it that notion that it's not probable until the event occurs is not anywhere specifically in the stock compensation guidance.
• 36:11
  SPEAKER_03: Um, it's actually based on some guidance in the business combinations literature about events that are contingent upon the closing of a merger.
• 36:22
  SPEAKER_03: But it is consistently accepted practice for these types of events that are fundamental to the company's organizational structure and outside of the company's control and subject to significant external contingencies, that we don't consider them probable until they occur.
• 36:41
  SPEAKER_01: All right, that's definitely a helpful perspective.
• 36:44
  SPEAKER_01: And then the other question that's running through my mind is we've been very specific talking through each of these different scenarios separately.
• 36:52
  SPEAKER_01: So you either have a service condition or you have a performance condition or you have a market condition.
• 36:57
  SPEAKER_01: But let's take the case then if you have a performance and a market condition, which I presume we do see in practice, then what do we need to think about from an accounting and just general complexity perspective there?
• 37:10
  SPEAKER_02: Right, right.
• 37:11
  SPEAKER_02: Well, I would say it's it is a little bit more complex.
• 37:14
  SPEAKER_02: And we do see awards like that where there may be a mixture of different conditions.
• 37:20
  SPEAKER_02: And I will focus more on the performance and market ones.
• 37:24
  SPEAKER_02: A lot of times there's, or almost all of them will have some form of service condition in it, whether that's explicitly required or implicitly required.
• 37:33
  SPEAKER_02: But when we have a mixture of performance and market conditions, the first question you have to answer is well, is it an and condition or an or condition?
• 37:44
  SPEAKER_02: Because actually the model is probably a little different for each of those.
• 37:47
  SPEAKER_02: So if you have an award that has both a performance condition and a market condition, meaning that the award only vests, if say both a revenue target and a certain stock price target, are hit.
• 38:00
  SPEAKER_02: So you have to hit both of them or you don't get it.
• 38:02
  SPEAKER_02: So in that case, uh we would say the market condition element of it is reflected in the estimate of the fair value and the grant date.
• 38:12
  SPEAKER_02: But at the end of the day, whether you get it or not, is also a function of you have to hit the performance condition target.
• 38:19
  SPEAKER_02: So you do get to follow the performance condition model for it overlaid on top of that.
• 38:24
  SPEAKER_02: So you would say that that day one value, which incorporated the market condition, is adjusted based upon the probability of whether or not the performance condition will be achieved.
• 38:35
  SPEAKER_02: So if the performance condition is not ultimately met, you actually don't have to recognize any any expense for that award.
• 38:42
  SPEAKER_02: But if the performance condition is met and the service is provided, then the compensation costs that you measured on the grant date with the market condition embedded in it would be recognized whether or not that market condition was met, just like any other market condition award.
• 39:02
  SPEAKER_02: So it could be that you hit the performance target, you don't hit the market condition target, so you actually don't legally vent the award, but you still have to recognize the expense, sort of incorporating that market condition into the day one fair value, just like other if the employee meets the service condition.
• 39:21
  SPEAKER_02: If they work long enough, right, to um to meet what would be the service condition.
• 39:26
  SPEAKER_02: So that's the and situation.
• 39:28
  SPEAKER_02: We also see ones that are more of an or situation where you earn the award for hitting either the revenue target or the stock price target.
• 39:39
  SPEAKER_02: Uh so in this case, the answer or the amount of expense will actually depend on which one you hit or which which whether the performance condition is bad or not.
• 39:50
  SPEAKER_02: So the thought here is that the market condition is reflected in the estimate of fair value, uh just like we said before, and the performance condition is not included in the estimate of fair value.
• 40:02
  SPEAKER_02: So you have sort of two different potential values, the two different outcomes, two different ways you could earn it, two different bites of the apple here.
• 40:08
  SPEAKER_02: One of them, the market condition one, is a lower value because it's got that haircut.
• 40:12
  SPEAKER_02: The performance condition one is a higher value because you don't have that haircut.
• 40:17
  SPEAKER_02: So now the amount of compensation cost you recognize is a function of, again, whether that performance condition is met.
• 40:23
  SPEAKER_02: So if the performance condition is not probable and ultimately is not met, assuming all the service requirements are met, then the amount of comp costs that you'll take would be that market condition value.
• 40:36
  SPEAKER_02: Again, whether or not you achieve the target, because like any other market condition award, you have to recognize the expense here.
• 40:44
  SPEAKER_02: Thought being that if I just granted a market condition award, I got to recognize expense either way.
• 40:49
  SPEAKER_02: Layering in another way to earn the award on top of that, i.e., the performance condition, can't give you any less expense than you would have had with just a market condition.
• 40:58
  SPEAKER_02: But if you ultimately hit the performance condition and get the award that way, then you have to go back and use the higher fair value at the grant date, you know, the one that was calculated for the performance condition without any haircut of any sort, that's the amount that you would end up recognizing.
• 41:17
  SPEAKER_02: So you could, you're gonna recognize something as long as the person works.
• 41:20
  SPEAKER_02: It's just, you know, the it basically is the uh, you know, the the, not the greater of the two because it's a function of whether the performance condition is met or not, but you could recognize a bigger amount or a smaller amount depending on what happens.
• 41:33
  SPEAKER_02: Whereas in the and condition, you're only gonna recognize the lesser amount with the market condition, and only if the performance condition is met.
• 41:42
  SPEAKER_02: So it's very important to assess whether it's an and or it's an or situation.
• 41:46
  SPEAKER_03: Yeah, and it's a it's a good one to be aware of because um I find when talking to companies, it's often um it's confusing at first blush to we have this one instrument, and yet we say there are two values of the instrument depending on which of these paths ultimately come to pass.
• 42:03
  SPEAKER_03: And that takes a little bit of uh wrapping your head around.
• 42:07
  SPEAKER_01: And Ken, from a practical point of view, is this do we see more of the end type or the or type, or is this another?
• 42:14
  SPEAKER_01: It depends.
• 42:15
  SPEAKER_03: Uh we I it I I wouldn't say that there's a more common when when we get into this level of complexity.
• 42:21
  SPEAKER_03: We do see we see both, and it it really comes back to, as we were talking about plan design earlier, what is the company trying to accomplish and incentivize when they make these awards to their uh employees and executives?
• 42:35
  SPEAKER_01: And we that's not one of our episodes for this this month, but I do think at some point having a plan design episode could be very interesting just because it does impact the accounting, and again, there's a lot involved in it from this employee incentive point of view.
• 42:50
  SPEAKER_01: So yeah.
• 42:51
  SPEAKER_01: All right, so definitely a lot to cover, and I think we probably hit our listeners' limit of being able to follow all of these scenarios we've been talking about.
• 43:00
  SPEAKER_01: Um, but maybe just to wrap things up, I know both of you spent quite a lot of time in various guises helping clients and engagement teams work through these.
• 43:09
  SPEAKER_01: What types of advice do you give or any final thoughts you would have for our listeners uh before we wrap things up?
• 43:16
  SPEAKER_01: And Ken, I'll start with you first.
• 43:19
  SPEAKER_03: Um since we've been talking about uh performance and market conditions, maybe it's worth mentioning.
• 43:26
  SPEAKER_03: We we didn't get into uh grant date issues in this discussion, but that that could be a whole other podcast, is just make how do you determine whether you've got a grant date, because that's a kind of a technical thing under the uh the accounting literature.
• 43:41
  SPEAKER_03: Um but it's probably worth mentioning one uh kind of common issue that we do see with performance of market awards.
• 43:48
  SPEAKER_03: So, in general, in order to have a grant date and therefore fix the measurement of the award and to start recognizing expense, you've got to have a mutual understanding.
• 44:00
  SPEAKER_03: Of the key terms and conditions between the company and the recipient, the employee, usually.
• 44:06
  SPEAKER_03: Right?
• 44:07
  SPEAKER_03: That mutual understanding has to exist.
• 44:09
  SPEAKER_03: Sometimes with performance of market awards, maybe management isn't ready to lock in all of those future year performance targets up front.
• 44:20
  SPEAKER_03: Like, for example, we might have a three-year award, and the company will say, here's the revenue goal for the first year, but they don't want to establish the goal for year two or year three yet.
• 44:32
  SPEAKER_03: And so if that's the case, then we would only have a grant date for that first tranche, because that's the only one where we've locked in what the goal is.
• 44:41
  SPEAKER_03: And that means for the second tranche, the you know, the second year tranche and the third year tranche, we wouldn't have a grant date, and so we wouldn't yet measure that and fix the value, and we wouldn't start recognizing, usually wouldn't start recognizing any expense for those tranches.
• 44:58
  SPEAKER_03: And then maybe just another red flag to watch for when it comes to these types of conditions.
• 45:04
  SPEAKER_03: Um we might establish the goal up front, but sometimes some discretion will be retained by the comp committee or the board to make adjustments to that performance goal.
• 45:16
  SPEAKER_03: And so, in some cases, depending on how much discretion is built in to make those adjustments, we might conclude there's no accounting grant date because we might not have that mutual understanding of the key terms if the company can still make adjustments to it at some point down the road.
• 45:32
  SPEAKER_03: So there's a lot of judgment here.
• 45:34
  SPEAKER_03: I won't get any deeper into the weeds, but it's um it's definitely something at least that's good for our listeners to keep in mind when they're thinking about and evaluating these uh these types of performance and market awards.
• 45:45
  SPEAKER_01: Yes, definitely a good reminder.
• 45:46
  SPEAKER_01: And Jay, how about from your perspective?
• 45:48
  SPEAKER_02: Yes, maybe one reminder I'd offer is that sometimes the term performance award or performance target can be used in the legal agreements like the stock option grant agreements or the restricted stock grant agreements, uh, to just generically describe some type of condition that has to be met, but it may in fact be a market condition for accounting purposes.
• 46:12
  SPEAKER_02: And we've certainly talked a lot today about how these are quite different models between performance and market conditions.
• 46:18
  SPEAKER_02: So I'd maybe just advise folks to make sure they read the terms of the agreement that even though it's called a performance target in the agreement, it may not be a performance condition from an accounting perspective.
• 46:30
  SPEAKER_02: So you do have to kind of pay attention to what it really is getting at.
• 46:34
  SPEAKER_02: And maybe I'd I'd also make a plug for one of the upcoming podcasts we have in this series about modifications because we're going to build upon the different types of vesting conditions there to think about what's the right accounting for different types of modifications.
• 46:50
  SPEAKER_02: And there's even more permutations when we get into that.
• 46:52
  SPEAKER_02: So stay tuned for more info about these.
• 46:56
  SPEAKER_01: All right.
• 46:56
  SPEAKER_01: And then on the note of more info, if our listeners want to read more, perhaps, or listen more, uh, where would we recommend that they go?
• 47:05
  SPEAKER_03: Yeah, so uh everything we've talked about today is covered uh in more detail in our stock-based compensation guide, uh, and in particular chapter two, which talks about performance and market awards.
• 47:17
  SPEAKER_03: Um and then you also mentioned, Heather, that we have some other podcasts about stock compensation topics.
• 47:23
  SPEAKER_03: And in particular, there was one called Accounting for Stock Compensation, Five Things You Need to Know, uh, that talked about besting conditions and expense attributions, some more, so listeners uh can go back into the archive and check those out as well.
• 47:38
  SPEAKER_01: Perfect.
• 47:39
  SPEAKER_01: And we'll put a link to that in the show notes.
• 47:41
  SPEAKER_01: So we're done with the substance of our podcast, but I'm happy to say for our listeners that our favorite segment, Stump the Guests, is back.
• 47:48
  SPEAKER_01: We did take a hiatus, uh, Ken and Jay, in July, and I did get a few notes about that.
• 47:54
  SPEAKER_01: So happy to say it's back.
• 47:55
  SPEAKER_01: I have two great questions for you.
• 47:57
  SPEAKER_01: One technical, one pop culture.
• 48:00
  SPEAKER_01: So we'll see how you do on this.
• 48:02
  SPEAKER_01: Uh, but for the first question, in what year do FAS 123R become effective for all companies?
• 48:10
  SPEAKER_01: And I guess for the benefit of our listeners, especially our younger listeners, FAS 123R is a precursor to our current guidance in the codification on Stockcom.
• 48:21
  SPEAKER_01: So, Jay and Ken, I gave you a few minutes to think there while I was explaining that.
• 48:25
  SPEAKER_01: Any thoughts?
• 48:27
  SPEAKER_03: I'm gonna I'll take a guess first, Jay.
• 48:30
  SPEAKER_03: Uh I I I I feel like it was issued in around 2004, and so I'm going to take a swing at 2006 for all companies.
• 48:42
  SPEAKER_02: You know, you you took the words right out of my mouth there, Ken.
• 48:45
  SPEAKER_02: I think I was thinking that too.
• 48:47
  SPEAKER_02: I think uh I think at least when you get into all companies, being private companies, I think the public companies had to adopt a little faster, but I I I seem to remember 2006 is what sticks in my head too.
• 48:58
  SPEAKER_01: And the answer I have from the producers is 2006.
• 49:02
  SPEAKER_01: So big round to you.
• 49:04
  SPEAKER_01: And I do have a little detail here.
• 49:05
  SPEAKER_01: So for non-public entities, it was actually technically as of the beginning of the first annual reporting period that begins after December 15, 2005.
• 49:15
  SPEAKER_01: And for public entities that did do not file as small business issuers, something complicated, um, as of the beginning of the first interim or annual period that began after June 15th, 2005.
• 49:30
  SPEAKER_01: So it's sort of interesting to me looking back at these old adoption dates, just how we've evolved in time.
• 49:35
  SPEAKER_01: You know, they didn't have the PVE, non-PVE.
• 49:38
  SPEAKER_01: And I think we were looking at one from Lee Scene, which obviously way predates this, but it was like issued in November and effective in January.
• 49:46
  SPEAKER_01: So, you know, a lot a lot different than what we're seeing now.
• 49:50
  SPEAKER_03: And it was super controversial.
• 49:51
  SPEAKER_03: This was the first time that most companies recognized any expense for their stock comp awards.
• 49:57
  SPEAKER_03: It was possible before that, but most didn't have any expense.
• 50:00
  SPEAKER_03: It was controversial.
• 50:01
  SPEAKER_01: Yeah, and I think Ken, if I remember correctly, as we've talked about some of our more recent controversial ones, people always refer back to this one.
• 50:09
  SPEAKER_01: It's the sort of the last one that was was very controversial.
• 50:12
  SPEAKER_02: This one had thousands, several thousand comment letters that were sent in around it.
• 50:18
  SPEAKER_02: Sort of this this version and the one that predated it, where the FASB ultimately backed off and said you only you could do it just in performant disclosures and not require the recognition.
• 50:28
  SPEAKER_02: In fact, that one got even very, very political at the time.
• 50:32
  SPEAKER_02: But yes, it was a very controversial uh standard that at the moment.
• 50:36
  SPEAKER_01: Well, so that's like our the SEC's proposed climate rules with their climate disclosure rules with their 14,000 comment letters.
• 50:43
  SPEAKER_01: It sounds like this would have been along those lines.
• 50:46
  SPEAKER_01: All right, so we've put off the pop culture question, but I'm gonna answer Lady Gaga.
• 50:52
  SPEAKER_01: That this this predates that, I think.
• 50:55
  SPEAKER_01: Okay, so well maybe not, but it's the answer is not Lady Gaga.
• 50:59
  SPEAKER_01: What popular social media platform was created that same year?
• 51:04
  SPEAKER_03: Oh, I'm gonna say Facebook.
• 51:07
  SPEAKER_01: And Jay, how about you?
• 51:08
  SPEAKER_01: I mean, there's only a handful of social media.
• 51:14
  SPEAKER_02: Uh trying to think if that was even older than that, but uh I'll go with Twitter, just to be something different.
• 51:21
  SPEAKER_01: All right, points to Jay for that one.
• 51:24
  SPEAKER_01: Good guess.
• 51:25
  SPEAKER_01: I have to tell the listeners from the look on his face, that was definitely a guess, but it was a good one.
• 51:29
  SPEAKER_01: Um so Twitter was created in March 2006 and it launched in July of that year.
• 51:36
  SPEAKER_01: And um, and then I have more details about tweets were originally restricted to 140 characters, but the limit was doubled to 280 in November 2017.
• 51:46
  SPEAKER_01: And audio and video tweets remain limited to 140 seconds for most accounts.
• 51:51
  SPEAKER_01: So there you go.
• 51:53
  SPEAKER_01: Know a bit about Twitter.
• 51:54
  SPEAKER_03: Two for two.
• 51:55
  SPEAKER_01: Yes.
• 51:55
  SPEAKER_01: So, anyway, gentlemen, as always, such a pleasure to have you on.
• 51:58
  SPEAKER_01: Looking forward to having you on for more episodes uh this month.
• 52:02
  SPEAKER_01: And thanks again for joining me.
• 52:03
  SPEAKER_02: Thanks, Heather.
• 52:04
  SPEAKER_02: Thank you.
• 52:06
  SPEAKER_01: That's our show for today.
• 52:08
  SPEAKER_01: Tune in tomorrow for the start of a special surprise ESG mini-series focusing in on some of the sector considerations for the implementation of the proposed ESG rules.
• 52:20
  SPEAKER_01: And spoiler alert, we actually have a special guest host for that series, so you won't want to miss it.
• 52:26
  SPEAKER_01: This Thursday, we'll have more ESG reporting content for you as well.
• 52:30
  SPEAKER_01: But this is our last Thursday episode for a month.
• 52:33
  SPEAKER_01: For the rest of the month of August, we'll be taking a summer break on Thursdays, which will give us time to gear up for what promises to be a very busy fall.
• 52:42
  SPEAKER_01: We'll be focused on more ESG reporting activity, but also other content to help you stay ahead of what's next.
• 52:50
  SPEAKER_01: And don't worry, you'll still be able to get your podcast fixed with us on Tuesdays as we continue the Toolkit series focusing in for the month of August on Stock Comp Awards.
• 53:01
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• 53:09
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• 53:18
  SPEAKER_01: From Thought Leadership at PwC, I'm Heather Horn.
• 53:22
  SPEAKER_01: Thanks for tuning in.
• 53:28
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