WASHINGTON—The U.S. Securities and Exchange Commission (SEC) on Monday issued guidance to listed companies around how to properly recognize and disclose share-based compensation arrangements made to executives ahead of company earnings and other releases.
The regulator said its new guidance spells out how companies must consider the impact such ‘spring-loaded awards’ would have on market-moving releases.
“Companies should not grant spring-loaded awards under any mistaken belief that they do not have to reflect any of the additional value conveyed to the recipients from the anticipated announcement of material information when recognizing compensation cost for the awards,” the agency said in staff guidance.
Spring-loaded awards are share-based compensation arrangements where a company grants stock options or other awards shortly before it announces market-moving information such as an earnings release with better-than-expected results or the disclosure of a significant transaction.
Non-routine, spring-loaded grants merit particular scrutiny by those responsible for compensation and financial reporting governance at public companies, the SEC said of its new guidance.
The SEC is seeking to revive a rule left unfinished from the 2007–2009 global financial crisis that would require U.S.-listed companies to implement a plan to recoup executive compensation in the event they have to correct financial statements due to compliance failures.
The guidance is also part of a broader push by the Democrat-led SEC to crack down on corporate malfeasance by augmenting its demand for more disclosure.
“It is important that companies’ accounting and disclosures reflect the economics and terms of these compensation arrangements,” SEC Chair Gary Gensler said in a statement.
By Katanga Johnson