May 30, 2017
New Revenue Recognition Standard: Impact on Pay
– Liz Dunshee
The FASB’s new revenue recognition standard – which applies starting in 2018 – is mainly getting attention for its impact on disclosure & internal controls (see my blog last week on TheCorporateCounsel.net). But if your pay metrics are keyed to revenue, you should also be discussing how the change will affect multi-year & future plans – and how to handle it. Check out this excerpt from Cydney Posner’s blog:
How to address that problem? Two approaches have surfaced so far: “One approach is to keep two sets of books, one under the new standard and another for purposes of the compensation plan or bonus arrangement…..The second approach is to change the comp plan or bonus arrangement.
Neither approach is an ‘obvious’ solution and comes with challenges and complications. ‘Can you do that unilaterally—there’s probably some legal implications—can you just say this was the bogey we had set up and we’re going to change that because we changed the way we’re keeping score for revenue we’re going to change the plan—not obvious how you just go ahead and do that….I’ve come across this with a number of companies and it’s presented some real issues in terms of how do we deal with this.’”
Delay in dealing with the issue, and in involving others outside of accounting, will just make it more complex.