The Advisors' Blog

Thanks, I assume, to the “Marvel Cinematic Universe,” sci-fi concepts from the big screen are popping up all over now, and even public company board members aren’t immune. This Equity Methods blog says that, for restatements covering the grant date of an award, some board members have been asking some hypothetical, divergent timeline-type “what if” questions:

When a restatement spans many fiscal years, it may encompass not only when performance was measured, but also the grant date. Naturally the question will arise as to what the grants would have looked like if the stock price was lower at the issuance date—in other words, how liberal can the analysis be in the parallel universe constructed? For example, if the adjusted stock price is 20% lower, then ostensibly one or more of the following applies: 

– More stock could have been granted at a fixed value
– The starting price point would have been lower
– The hurdle prices may have been set lower 

But the Equity Methods team says, “while the logic makes sense, and board members often ask about it, we don’t believe it’s actionable. The intent of the rule is to accept the grant as is and to focus on the outcomes. Consistent with this, the language in the rule doesn’t permit an open-ended construction of a parallel universe. Rather, it hones in on the calculations performed at the time compensation was received.” 

So, sorry, folks, the multiverse isn’t going to save us this time. The blog says, “the parallel universe produced by a recovery analysis applies only to the exercise of measuring final performance and payout outcomes.”

– Meredith Ervine