Therefore, those who have variable plans
linked to performance against goals should not see a big difference, at least in junior and middle management, says Padmaja Alaganandan, executive director at PwC.
The illustrations in this report are meant to show how individual life variable plans
are being illustrated on the street as a way to gauge their relative positions for a sample policyholder.
Also, the required variable plans
are not yet being offered.
result from changes to an existing option grant, or when the options are performance based, and future appreciation must be expensed until the options become fixed.
On March 31, 2000, the Financial Accounting Standards Board (FASB) issued an interpretation of APB Opinion 25 entitled, "Accounting for Certain Transactions Involving Stock Compensation?" One of the conclusions coming from this interpretation is that the repricing of options violates the fixed provision requirement for options resulting in such plans being considered variable plans
. In such cases, compen sation expense will be more likely to be recognized each period; thus, lowering reported net income.
This anomaly results from the accounting distinction currently made between fixed and variable plans. Specifically, compensation expense for a stock-based plan whose terms are contingent upon the attainment of future performance goals (a variable plan) is measured at the measurement date, one subsequent to the grant date when the price and/or number of shares are determinable.
The accounting treatment accorded variable plans is problematic for another reason.
The illustrated values in this report are meant to be a snapshot of how individual life variable plans
are being illustrated on the street as a way to gauge their relative positions for our sample policyholder.
Willis, FASB project manager, "was to eliminate the bias against variable plans
, such as option plans with terms that change based on company performance." Current rules require expense charges for many of these, she said, while no expense is recognized for otherwise similar fixed plans.
The key difference between fixed and variable plans
is when expense is measured, which occurs only when the number of shares to be received and the exercise price are known.