Over the years, practice has evolved such that many individuals who are not formally employees of a company are considered employees. As part of this project, the FASB is expected to conclude that only Common Law employees may be treated as employees for purposes of accounting for stock options. As a result, non-employee Directors will no longer be treated as employees. Since most Directors receive some form of equity compensation, this represents a significant change. At this time, we do not expect there to be a change in the treatment of Common Law employees of subsidiaries.
Companies take different approaches to granting stock to non-employee consultants.
Some companies have found that issuing stock to non-employees is an effective way to compensate and motivate key consultants. In most cases where stock is issued to consultants, the consultants receive cash compensation as well. The restrictions placed on grants of stock will depend on the nature of the relationship between the parties, the objectives of the work being performed by the consultant, and the negotiating positions or leverage of each party. The most common restriction is one of vesting. That is, the shares are not earned or are subject to forfeiture until a period of time lapses, certain conditions are met, or performance milestones are achieved.