Companies that offer equity compensation must:
Perform a valuation of company stock so the cost of equity compensation can be recognized at the grant-date fair value as set out in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 718
Be aware of compliance requirements set out in Internal Revenue Code (IRC) Section 409A if incentive options are granted below fair market value
Fulfilling these requirements can be complex, so it’s useful to know how the SEC will review your company’s compensation as well as how to obtain an estimate of your company’s value before an IRC Section 409A review.
Here are four key areas companies should understand before receiving a valuation:
SEC authoritative guidance relating to equity compensation
Common 409A valuation approaches and inputs
Management’s discussion and analysis disclosures (MD&A)
The evolution of logical stock-value progression