Page 494 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

480 The Complete Guide to Executive Compensation

Compound Average
Percent Increase in Percent of Stock
EPS of Three Years to Be Paid

15.0 or more 200
14.0 180
13.0 160
12.0 140
11.0 120
10.0 100
9.0 80
8.0 60
7.0 40
6.0 20
Under 6.0 0
Table 8-60. Example of performance-share corporate formula

Plan Payment Vests Stock Sold

Time Lapse Today Three years Five years
Stock price
• Fair market value $100 $130 $160
• Share price — — 0

Individual
• Ordinary income — $130 —
• Long-term
capital gains — — $30

Company
• Tax deduction 0 $130 0
• Expense* $100 0

* Accrued over period vesting
Table 8-61. Variable number of shares at fixed rate
adjustment to the expense charge must be made based on the number of shares awarded. For
market condition plan. However, the price is that determined at grant: $100 a share.
This assumes the plan is a performance condition plan, not a market condition plan as
described in the earlier section on FAS 123R. The grant value is not subject to downward
adjustment if the estimated performance has not been attained.
Another way to incorporate company performance in the value of the award is not to
vary the number of shares but rather to establish a variable cash bonus. This also addresses
the recipient liquidity problem, since the full market value of the stock received will be
considered income (assuming a Section 83(b) election was not made). Table 8-62 illustrates
how such a bonus might be constructed. Note that the table is similar to Table 8-59.