Canadian Treasurer

March 2, 2015

CPA Canada publication outlines alternatives to stock options

Toronto, ON--With market attitudes changing, a new publication from Chartered Professional Accountants of Canada (CPA Canada) helps public companies explore alternative forms of equity-based compensation.

According to CPA Canada's ‘ Equity-Based Alternatives to Stock Options ’ , public companies have become increasingly concerned about the disconnect between the stock option expense and the ultimate benefit to employees. In addition, many public companies are trying to use other forms of equity-based compensation in response to market demands.

"Historically, stock options have been used as a compensation tool but a growing number of organizations are limiting their use of stock options and looking for alternative solutions to attract and retain employees," says Pamela Campagnoni, principal, research, guidance and support, CPA Canada. "We wanted to outline the options and the considerations associated with them."

The publication discusses a number of equity-based compensation alternatives. For example, using full value equity-based awards is one approach that is linked to the full value of the company shares. Full value equity-based awards include vehicles such as Restricted Share Units (RSUs) and Performance Share Units (PSUs). Also considered are certain full value equity-based structures that allow for a longer award term. An example of the long-term equity awards could be Deferred Share Units (DSUs), typically cash settled, which have a longer settlement time period than an RSU.

The publication also features a number of case studies to help companies understand alternative structures currently being used in the marketplace. It summarizes the process of assessing and factors to consider when choosing an effective compensation program that can be easily understood by management teams, the board and shareholders.

Several considerations, such as business characteristics and objectives, need to be addressed when designing a compensation program. "This includes considering the business and strategic implications as well as the reporting, legal and tax consequences," explains Campagnoni.





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