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Inducements are offers that are generally designed to encourage holders of stock-based compensation awards to exercise their awards early and are considered modifications. The accounting treatment for the modification depends on whether the inducement is short-term (i.e., available for a limited period of time) or long-term. Although ASC 718 does not specify a time-frame for either category of inducement, we believe that a limited period of time is generally measured in weeks, not months.
  • Short-term inducements
    A short-term inducement is an offer by the entity that would result in modification of an award to which an award holder may subscribe for a limited period of time. The modification guidance under ASC 718 applies to short-term inducements only if the employee accepts the inducement offer. Generally, the modification would be accounted for when the employee accepts the offer. However, if the employee has the option to withdraw acceptance prior to the end of the offer period, the modification should be accounted for on the last day of the offer period.
  • Long-term inducements
    A long-term inducement is any inducement other than a short-term inducement. In the case of a long-term inducement, the modification guidance should be applied to all outstanding awards that are subject to the inducement offer, regardless of whether employees accept the offer.

The ASC 718 definition of a short-term inducement excludes an offer to repurchase or settle an award for cash. Therefore, a limited time offer to repurchase or settle an award for cash is not a modification. Rather, the repurchase of an award for cash would be accounted for in accordance with ASC 718-20-35-7. Refer to SC 4.8.

PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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