Stock-based compensation issues in an IPO and SPAC, explained

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There are many challenging financial reporting considerations a company faces as it goes through the process of becoming public, including those related to stock-based compensation. Stock-based compensation in traditional IPOs and SPAC mergers is also an area where the SEC has issued comment letters.

In this week’s episode, Jay Seliber, a partner in PwC’s National Office, joins host Heather Horn to discuss the compensation-related financial reporting matters for companies to consider as they go public.

Topics include:

• 0:58 - Cheap stock valuation. Jay opens with a discussion on what companies should think about as they are measuring the fair value of awards in the period leading up to the IPO, including what circumstances might warrant revisiting the initial valuations.
• 8:44 - Recognition of compensation awards that vest upon an IPO. Jay breaks down what to consider when recognizing compensation for awards where the vesting is contingent upon an IPO, including considerations in the quarterly filings leading up to the IPO.
• 13:30 - Employee stock purchase plans. Some companies will have employee stock purchase plans (ESPPs) that give employees the right to have money withheld from their paycheck in order to purchase stock at a discount in the future. Jay covers the accounting for ESPPs in an IPO.
• 17:55 - Earnings per share. Newly-public companies will have to incorporate earnings per share in their filings. Jay explains some of the complexities, including calculating the weighted average shares outstanding needed to disclose earnings per share for each period presented as required by the SEC.
• 24:58 - Mezzanine equity. Lastly, Jay walks us through mezzanine equity—what it is and what companies going public need to be thinking about.

Want to learn more? Read:

• Our Stock-based compensation guide
• Section 7.3.4 of our Financing transactions guide
• Chapter 7 and Chapter 15 of our Financial statement presentation guide
• Our Observations from the front lines: Avoiding "cheap stock" SEC scrutiny

And listen to our Podcast: Got EPS questions? We've got answers.

Jay Seliber is a partner in PwC’s National Office with over 30 years of experience. He helps clients with their most complex accounting matters, particularly in the areas of stock compensation, revenue recognition, M&A, employee benefits, restructurings, impairments, and financing transactions.

Heather Horn is PwC’s National Office thought leader, responsible for developing our communications strategy and conveying firm positions on accounting and financial reporting matters.

Transcripts available upon r