Originally Published MX January/February 2006

FINANCE

In light of Financial Accounting Standard 123R (FAS 123R), equity-based executive compensation programs are undergoing a transformation. Below are some of the common terms used when discussing these programs. Included are some of the alternative options to which medtech companies are turning due to the impact FAS 123R will have on the fair-market-value options that were previously the standard in executive compensation.

FAS 123R. An accounting pronouncement that requires employers to reflect, as a compensation expense on their financial statements, a value for equity grants to employees; the value is based on a calculation under one of a number of mathematical models (the most popular of which is the Black-Scholes-Merton method), and the expense occurs as the equity grant vests in the recipient.