How does Carls recognize compensation expense for performance vesting profit sharing interests?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
Our equity-based compensation structure includes both time vesting and performance vesting profit sharing interests. We recognize compensation expense relating to time vesting profit sharing interests ratably over the requisite service period for the entire award. Performance vesting profit sharing interests vest through meeting performance and service conditions. We record compensation expense for performance vesting profit sharing interests when we deem the achievement of the performance goals to be probable. We recognize compensation expense for each separately vesting portion of performance vesting profit sharing interests ratably over the requisite service period that is determined to be the most likely outcome. We record reversals of share-based compensation expense for forfeitures as they occur. Our share-based compensation structure is described more fully in Note 17.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 79–80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, the company's equity-based compensation structure includes both time vesting and performance vesting profit sharing interests. Carls recognizes compensation expense for time vesting profit sharing interests ratably over the requisite service period for the entire award.
Carls records compensation expense for performance vesting profit sharing interests when the achievement of the performance goals is deemed probable. The compensation expense for each separately vesting portion of performance vesting profit sharing interests is recognized ratably over the requisite service period that is determined to be the most likely outcome.
Carls also records reversals of share-based compensation expense for forfeitures as they occur. The share-based compensation structure is further detailed in Note 17 of the FDD. This means that the expense recognition is tied to the likelihood of meeting performance targets and is adjusted if forfeitures occur, providing a flexible approach to accounting for these types of equity awards.