How does Carls recognize compensation expense relating to time 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. For time vesting profit sharing interests, Carls recognizes the compensation expense ratably over the requisite service period for the entire award. This means that the total value of the award is spread out evenly as an expense over the period the employee is required to work to earn the award.
For performance vesting profit sharing interests, which vest upon meeting specific performance and service conditions, Carls records compensation expense when it deems the achievement of the performance goals to be probable. If the performance goals are not met, the expense may not be recorded. For each separately vesting portion of performance vesting profit sharing interests, the expense 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. This means that if an employee leaves the company before fully vesting in their profit sharing interests, the previously recognized compensation expense is reversed, reducing the company's expenses. The details of Carls's share-based compensation structure are further described in Note 17 of the financial statements.