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Primer For Share – Based Payments

A Share-Based Payment (SBP) is a type of compensation where a company awards shares, stock options, or other equity instruments to its employees or executives as part of their remuneration package. The idea is to align the interests of employees with those of the company, incentivizing them to contribute to its growth and success.

In recent years, SBPs have become a popular alternative to traditional forms of compensation, such as cash bonuses or salary increases. They are particularly common in startup companies, where cash flow is often limited, and equity can be a more attractive option for employees.

However, SBPs can be complex, and understanding them requires a basic knowledge of financial accounting principles. For example, companies need to record SBPs as an expense in their financial statements, which can affect their reported earnings.

Companies offering SBPs in Canada are required to adhere to the Canadian Generally Accepted Accounting Standards, often known as GAAP or the International Financial Reporting Standards (IFRS). These accounting standards provide guidelines on accounting for SBPs and disclosing them in financial statements.

It’s also important to understand the tax implications of SBPs. In Canada, employees who receive shares or stock options as compensation may be subject to tax on the value of the shares or options when they exercise them.