International Financial Statement Analysis, 3rd Edition

CHAPTER 14

EMPLOYEE COMPENSATION: POST-EMPLOYMENT AND SHARE-BASED

Elaine Henry, CFA

Elizabeth A. Gordon

LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:

• describe the types of post-employment benefit plans and implications for financial reports;
• explain and calculate measures of a defined benefit pension obligation (i.e., present value of the defined benefit obligation and projected benefit obligation) and net pension liability (or asset);
• describe the components of a company's defined benefit pension costs;
• explain and calculate the effect of a defined benefit plan's assumptions on the defined benefit obligation and periodic pension cost;
• explain and calculate how adjusting for items of pension and other post-employment benefits that are reported in the notes to the financial statements affects financial statements and ratios;
• interpret pension plan note disclosures including cash flow related information;
• explain issues associated with accounting for share-based compensation;
• explain how accounting for stock grants and stock options affects financial statements, and the importance of companies' assumptions in valuing these grants and options.

1. INTRODUCTION

This chapter covers two complex aspects of employee compensation: post-employment (retirement) benefits and share-based compensation. Retirement benefits include pensions and other post-employment benefits, such as health insurance. Examples of share-based compensation are stock options ...