{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/718/10/#05-overview-and-background","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"718","topic_title":"Compensation—Stock Compensation","subtopic":"718-10","subtopic_title":"Overall","section":{"number":"05","label":"05 Overview and Background","anchor":"05-overview-and-background","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"718-10-05-1","para":"05-1","html":"<div class=\"asc-body\"><div class=\"norm-text\">The Compensation—Stock Compensation Topic provides guidance on <a href=\"/glossary/s/#share-based-payment-transactions\" class=\"term\" title=\"A transaction under a share-based payment arrangement, including a transaction in which an entity acquires goods or services because related parties or other holders of economic interests in that entity awards a share-based payment to an employee or other supplier of goods or services for the entity's benefit. Also called share-based compensation transactions.\"><span>share-based payment transactions</span></a>. This Topic includes the following Subtopics:<ol class=\"ol-norm\"><li class=\"li-norm\"><span class=\"linum\">a</span><div class=\"p\">Overall</div></li><li class=\"li-norm\"><span class=\"linum\">b</span><div class=\"p\">Awards Classified as Equity</div></li><li class=\"li-norm\"><span class=\"linum\">c</span><div class=\"p\">Awards Classified as Liabilities</div></li><li class=\"li-norm\"><span class=\"linum\">d</span><div class=\"p\"><a href=\"/glossary/e/#employee-stock-ownership-plan\" class=\"term\" title=\"An employee stock ownership plan is an employee benefit plan that is described by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 as a stock bonus plan, or combination stock bonus and money purchase pension plan, designed to invest primarily in employer stock. Also called an employee share ownership plan.\"><span>Employee Stock Ownership Plans</span></a></div></li><li class=\"li-norm\"><span class=\"linum\">e</span><div class=\"p\">Employee Stock Purchase Plans</div></li><li class=\"li-norm\"><span class=\"linum\">f</span><div class=\"p\">Income Taxes.</div></li></ol></div></div>","snippet":"The Compensation—Stock Compensation Topic provides guidance on share-based payment transactions. This Topic includes the following Subtopics:\n(a) Overall\n(b) Awards Classified as Equity\n(c) Awards Classified as Liabiliti…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d1d7f25ebe3071d038f9c7de4b08fb99955e6b28549806704f02314ae7de121f","downloaded_from":"2026-09-10T01:03:19.568Z","last_downloaded_at":"2026-09-10T01:03:19.568Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480668","source_sha256":"2034234d8a23b5cabf25ed745a31b8e20640470ac1c270885fc844decded7d25"}},{"citation":"718-10-05-2","para":"05-2","html":"<div class=\"asc-body\"><div class=\"norm-text\">This Topic provides guidance for employee and nonemployee share-based payment transactions.</div></div>","snippet":"This Topic provides guidance for employee and nonemployee share-based payment transactions.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2c6750b66b8f9e8423465bddb53dd4c93d6b7700275d8731df224031110ec7ba","downloaded_from":"2026-09-10T01:03:19.568Z","last_downloaded_at":"2026-09-10T01:03:19.568Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480668","source_sha256":"2034234d8a23b5cabf25ed745a31b8e20640470ac1c270885fc844decded7d25"}},{"citation":"718-10-05-3","para":"05-3","html":"<div class=\"asc-body\"><div class=\"norm-text\">This Subtopic provides general guidance related to <a href=\"/glossary/s/#share-based-payment-arrangements\" class=\"term\" title=\"An arrangement under which either of the following conditions is met: One or more suppliers of goods or services (including employees) receive awards of equity shares, equity share options, or other equity instruments. The entity incurs liabilities to suppliers that meet either of the following conditions: The amounts are based, at least in part, on the price of the entity's shares or other equity instruments. (The phrase at least in part is used because an award may be indexed to both the price of the entity's shares and something other than either the price of the entity's shares or a market, performance, or service condition.) The awards require or may require settlement by issuance of the entity's shares. The term shares includes various forms of ownership interest that may not take the legal form of securities (for example, partnership interests), as well as other interests, including those that are liabilities in substance but not in form. Equity shares refers only to shares that are accounted for as equity. Also called share-based compensation arrangements.\"><span>share-based payment arrangements</span></a>. This Subtopic and Subtopics <a altsource=\"GUID-033564FC-9E8E-4311-8130-F0FDEA16632B.ditamap\" class=\"ditamap\">718-20</a> and <a altsource=\"GUID-DE2D28CB-1716-4437-B807-AC9694E6D30F.ditamap\" class=\"ditamap\">718-30</a> are interrelated and the required guidance may be located in either this Subtopic or one of the other Subtopics. In general, material that relates to both equity and liability instruments is included in this Subtopic, while material more specifically related to either equity or liability instruments is included in their respective Subtopics. <span class=\"sfragment\" id=\"sfr_C5613062-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">Guidance referencing grantees is intended to be applicable to recipients of both employee and nonemployee awards, and guidance referencing <a href=\"/glossary/e/#employee\" class=\"term\" title=\"An individual over whom the grantor of a share-based compensation award exercises or has the right to exercise sufficient control to establish an employer-employee relationship based on common law as illustrated in case law and currently under U.S. Internal Revenue Service (IRS) Revenue Ruling 87-41. A reporting entity based in a foreign jurisdiction would determine whether an employee-employer relationship exists based on the pertinent laws of that jurisdiction. Accordingly, a grantee meets the definition of an employee if the grantor consistently represents that individual to be an employee under common law. The definition of an employee for payroll tax purposes under the U.S. Internal Revenue Code includes common law employees. Accordingly, a grantor that classifies a grantee potentially subject to U.S. payroll taxes as an employee also must represent that individual as an employee for payroll tax purposes (unless the grantee is a leased employee as described below). A grantee does not meet the definition of an employee solely because the grantor represents that individual as an employee for some, but not all, purposes. For example, a requirement or decision to classify a grantee as an employee for U.S. payroll tax purposes does not, by itself, indicate that the grantee is an employee because the grantee also must be an employee of the grantor under common law. A leased individual is deemed to be an employee of the lessee if all of the following requirements are met: The leased individual qualifies as a common law employee of the lessee, and the lessor is contractually required to remit payroll taxes on the compensation paid to the leased individual for the services provided to the lessee. The lessor and lessee agree in writing to all of the following conditions related to the leased individual: The lessee has the exclusive right to grant stock compensation to the individual for the employee service to the lessee. The lessee has a right to hire, fire, and control the activities of the individual. (The lessor also may have that right.) The lessee has the exclusive right to determine the economic value of the services performed by the individual (including wages and the number of units and value of stock compensation granted). The individual has the ability to participate in the lessee's employee benefit plans, if any, on the same basis as other comparable employees of the lessee. The lessee agrees to and remits to the lessor funds sufficient to cover the complete compensation, including all payroll taxes, of the individual on or before a contractually agreed upon date or dates. A nonemployee director does not satisfy this definition of employee. Nevertheless, nonemployee directors acting in their role as members of a board of directors are treated as employees if those directors were elected by the employer's shareholders or appointed to a board position that will be filled by shareholder election when the existing term expires. However, that requirement applies only to awards granted to nonemployee directors for their services as directors. Awards granted to those individuals for other services shall be accounted for as awards to nonemployees. (P) December 16, 2026; (N) December 16, 2026220-40-65-1An individual over whom a reporting entity exercises or has the right to exercise sufficient control to establish an employer-employee relationship based on common law as illustrated in case law and currently under U.S. Internal Revenue Service (IRS) Revenue Ruling 87-41. A reporting entity based in a foreign jurisdiction would determine whether an employee-employer relationship exists based on the pertinent laws of that jurisdiction. Accordingly, an individual meets the definition of an employee if the reporting entity consistently represents that individual to be an employee under common law. The definition of an employee for payroll tax purposes under the U.S. Internal Revenue Code includes common law employees. Accordingly, a reporting entity that classifies an individual potentially subject to U.S. payroll taxes as an employee also must represent that individual as an employee for payroll tax purposes (unless the individual is a leased employee as described below). An individual that meets the definition of an employee includes, but is not limited to, a full-time, part-time, temporary, or seasonal employee. An individual does not meet the definition of an employee solely because the reporting entity represents that individual as an employee for some, but not all, purposes. For example, a requirement or decision to classify an individual as an employee for U.S. payroll tax purposes does not, by itself, indicate that the individual is an employee because the individual also must be an employee of the reporting entity under common law. A leased individual is deemed to be an employee of the lessee if all of the following requirements are met: The leased individual qualifies as a common law employee of the lessee, and the lessor is contractually required to remit payroll taxes on the compensation paid to the leased individual for the services provided to the lessee. The lessor and lessee agree in writing to all of the following conditions related to the leased individual: The lessee has the exclusive right to grant compensation to the individual for the employee service to the lessee. The lessee has a right to hire, fire, and control the activities of the individual. (The lessor also may have that right.) The lessee has the exclusive right to determine the economic value of the services performed by the individual (including wages and the number of units and value of stock compensation granted). The individual has the ability to participate in the lessee's employee benefit plans, if any, on the same basis as other comparable employees of the lessee. The lessee agrees to and remits to the lessor funds sufficient to cover the complete compensation, including all payroll taxes, of the individual on or before a contractually agreed upon date or dates. A nonemployee director does not satisfy this definition of employee. Nevertheless, nonemployee directors acting in their role as members of a board of directors are treated as employees if those directors were elected by the employer's shareholders or appointed to a board position that will be filled by shareholder election when the existing term expires. However, that requirement applies only to awards and other compensation granted to nonemployee directors for their services as directors. Awards granted and compensation paid to those individuals for other services shall be accounted for as awards and compensation to nonemployees.\"><span>employees</span></a> or nonemployees is only applicable to those specific types of awards.</span></span></div></div>","snippet":"This Subtopic provides general guidance related to share-based payment arrangements. This Subtopic and Subtopics 718-20 and 718-30 are interrelated and the required guidance may be located in either this Subtopic or one …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a12a78f8b3499c049be3ed4b9e907e54ff12c28428ff0faf9be3904a2a341a9f","downloaded_from":"2026-09-10T01:03:19.568Z","last_downloaded_at":"2026-09-10T01:03:19.568Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480668","source_sha256":"2034234d8a23b5cabf25ed745a31b8e20640470ac1c270885fc844decded7d25"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a716dc97d0c3e9b7e10e5f9daa81676ec1541eec9a3e28432924bdcdc149109e","downloaded_from":"2026-09-10T01:03:19.568Z","last_downloaded_at":"2026-09-10T01:03:19.568Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480668","source_sha256":"2034234d8a23b5cabf25ed745a31b8e20640470ac1c270885fc844decded7d25"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6d7d4cd9ed97539271d45ca08416c7b193fe0a1ec548d46acad5b8cb902f8167","downloaded_from":"2026-09-10T01:03:19.568Z","last_downloaded_at":"2026-09-10T01:03:19.568Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480668","source_sha256":"2034234d8a23b5cabf25ed745a31b8e20640470ac1c270885fc844decded7d25"}},"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6d7d4cd9ed97539271d45ca08416c7b193fe0a1ec548d46acad5b8cb902f8167","downloaded_from":"2026-09-10T01:03:19.568Z","last_downloaded_at":"2026-09-10T01:03:19.568Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480668","source_sha256":"2034234d8a23b5cabf25ed745a31b8e20640470ac1c270885fc844decded7d25"}}