10.6 Arrangements for Contingent Payments to Employees or Selling Shareholders
During negotiations of a business combination, an acquirer may agree to make a
payment at some point in the future to one or more selling
shareholders or to acquiree employees who become employees of the
combined entity (or otherwise provide goods or services to the
combined entity) after the acquisition date. For example, a payment
to a selling shareholder may be contingent on whether the following
continue to be employed at the combined entity after the
acquisition: the selling shareholder, a different selling
shareholder, or a nonshareholder employee. See Section 6.2.3 of Deloitte’s
Roadmap Business
Combinations for additional guidance.
There may also be circumstances in which one or more of the selling
shareholders decide to share some of the proceeds that they are
entitled to receive with one or more of the acquiree’s
nonshareholder employees. Payments made by selling shareholders to
such nonshareholder employees that become employees of the acquirer
should be carefully evaluated under SAB Topic 5.T (which refers to
ASC 718-10-15-4, included in Section 2.5), which
discusses payments made by economic interest holders (e.g., selling
shareholders) on behalf of an entity. Also see Section
6.2.5 of Deloitte’s Roadmap Business Combinations for
more information. Acquirers must evaluate conditional future
payments (i.e., payments that include conditions other than the
passage of time) to former shareholders of the acquiree and to
individuals who become employees of the combined entity (or
otherwise provide goods or services to the combined entity) to
determine whether such payments represent (1) consideration
transferred (i.e., contingent consideration) or (2) compensation
cost that is separate from the business combination.
See Deloitte’s Roadmap Business
Combinations for additional guidance
on contingent consideration.