A TSR (Total Shareholder Return) award is a performance-based equity award used by companies to reward and incent executives to perform better than their peers.  These awards are a form of incentive compensation.  TSR awards are typically structured as restricted stock units (RSUs), restricted stock awards (RSAs), or performance share units (PSUs).

The vesting of these awards can typically be greater than 100% based on the company's total shareholder return, which includes both stock price appreciation and dividends, usually measured relative to a peer group or market index.  TSR awards generally have a performance period 3 years and are forfeited if the employee leaves the company prior to vesting.

Under U.S. GAAP, TSR awards are considered share-based payments with market and service conditions. If the TSR award is considered equity compensation, then the award requires a fair value on the grant date and that fair value is expensed as compensation over the service period and trued up upon vesting.  For liability awards, which are typically viewed as liability awards when the awards or Dividend Equivalent Rights (DERs) are paid out in cash, quarterly revaluation of the awards is required to update the expected liability.  The awards also have disclosure requirements on pay vs. performance based on the valuation results historically.

TSR awards are complex from a valuation perspective as we are trying to determine the expected payout based on future results among correlated public company price movements.  In order to fair value the award, we must run a Monte Carlo Simulation with correlated price movements amongst the peer group or index.  The simulation is run millions of times capturing the vest percentage based on the terms of the award and relative performance in the simulated price path (usually max payout can be greater than 100%) multiplied by the ending simulated share price discounted back to the valuation date.  Fair value is determined by and averaging the results of millions of simulated paths.

Our peer tracker allows the holders of these awards to gauge their performance against their peers and see what their compensation would look like if the vesting date was close of business the prior day.  The popularity of the awards is because they create a great incentive for executives to create outsized returns relative to their peers, which is of course aligns with shareholders.  By providing a daily dashboard, the incentive is reinforced and provides both the company, the executive, and shareholders an aligned benefit.