What Compensation Leaders Need to Know About Upcoming FASB Regulations

The Financial Accounting Standards Board (FASB) is making a significant shift in compensation reporting, with new regulations set to take effect in 2026. These rules will require public companies to provide detailed disclosures on employee compensation, including incentive-based pay such as commissions and bonuses.

For compensation professionals, this represents both a challenge and an opportunity — one that calls for strategic preparation and careful data management. With increased transparency as the primary objective, companies must now rethink their approach to tracking, reporting, and optimizing compensation structures.

New Disclosure Requirements: A Push for Transparency

Under the new FASB rules, companies will be required to break down compensation-related expenses within financial statements. Key changes include:

• Disaggregated disclosure of compensation costs, including fixed and variable components, helping investors and regulators better understand the true financial impact of compensation plans.
• Detailed reporting on the number of employees covered by different compensation plans, requiring organizations to have more structured tracking and classification of workforce-related costs.
• Categorization of expenses under cost of goods sold and administrative expenses, ensuring that companies properly allocate compensation costs in a way that reflects their operational impact.

“These regulations are about more than compliance — they’re about ensuring compensation strategies are clearly tied to business performance,” says Stephen Michels, CPA and Manager of Professional Services at CaptivateIQ.

These changes will not only impact public companies, but also late-stage startups and pre-IPO organizations, which will face increased scrutiny from investors, regulators, and potential acquirers.

Navigating the Compliance Timeline

While mandatory compliance begins in 2027, early adoption is strongly recommended, and experts advise a phased implementation to avoid last-minute complications.

“Companies that take a proactive approach to these regulations will be in a stronger position — not only for compliance but for building trust with investors and stakeholders,” says Michels.

4 Steps to Prepare for the New FASB Rules

Step 1: Assess Your Current Compensation Systems

The first step in preparing for the new regulations is evaluating existing systems for tracking incentive compensation.

• Identify gaps in tracking and reporting methods to ensure compliance with the new disaggregation requirements. Many organizations currently lack centralized visibility into incentive compensation spending, making it difficult to generate accurate reports.
• Assess the accuracy of incentive compensation calculations. Many organizations today struggle with outdated or fragmented incentive compensation management (ICM) systems, which can lead to financial discrepancies and compliance risk. In a 2024 article for CFO Dive, CaptivateIQ Co-Founder and Co-CEO Mark Schopmeyer emphasized that businesses often lack the tools they need to properly measure or report on incentive compensation programs, which will make compliance with the new FASB reporting more challenging.

[BLOCKQUOTE
| Quote: Adopting an automated, cloud-based compensation management system can consolidate data, reduce errors, and ensure timely payouts. With new FASB requirements, businesses need systems that not only track compensation, but also integrate with financial reporting for accurate disclosures, offering real-time insights into compensation metrics and ROI.
| Author: Mark Schopmeyer
| Title: CFO Dive
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• Determine how well your compensation programs align with company goals. Many organizations use incentive compensation to drive revenue, but without proper measurement, they may be unable to quantify its impact.

“Organizations that use compensation data strategically don’t just meet compliance — they gain valuable insights that drive business performance,” says Schopmeyer.

2. Implement Centralized Tracking Systems

Investing in a robust incentive compensation management solution can help streamline data collection and reporting.

• Integrate data from various sources into a centralized system for consistency. Many businesses still rely on spreadsheets or disparate tools, which complicates comprehensive tracking.
• Ensure compatibility with existing financial reporting tools. The new FASB disclosure requirements will require detailed and accurate reporting, so integrating compensation data with enterprise resource planning (ERP) and financial reporting platforms is crucial.
• Provide comprehensive training for staff to minimize errors. Compensation teams should receive hands-on training to ensure they are comfortable using new systems and processes.
• Conduct regular system audits to maintain compliance. By regularly auditing compensation data and tracking systems, businesses can ensure they are prepared for regulatory scrutiny.

“Automation is key. With new reporting requirements, having a centralized and transparent view of compensation structures will be a game changer”, says Michels. “And a well-integrated tracking system isn’t just a compliance tool — it’s a business advantage that allows finance teams to make more data-driven decisions.”

3. Enhance Data Accuracy and Efficiency

• Standardize data collection and entry processes to ensure consistency. Standardized processes help reduce reporting discrepancies and improve transparency.
• Implement automated validation checks to catch errors early. Automated alerts and validation systems can flag discrepancies in compensation calculations before they impact financial reporting.
• Conduct regular data audits to maintain accuracy over time. Given that incentive compensation accounts for roughly 40% of overall sales spend, ensuring accurate reporting is critical.

“With the right processes in place, companies can turn compliance into a competitive advantage,” says Michels. “Finance leaders should view this as an opportunity to create a more structured and transparent compensation framework that benefits both employees and the company.”

Beyond Compliance: Leveraging Data for Strategic Decision-Making

While the new regulations introduce complexity, they also offer an opportunity to refine compensation strategies. Companies that use these changes as a catalyst for improvement will benefit from:

• Greater transparency, leading to stronger investor confidence.
• Improved alignment between compensation plans and business goals, ensuring that incentive structures drive the right behaviors.
• Enhanced employee trust, as pay structures become more data-driven and predictable, leading to higher engagement and retention rates.

The Road Ahead

The upcoming FASB reporting regulations mark a turning point for compensation professionals. Rather than viewing them as just another compliance hurdle, organizations can leverage these changes to optimize compensation structures, improve data-driven decision-making, and ultimately drive better business outcomes.

As Schopmeyer told us, “Companies that embrace these regulations – not just as a reporting requirement but as a means to refine their compensation strategy – will set themselves up for more sustainable long-term success.”