FI 15 Share based payments Flashcards
(37 cards)
Use of share-based payments
Flexible way for employees to own shares in order to motivate, align interest and reward employees for stock price performance
Three types of share-based payments
ESO’s
RSU and PSU
SAR
Two types of ESO’s settlements
Equity or cash
Two types of ESO’s settlements
Equity or cash
ESO Equity - impact for employee when exercised
Employee receives stock at exercise price. Can then sell at market price to recieve difference or keep them.
ESO cash - impact for employee when exercised
Employee receives cash for shares at market price - exercise price
ESO risk for employee for both equity and cash
Stock never goes above exercise price and options are worthless
ESO equity
receives cash from employee and gives out stock
ESO cash - impact on company
company pays out cash
ESO Equity accounting impact
DR comp expense, CR equity over vesting period AT FAIR VALUE OF STOCK. Adjusted if employee leaves during vesting period.
ESO Cash accounting impact
DR comp expense, CR liability over vesting period @ FAIR VALUE OF STOCK. Adj to FV over vesting period until it matches final settlement amount.
Define RSU’s and PSU’s
A promise by the employer to issue a certain number of shares once certain vesting conditions have been met
Vesting conditions for RSU’s
solely based on continuing employment over a period of years
Vesting conditions for PSU’s
achievement of pre-established performance goals.
RSU/PSU equity impact for employee after vesting period
Receives shares at market value
RSU/PSU cashimpact for employee after vesting period
employee receives cash equivalent to shares @ market value
RSU/PSU risk for employee for both equity and cash
Share price dictates amount of pay-out
RSU/PSU equity impact on company
company issues shares
RSU/PSU cash impact on company
company pays out cash
RSU/PSU equity accounting impact
DR comp expense, CR equity @ FAIR VALUE over vesting period.
RSU/PSU cash accounting impact
DR Comp expense, CR liability @ FV. Adj over course of vesting period until it matches payout ont he date.
Define SAR’s
A form of compensation based upon stock being higher than a benchmark price over a period of time.
SAR equity - impact for employee after vesting period
Receive shares equivalent to following:
- (market price - benchmark price) x # of shares / market price
SAR cash - impact for employee after vesting period
Receive cash equivalent to (market price - benchmark price) x # of shares
