Share - Based Payment

Question 1

Two Types of Settlement

Answer 1

Equity Settled
Cash Settled

Question 2

Equity Settled

What are the 2 methods?
How to compute compensation in each methods?

Answer 2

Share Options

Methods
1. FV method
- Compensation = FV of options @ date of grant

2. Intrinsic Value method
- Compensation = MP less Option Price
- Used only if FV method is not applicable

Question 3

Cash Settled

How to measure liability?

Answer 3

Share Appreciation Rights

Liability = MP less Price

Question 4

Vesting

Immediately vs Not Immediately
Requirements for employees for above
How to recognize compensation expense for above?

Answer 4

Immediately
- employee not required to do something
- Compensation expense = Recognized fully at grant date

Not Immediately
- employee need to complete a specified service period
- Compensation Expense = Recognized over the vesting period

Question 5

What if the condition is based on Share Price?

Answer 5

IGNORE (employees can’t do anything about it)