Share - Based Payment

Question 1

Equity Settled

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

Answer 1

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 2

Cash Settled

How to measure liability?

Answer 2

Share Appreciation Rights

Liability = MP less Price

Question 3

Vesting

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

Answer 3

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 4

What if the condition is based on Share Price?

Answer 4

IGNORE (employees can’t do anything about it)

Question 5

Template in Solving Share-based Compensation

Answer 5

Y1 | Y2 | Y3
(FV) (# of Employees) (share options)
1/n | 2n | 3/n
———————————-
less last year