Cash-settled share-based payment transaction
Once the share based payment plan vests or the employee choose to receive the benefit – part or all of that benefit will be paid out in cash.
Employees and others providing similar services
The person or people receiving the benefit of the share based payment plan – the employee who will receive the benefit. I.e. The CFO, CEO, COO or board members.
A document that serves as a legally enforceable evidence of the right to an interest in an entity. An example of this is a share certificate that represents the right of ownership in an entity.
Equity instrument granted
When an individual is given the right to obtain an equity instrument. Typically in a share based payment arrangement context, this is done in exchange for the provision of goods or services.
Equity-settled share-based payment transaction
An arrangement whereby the entity receives goods or services from an individual and instead of paying cash in return, the entity will grant the individual the right to equity instruments.
Employee Incentive Plan
An agreement with an employee where part of their salary is paid through shares or other alternate options – but they receive the benefit of this plan if they perform in accordance with their performance measures.
When the share or option hits the price where it is beneficial to the employee and if they decided to cash in on the plan they would receive the intended benefit.
Time between when the shares are given as part of the agreement and the date on which an employee would receive the benefit.
Fair value is the price that two parties are willing to pay for an asset or liability, preferably in an active market. A less accurate measure of fair value is when there is an active market for a similar item, while the least accurate measurement method is to use the discounted cash flows associated with the future performance of an item.
The point in time when an entity and an individual enter into a share-based payment arrangement and both parties have a clear understanding of the terms and conditions of the basis of which the individual will earn the intended benefit.
The calculation methodology that underpins our modelling.
Intrinsic value is the excess amount of the fair value of a share over the exercise price of an underlying stock option, multiplied by the number of shares into which the instrument converts. The concept is used in the recognition of the value of an issued stock option.
Cook Corporation is a privately-held company. It issues a $5,000,000 convertible debt instrument that can be converted to the company’s common stock in two years at a conversion price of $12 (which is also the current fair value of the stock). There is an additional provision in the debt agreement that the conversion price drops to $8 in 18 months if Cook Corp does not complete an initial public offering by that date.
The intrinsic value of the conversion option is calculated as follows:
(Funding obtained ÷ Final conversion price) × Difference in conversion prices
= ($5,000,000 ÷ $8) × ($12 - $8) = $2,500,000
Cook Corp should recognize the intrinsic value of the conversion option when it issues the convertible instrument.
Market’s characteristic(s) such as number of the competitors, level or intensity of competitiveness, and the market’s growth rate that a firm walks into when introducing a new product. These are things that are market driven – share price is another example.
The measurement date is the date at which the fair value of equity instruments is determined.
An agreement between an individual and an entity whereby, for a specified sum (which can be nil), the entity grants the individual the right to buy equity instruments in the entity within a specified period of time.
A performance condition requires a period of service in addition to the achievement of specific targets in order for a share based payment to vest. These specific targets may be market conditions.
A share option/right which is subject to a performance condition.
A reload option is an employee stock option that grants additional options upon exercise of the original option. When this option is exercised, instead of paying the exercise price in cash, the individual pays the strike price in stock already in his/her possession, rather than in cash. The number of new options granted to the individual is equal to the number of shares used to pay the strike price. The exercise price of the new options is the market price of the shares on the day of reload.
A new share option granted when a share is used to satisfy the exercise price of a previous share option.
A share option where the exercise price is nil.
Share-based payment arrangement
A share based payment arrangement is an incentives program where the amount that the individual receives upon the satisfaction of specific conditions is based on the value of an entity’s equity instruments. Payment to the individual can be in the form of said equity instruments or cash.
Share-based payment transaction
A share based payment transaction is where an individual provides goods or services to an entity in exchange for payment in the form of a share based payment arrangement.
A share option is a right that an individual has to obtain shares in an entity at a specific price. A share option typically has an expiry date.
A requirement for an individual to provide goods or services to an entity for a specific period.
You receive the benefit of the share option or right only when you have satisfied the service condition set out in the employment contract.
Total shareholder return
Total shareholder return is a method of measuring the performance of a company. The calculation is made with reference to an entity’s share price and dividends distributed. A TSR target in addition to a period of service is an example of a market condition.
A fair value model for which Monte Carlo or Binomial models (depending on vesting conditions) will generate an accurate, AASB2-compliant fair value.
See Measurement date and Grant date
When an individual’s share option crystallizes. This means that the individual has the right to exercise their share option and there are no further conditions that are required to be met.
Vesting conditions are conditions that are required in order for an individual to be able to exercise their share options. Vesting conditions are classified as Service conditions or Performance conditions.
The vesting period is the period over which vesting conditions are to be achieved in order for share options to vest.