How is FAS123r Expense computed for ESPP shares?
FAS123r requires that companies record stock-based compensation at fair value. Specific rules are defined for ESPP (Employer Stock Participation Plans). ESPP valuation of grants is split into two parts: the discount value and the look-back value. The discount value is based on the beginning stock price, adjusted by the discount rate as defined in the ESPP plan and adjusted for expected dividends, if any. The discount rate is commonly 15%, which would allow an employee to purchase stock at a 15% discount off of the lesser of the stock price at the beginning or end of the contract term. The discount value uses the stock price, discount rate and dividend yield (if any) to find the value of the grant as if the stock price remains constant. The look-back value treats the remaining portion of the stock value (the remaining percentage or 100% minus the discount rate percentage) as an option. Thus, the remaining portion can be valued using existing stock option models including Black-Scholes.
Related Questions
- What new functionality will be available with the new Employee Stock Purchase application with respect to the sale of ESPP shares after the reclassification?
- Why are some ESPP shares being moved out of the Equity Holdings account to the stockholders ESPP account after the reclassification?
- How is FAS123r Expense computed for ESPP shares?
