Stock options and accelerated vesting
It appears that one method a number of companies are using to beat the impact of stock option expensing is "accelerated vesting" . This stock option expense is normally associated with options granted below market value, when even under the intrinsic method of accounting for stock options you end up with a large "stock compensation expense". For example, Google issued stock options to employees during its pre-IPO days that had an intrinsic value of approximately $750 M. (i.e. the exercise price of the options were$750 M less than the market value on the grant date).
Companies with this type of stock option expense have increasingly been using the accelerated vesting method associated with FAS 123 and Financial Interpretation 28. For Google, this resulted in expensing $623M of the $750 M in three years, as opposed to straight lining the $750 M over the vesting period.
Why would Google or other companies use accelerated vesting? Well if SFAS 123 (R) was going to be implemented starting this quarter (as most people would have thought) then Google would have already amortized the majority of this portion of stock compensation expense and would have been able to go forward with only the fair value of its other stock plans.
This is what is confusing, Google in its footnotes does not give the fair values of each separate component of stock compensation, it only (in footnote 1) provides the "Total stock-based compensation expense under the fair value based method for all awards, net of related tax effects) (page 78 of annual report).
This amount matches up closely with the "stock based compensation expense included in reported net income, net of related tax effects".
However, these two amounts cover different groups of options, so we really have no idea what the fair value of stock compenastion is for option granted when the exercise price equals the fair value.
The footnotes for Google are pretty complicated, and would be great to use in an advanced discussion of stock based compensation.
Companies with this type of stock option expense have increasingly been using the accelerated vesting method associated with FAS 123 and Financial Interpretation 28. For Google, this resulted in expensing $623M of the $750 M in three years, as opposed to straight lining the $750 M over the vesting period.
Why would Google or other companies use accelerated vesting? Well if SFAS 123 (R) was going to be implemented starting this quarter (as most people would have thought) then Google would have already amortized the majority of this portion of stock compensation expense and would have been able to go forward with only the fair value of its other stock plans.
This is what is confusing, Google in its footnotes does not give the fair values of each separate component of stock compensation, it only (in footnote 1) provides the "Total stock-based compensation expense under the fair value based method for all awards, net of related tax effects) (page 78 of annual report).
This amount matches up closely with the "stock based compensation expense included in reported net income, net of related tax effects".
However, these two amounts cover different groups of options, so we really have no idea what the fair value of stock compenastion is for option granted when the exercise price equals the fair value.
The footnotes for Google are pretty complicated, and would be great to use in an advanced discussion of stock based compensation.
posted by Don Pagach at 10:33 AM
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