What is Modification of share-based awards?
In short
When a company changes the terms of a share-based award, such as repricing options, the incremental cost is the fair value of the modified award minus the fair value of the original award immediately before the change.
Key takeaways
- Incremental cost for vested awards is recognized immediately; for unvested awards, over the remaining service period.
- The original grant-date cost is still recognized if the original award was expected to vest.
- Modifications that only change items such as tax withholding may need no accounting.
Where it's tested
BAR: Stock Compensation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company reprices 10,000 vested options. Just before the modification their fair value was $4 each; just after, it is $6 each. What incremental compensation cost is recognized?