What is Market condition (share-based payment)?
In short
A market condition makes a share-based award depend on the company's share price, such as vesting only if the stock reaches $50. It is reflected in the award's grant-date fair value.
Key takeaways
- Compensation cost is recognized if employees provide the required service, even if the market condition is never met.
- A performance condition (based on operations, such as an earnings target) works differently: cost is recognized only if achievement is probable.
- Valuation models such as Monte Carlo simulations capture market conditions.
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 grants options that vest only if the share price reaches $50 within three years. The employees complete the service period, but the share price never reaches $50. How is compensation expense treated?