Question – Does compensation expense related to stock appreciation rights have to be equal year to year?
So I granted employee 10,000 stock appreciation rights, the market value of the stock is $20 in January year 1 and $26
at the end of year 1, and the requisite service period is 3 years.
So I would take the appreciated value at the end of year 1 * the 10,000 rights = 10,000 rights * 6 price increase= 60,000
60,000/3=20,000 which is my year 1 expense. Now at the end of year 2, the stock is trading at 30 per share, so I take my 10,000 rights * $10=100,000-Previous recognized balance of 20,000=80,000.
Now I'll plan to recognize that 80,000 over the final 2 years, so it would be 40,000 and 40,000 assuming no changes. So through the second year, I would have booked 20k in Y1 and 40k in Y2= 60k liability at the end of year 2.
I've seen it done like this but then I've seen it done where the whole thing is remeasured at year 2 and the liability for year 2 would equal 66,666 (33,333 per year). FYI – if done this way the expense for year 2 would have be 46,666.
Which is the correct way?!
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