Pastner Brands is a calendar-year firm with operations in
several countries. As part of its executive compensation plan, at
January 1, 2021, the company issued 480,000 executive stock options
permitting executives to buy 480,000 shares of Pastner stock for
$42 per share. One-fourth of the options vest in each of the next
four years beginning at December 31, 2021 (graded vesting). Pastner
elects to separate the total award into four groups (or tranches)
according to the year in which they vest and measures the
compensation cost for each vesting date as a separate award. The
fair value of each tranche is estimated at January 1, 2021, as
follows:
| Vesting Date | Amount Vesting |
Fair Value per Option |
||||
| Dec. 31, 2021 | 25 | % | $ | 4.30 | ||
| Dec. 31, 2022 | 25 | % | $ | 4.80 | ||
| Dec. 31, 2023 | 25 | % | $ | 5.40 | ||
| Dec. 31, 2024 | 25 | % | $ | 5.80 | ||
Required:
1. Determine the compensation expense related to the options to be
recorded each year 2021–2024, assuming Pastner allocates the
compensation cost for each of the four groups (tranches)
separately.
| Calculation of compensation expenses |
| dec 31 2021 = 480000*25%*4.30 = 516000 |
| dec 31 2022 = (480000*25%*4.80)*1/2 = 288000 |
| dec 31 2023 = (480000*25%*5.40)*1/3 = 216000 |
| dec 31 2024 = (480000*25%*5.80)*1/4 = 174000 |
| vesting date | Compensation expenses | ||||
| 2021 | 2022 | 2023 | 2024 | total | |
| 31-12-2021 | 516000 | 516000 | |||
| 31-12-2022 | 288000 | 288000 | 576000 | ||
| 31-12-2023 | 216000 | 216000 | 216000 | 648000 | |
| 31-12-2024 | 174000 | 174000 | 174000 | 174000 | 696000 |
| Total | 1194000 | 678000 | 390000 | 174000 | 2436000 |
| Total compensation expenses | ||
| 2021 | 480000*25%*4.30 | 516000 |
| 2022 | 480000*25%*4.80 | 576000 |
| 2023 | 480000*25%*5.40 | 648000 |
| 2024 | 480000*25%*5.80 | 696000 |
| Total compensation expenses | 2436000 |
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