Hello and welcome everyone to our lesson today. In today's lesson, we will discuss some common forms of compensation in which the amount of the compensation to employees or the employees receive is tied to the market price of the company stock. We'll see that these share-based compensation plans, like restricted stock awards, restricted stock units, stock options, stock appreciation rights, there are different forms and different designations of it, are designed to provide compensation to designated employees, while sometimes providing those employees with some sort of performance incentive. Accounting for these plans is similar for each and the focus is twofold to be concerned. Number 1, to determine the fair value of the compensation. Number 2, to expense that compensation over the periods in which participants perform services. Those are the two concerns through out the discussion. Those are our two main concerns. Let's take a brief look at the main characteristics of each of the following share-based compensation plans which we are going to take each one in future lessons in more details and to see how to account for it. Today, we're just going to go over a few, a brief view of each one of them. Restricted stock awards. It is a type of compensation plan that involves issuance of stock to employees with a restriction. While the restricted stock units, instead of issuing the stock immediately, the shares are distributed when the restricting conditions are met. One, the words, I issue the stock with the restriction while the units after the restriction is waived, I will issue the shares. What about stock options. Stock options is a type of compensation plan that gives the employees the option to purchase a specified number of shares at a specified exercise price, during a specified period. Finally, stock appreciation rights, which is a type of compensation plan that gives employees the right to receive an amount calculated as an increase in the value of a predetermined number of shares of stock over a specified period of time. More specifically, when we get to the accounting, in accounting for these various types of stock-based compensation plans, we will be concerned with four main issues. Let's take them one at a time. Number one, as I said before, the fair value of the compensation at the grant date. How much did I actually incur in compensation? Two, the allocation of this compensation over a specific period during which participants provide services, which we are going to refer to as the vesting period. The third concern that we are going to be concerned when accounting for this or in general, stock-based compensation, accounting for the settlement of the plan either at the end of the vesting period, as is the case with the restricted stock awards and the restricted stock units, or on the exercise date as is the case with the stock options and the stock appreciation rights. The fourth issue of concern, which has a special attention, will be given if the employees who were granted any of these plans have the right to settle such plans in cash instead of stock. In this case, the plan will be treated as a liability actually. This last fourth issue is extremely important because if the plan is expected to be settled in stock, it will be treated as equity and the fair value estimated and the grant date will not be revalued throughout the vesting period. Contrary to that, on the other hand, if the planned recipient is given the choice to receive the cash equivalent of the number of shares used to value the restricted stock units or the stock appreciation rights the plan will be accounted for as a liability, which is revalued and marked to its new fair value at the end of each reporting period or until it is actually expired. To summarize, the stock settled compensation plans, those like stocks are either issued on the grant date but with restriction, as is the case with restricted stock awards or the stock will be issued at the exercise date as in the stock option plans. Those cases, the plan is treated as equity and the fair value is determined on the grant date without any subsequent revision. On the other hand, if the planned recipient can settle the plan in cash, as is the case with restricted stock units and stock appreciation rights, the plan is treated as a liability and in this case, it's fair value will be periodically adjusted based on the change in the stocks fair value until the liability is paid off. Thank you.
