Examples of vesting Period in options

Examples of vesting Period in options

The share to equity is not vested ( immediately) and subject to some condition.  There may be many vesting condition like performance level, target achievement but most common among those is vesting period.

Rules

1. Cost of equity is spread over the vesting period

2. Cumulative balance of liability is calculated at end of each year

3. Cumulative balance is based on best estimates of management

4. Cost of Service charged each year is change cumulative balance

5. Finally, cost is charged against the actual vested option.
6. Cumulative liability at the end of each is calculated fair value at Grant Date

Number of Employees	200
Options Grant each employee	50
Condition of work	3 years
Estimation of leave each year	20%
Fair value of option	20
Employee left ( first year)	18
Employee left ( first year	26
Employee left ( first year	22

Solution

Cumulative liability Table

	Option Value	Timing	Cumulative Liability
First year	80%(200 x 50 ) x 20	1/3	53,334
2nd year	80%(200 x 50 ) x 20	2/3	106,667
3rd year	100% (134 x 50) x 20	3/3	134,000

Service charges during the three years 

                             

	Cumulative Liability	Cumulative Liability	Service charge
	Closing	Opening
First year	53,334	0	53,334
2nd year	106,667	53,334	53,334
3rd year	134,000	106,667	27,333