Accounting for Compensation at a Company Essay - 806 Words

Re: Murray Compensation, Inc. Facts Murray Compensation, Inc. (Murray), an SEC registrant that provides payroll processing and benefit administration services to other companies, granted 100,000 â€Å"at-the-money† employee share options on January 1, 2006. The awards have a grant-date fair value of $6, vest at the end of the third year of service (cliff-vesting), and have an exercise price of $21. Subsequent to the awards being granted, the stock price has fallen significantly. On January 1, 2008, Murray decreased the exercise price on the stock options to $12. This downward adjustment to the exercise price was made in order to ensure that the options continue to provide intended motivation benefit to employees. However, in addition†¦show more content†¦The awards at issue in this case were issued after June 15, 2005 and therefore must be accounted for under the provisions of FAS 123(R). FAS 123(R) 5 states that an entity should recognize services received in a share based payment transaction when those services are received. 10 states that an entity shall account for compensation cost from share-based payment transactions with employees in accordance with the fair-value-based method. Under the fair-value-based method, the cost of services received from employees in exchange for awards of share-based compensation shall be measured based on the grant-date fair value of the equity instruments issued. A10-A17 discuss the acceptable methods of calculating fair value at the grant date. The grant-date fair value of the Murray options is $6. Following the guidance in Illustration 4(a), Share Options with Cliff Vesting, of FAS 123(R), compensation expense for the years ended December 31, 2006 2007 is $200,000 per year (calculation attached hereto). However, at issue is the calculation of compensation expense for the years subsequent to the change in exercise price and vesting period. FAS 123(R) 51 states that a modification of the terms or conditions of an equity award shall be treated as an exchange of the original award for a new award. 51 further states that in substance, the entity repurchases the original instrument by issuing a new instrument of equal or greater value,Show MoreRelatedMaking A Good Compensation Plan1288 Words   |  6 PagesIntroduction: Making a good compensation plan will motivate the managers. Bad compensation plan could influence the company’s development and damage the shareholders’ value (GordonKaswin, 2010,p2). The XXX Ltd want to design a compensation plan which can attract and retain the executives needed to achieve and its objective of establishing an industry-leading company with high operational performance and maintain shareholders’ value. 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