Grant-date fair value
Also called grant date fair value, ASC 718 fair value.
The accounting value of equity awards on the day they are granted, which is what the Summary Compensation Table reports for stock and option awards—not the value later realized when shares vest or are sold.
What it is
Grant-date fair value is the accounting estimate of what an equity award is worth on the day the company grants it. For the Summary Compensation Table, stock awards and option awards are reported at this value, following ASC 718 (and the SEC’s Item 402 instructions that point to that measurement).
For restricted stock and RSUs, the starting point is usually the grant-date stock price times the number of shares (sometimes adjusted for dividends or performance assumptions). For options and many SARs, the company uses an option-pricing model. For performance share units, the table typically shows the grant-date value of the probable or target outcome, with a footnote for the maximum.
The figure is locked in for SCT purposes even if the stock later doubles or halves. Later vesting, forfeiture, or exercise is a different economic event.
Why companies use it
Accounting standards need a measurement date so expense can be recognized over the vesting period. The SCT borrows that same grant-date amount so investors see the board’s award in the year it was made.
Committees also size grants in “value” terms: a $10 million long-term award means shares or options whose grant-date fair value is about $10 million, not a promise of $10 million in cash.
Pros
- It is comparable across companies that follow the same accounting and SCT rules.
- It puts the compensation decision in the year of the grant, which matches how boards describe annual LTI.
- It does not wait for an executive to sell stock, so it is not dependent on personal trading.
Cons
- It is not cash. An option granted at $12 million of fair value can expire at zero.
- Performance awards can pay 0% or 200% of target; the SCT number is an estimate at grant.
- A large grant in one year is often meant to cover several years, so annualizing by eye overstates the run-rate.
Examples
RSU grant
A company grants 50,000 RSUs when the stock is $200. Approximate grant-date fair value is $10 million. That $10 million appears in Stock Awards for that fiscal year. If the stock is $120 when the units vest, the executive receives stock worth $6 million—not the $10 million that hit the SCT.
Option that finishes out of the money
Options might be reported at several million dollars of Black-Scholes value. If the share price never exceeds the exercise price, realized value is zero even though the SCT Total included the grant.
On CompensationBase
Every stock and option amount on CompensationBase is this accounting value as reported. A large grant year is not the same as cash received that year, and we do not convert it into an annualized run-rate.
Related terms
- ASC 718
The U.S. accounting standard for share-based payment. SCT stock and option columns use ASC 718 grant-date fair value, which is why CompensationBase labels amounts as grant-date fair value as reported.
- Stock awards
The grant-date fair value of stock-based awards (typically RSUs, restricted stock, and PSUs) reported in the SCT Stock Awards column.
- Reported pay vs realized pay
Reported pay is the SCT grant-date total for a fiscal year. Realized pay is cash received plus equity that actually vested or was exercised that year, which can be much higher or lower than the reported figure.
- Multi-year equity award
A stock or option grant whose accounting value is reported entirely in the grant year even though it is meant to cover several future years. CompensationBase does not annualize these grants.