Making Stock Option Grants: Will Measurement Date Change Grant Practices?

The FASB is at it again. As reported in a prior Cooley Alert, soon all companies, public and private, will need to account for share-based payments (e.g., stock options) based on their fair value at the date of grant. As many companies struggle to determine how to measure the fair value of a share-based payment, they will now also have to focus on when to make that measurement.

Historically, companies have measured the compensation expense of stock options on the date that the company took action (e.g., board or committee approval) to make the grant, even if the employee was informed of the stock option grant on a later date.¹ That will change, however, under FAS 123(R).²

Consistent with the language in FAS 123 and FAS 123(R), the Financial Accounting Standards Board (the "FASB") recently confirmed that, in order to have a grant date and therefore measure the fair value of a share-based payment under FAS 123(R), the following must occur: