8.3 Grant Date
Compensation cost for equity-classified ESPP awards is measured on
the grant date. The definition in ASC 718-50 of “grant date” for ESPPs is the same
as that for other forms of share-based payment awards under ASC 718. For a grant
date to be established, all the following conditions must be met:
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The entity and grantee have reached a mutual understanding of the key terms and conditions of the award.
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The grantee begins to benefit from, or be adversely affected by, subsequent changes in the price of the entity’s equity shares for equity instruments.
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All necessary approvals have been obtained.
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The recipient must meet the definition of an employee.
Generally, the employee’s enrollment and selection of withholdings
(i.e., enrollment period) for ESPPs is completed before the start of the purchase
period. Therefore, the grant date would typically be when the employee has committed
to enrolling in the plan since this is when there would be a mutual understanding of
the arrangement. (See Section
3.2 for more information about determining the grant date.)
For some ESPPs that have a look-back feature (see Section
8.9), the final exercise price may be based on the share price at the
end of the purchase period. However, ASC 718-10-55-83 notes that while the ultimate
exercise price in an award with a look-back feature is not known on the grant date,
such price cannot be greater than the share price at the start of the purchase
period. In this case, the relationship between the exercise price and the current
share price provides a sufficient basis for understanding both the compensatory and
equity relationship established by the award. Provided that all other conditions for
establishing a grant date have been met, the grant date would be established at the
beginning of the purchase period because that is when the employee begins to benefit
from subsequent changes in the price of the shares.
Under the terms of some ESPPs, an employee may be entitled to
purchase a specified dollar amount of an entity’s stock on a future date (e.g., in
one year) at an established discount from the market price of the entity’s stock on
that future date (i.e., a variable number of shares for a fixed monetary amount). In
addition, the ESPP’s terms may not include a look-back feature. That is, the
purchase price would not be the lower of the purchase-date price or the
enrollment-date price of the entity’s stock. Although the liability would be based
on a fixed amount, we do not believe that the ability to benefit from, or be
adversely affected by, subsequent changes in the employer’s stock price would be
necessary to establish a grant date. Thus, the grant date is the beginning of the
purchase period (i.e., the start of the enrollment period through the date on which
the shares are purchased).