Grant date is date of awarding. In business, grant date is mutual understanding of terms and conditions established by both, employer and employee of awarding an employee. At agreed date, employer issues the equity instruments or transfers the assets to an employee. For awards of equity instruments, the grant date is understood as the date when an employee begins to benefit from them. For example company might award an employee with stock option. . Value of reward is measured as fair value at grant date and it is called "measurement date". Agreement on grant date might be done in three ways :
- A formal, agreement in written form,
- An informal, arrangement in oral form,
- In other, past practice of company.
Inception date and grant date
The inception date should be established before the grant date, however the grant date usually covers the inception date - is such case below conditions have to be met:
- Firstly, an award is already authorized,
- Secondly, the beginning of the service is before mutual understanding, included in terms and conditions of reaching the award,
- Third condition is one of the below:
- terms of the award do not include request of future service conditions existing at the grant date,
- or the award has performance condition or market condition, that if is not met during the service period (following grant date and date of agreement inception), the award will forfeiture.
Option pricing model
The grant date is used also for option pricing model. Each of below variables are taken into account at specific grant date of:
- exercising the price,
- expected life of the option,
- option value,
- current market price of the common stock,
- vitality of the stock,
- expected dividends on the stock,
- free of risk interest rate for expected term.
Examples of grant dates
Below are two examples of meeting grant dates and financial calculations for them:
- Employer told employee that if he would work for next year, he would be grated with vested stock option. Exercise prices were equal granted stock price. An employee received award 31th of December.
- Employer promised employee that if he would increase of sales by 2% for health & beauty department, he would be granted with stock options by the end of that year. Exercise prices were equal to stock price at grant date so 31th of December, and moreover there was five years long vesting period.
Advantages of Grant date
Grant date provides many advantages to both the employer and employee. It is an important part of the awarding process, as it sets certain expectations around the conditions and terms of awarding. The advantages of grant date are:
- It helps ensure the employer and employee are in agreement and understanding of the terms of the award. This can help avoid disputes between the two parties and ensure the award is distributed properly.
- It allows the employee to know when they will begin to benefit from the award. This can help the employee plan their finances and manage their expectations of when they will receive the award.
- It provides a record of when the award was granted, which can be beneficial for both the employer and employee. This can help with compliance and legal record keeping.
Limitations of Grant date
Grant date has several limitations. * Firstly, it is important to consider the vesting period that can be applied to the grant. Vesting period is the time period that should pass before the employee is able to exercise the options or receive the assets. * Secondly, the grant date might not be the same as the actual payment date. There might be a delay in the payment depending on the terms of the agreement. * Lastly, the grant date should be established in accordance with the applicable laws and regulations. If the grant date is not in compliance with these laws, it could lead to legal issues.
Grant date is often used in different contexts and approaches. The most popular ones are:
- Fair Value - this approach is based on the fair value of the instruments on the grant date. It is usually used for stock options and restricted stocks.
- Intrinsic Value - this approach is based on the difference between the exercise price of the option and the market price of the underlying security on the grant date. It is used for stock options.
- Cost Basis - this approach is based on the actual cost of the equity instruments on the grant date. It is used for restricted stocks and restricted stock units.
In summary, grant date is the date when an employee begins to benefit from the instruments. Different approaches are used to calculate the grant date value of the instruments, such as fair value, intrinsic value and cost basis.
- Stickney C. P., Weil R. L., Schipper K., Francis J. (2009) p.665
- KPMG, (2019), p.46
- Deloitte, (2018), p. 38
- Delves D. P., (2007), p.118
- Nikolai L. A., Bazley J. D., Jones J. P., (2009), p. 795
- Delves D. P., (2007), p. 119
|Grant date — recommended articles|
|Unearned Premium — Dissenters right — Consent order — Residual payment — Unearned premium reserve — Prepaid rent — Short rate cancellation — Yield maintenance — Life Cap|
- Deloitte, (2018), A Roadmap to Accounting for Share-Based Payment Awards', Deloitte
- Delves D. P., (2007),2008 CCH Accounting for Compensation Arrangements, Cch Accounting
- KPMG, (2019), Share-Based Payment. Handbook. US GAAP, KPMG
- Nikolai L. A., Bazley J. D., Jones J. P., (2009), Intermediate Accounting (Book Only). Available Titles Cengage NOW Series, Cengage Learning
- Pwc, (2016), Accounting for Sharebased Payments IFRS 2, Pwc
- Stickney C. P., Weil R. L., Schipper K., Francis J. (2009), Financial Accounting: An Introduction to Concepts, Methods and Uses, Cengage Learning
Author: Kinga Kutek