Case xx
Case 07-4
Mu
ay Compensation, Inc.
Mu
ay Compensation, Inc. (Mu
ay), an SEC registrant that provides payroll processing
and benefit administration services to other companies, granted 100,000 “at-the-money”
employee share options on January 1, 2010. 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, 2012, Mu
ay 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 motivational benefit to employees. However, in addition to
the reduction in the exercise price, Mu
ay also changed the vesting terms, such that the
employees must provide an additional two years of service (awards will now vest on
January 1, 2015).
Immediately prior to the reduction in the exercise price of the awards, the fair value was
$1 per award. After considering the impact of the January 1, 2012, re-pricing, the fair
value was $4 per award.
Required:
• Calculate the amount of compensation cost that should be recognized by Mu
ay
in the years ended December 31, 2012, 2013, and 2014. Assume that there have
een no forfeitures and that Mu
ay uses a straight-line approach for recognizing
compensation cost.
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Case 07-4
Mu
ay Compensation, Inc.
Required: