On 1 July 2021, Norman Pty Ltd granted 100 options to each of its 50 employees. The options are conditional on the employees remaining with the company for the 3 year vesting period. The options have a fair value of $5.00 at vesting date. In addition, the shares will vest as follows: On 30 June 2022 if the company's earnings have increased by more than 12%.
On 30 June 2023 if the company's earnings have increased by more than 10% averaged across the 2 year period.
On 30 June 2024 if the company's earnings have increased by more than 8% averaged across the 3 year period.
At 30 June 2022 Norman Pty Ltd's earnings have increased by 11% and 2 employees have left.
The company expects that earnings will continue to increase at a similar rate during the year to 30 June 2023 and that the shares will vest at that time. It also expects that a further 3 employees will leave during the year. The remuneration expense for the year ended 30 June 2022 for Norman Pty Ltd is:
A) $12 500
B) $25 000
C) $11 250
D) $22 500

Question

Quizplus · Accepted Answer

The remuneration expense is calculated based on the fair value of the options, the number of employees expected to remain, and the vesting period. Initially, 50 employees were granted options, but 2 left, leaving 48. The company expects 3 more to leave, so 45 employees are expected to remain. The fair value of options is $5.00, and each employee has 100 options. The expense for the first year is calculated as: 45 employees * 100 options * $5.00 * (1/3 vesting period) = $7,500. However, the correct calculation should consider the expected vesting at the end of the second year, so the expense is $11,250.

On 1 July 2021, Norman Pty Ltd Granted 100 Options