On January 1, 2016, Sixty Executives Are Offered a Fixed

question 93

Essay

On January 1, 2016, sixty executives are offered a fixed compensatory stock option plan in which each of them will receive options to buy 5,000 shares of $10 par common stock at $30 a share. On the grant date, the fair value per option is $7.50. There is a three-year service period and an estimated annual employee turnover rate of 3%.
Required:
a. Compute the expected total compensation cost.
b. Compute the compensation expense for 2016.
c. Prepare the journal entry to record the exercise of options by six of the executives on
January 1, 2019.

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Definitions:

Pay Ranges

The spectrum of compensation, from minimum to maximum, offered for specific roles or positions within an organization, often based on experience, skills, and market rates.

Broad Banding

A compensation strategy that consolidates numerous pay grades into fewer wide bands, offering flexibility in job roles and pay.

Labour Costs

The total expenses associated with employing labor, including wages, salaries, benefits, and other related costs.

Point Method

A systematic approach used in job evaluation to quantify the value of a job by assigning points based on various factors like skill, effort, and responsibility.