What is Grant Date Fair Value?
Grant date fair value is the value of a share-based payment award measured on the date the entity grants it to an employee. It is the cornerstone of IFRS 2 share-based payment accounting because the total compensation cost recognized over the vesting period is locked in at this date and is not adjusted for later changes in the share price.
How It Works
- Identify the grant date (the date the entity and employee agree on the terms of the award).
- Measure the fair value of the equity instruments granted, usually with an option-pricing model such as Black-Scholes or a binomial model.
- Spread the total grant date fair value as an expense over the vesting period.
- Adjust only for changes in the number of awards expected to vest, not for changes in share price.
Saudi Context
Saudi listed companies on Tadawul that grant employee stock options or restricted shares apply IFRS 2 and use grant date fair value to disclose share-based payment expense in their financial statements.
Example
A company grants 10,000 share options on 1 January with a grant date fair value of SAR 30 each and a three-year vesting period. The total cost of SAR 300,000 is expensed as SAR 100,000 per year over the vesting period, regardless of what happens to the share price.