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Share-Based Compensation and Earnings per Share


We've discussed a variety of employee compensation plans in prior chapters, including pension and other post-retirement benefits in Chapter 17. In this chapter we look at some common forms of compensation in which the amount of the compensation employees receive is tied to the market price of company stock. We will see that these share-based compensation plans—stock awards, stock options, and stock appreciation rights—create shareholders' equity, the topic of the previous chapter and also often affect the way we calculate earnings per share, the topic of the second part of the current chapter. Specifically, we view these as potential common shares along with convertible securities and calculate earnings per share as if they already had been exercised or converted into additional common shares.



Explain and implement the accounting for stock award plans.

Explain and implement the accounting for stock options.

Explain and implement the accounting for stock appreciation rights.

Explain and implement the accounting for employee share purchase plans.

Distinguish between a simple and a complex capital structure.

Describe what is meant by the weighted-average number of common shares.

Differentiate the effect on EPS of the sale of new shares, a stock dividend or stock split, and the reacquisition of shares.

Describe how preferred dividends affect the calculation of EPS.

Describe how options, rights, and warrants are incorporated in the calculation of EPS.

Describe how convertible securities are incorporated in the calculation of EPS.

Explain the way contingently issuable shares are incorporated in the calculation of EPS.

Describe the way EPS information should be reported in an income statement.





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