RE:RE:Share-based paymentsLol that's actually incorrect.
A quick trip to SEDI will show you that none of the granted options have been exercised by Lisa or Amandeep have yet to convert their shares yet the expense was still booked in the annual FS.
https://www.canadianinsider.com/node/7?menu_tickersearch=Reliq+Health+Technologies+Inc.+%7C+RHT
The expense recorded is indeed a non-cash item and is priced as per the black scholes model. Basically, the model approximates the cost to the company for the in the money share options granted to management. It's a non cash item because no actual cash is paid to the employee, rather this piece of paper is granted.
In terms of alignment, it does mean management has an incentive to maximize their SP so when they convert options, they do so for the most amount of profit possible.
The key thing that is wrong is that ESOs (employee stock options) are not valued on conversion, they're valued when granted (with parameters including current SP, exercise price, duration of option, etc. -> look up the model for more detail). If RHT stock price was at a cent, the expense would still be recorded on the books when granted. When Lisa exercises her options, there will be no impact on the company other than an increase in cash for the amount exercised (ie. 1.12 * shares exercies) and an increase in share capital for the same amount. The share count would also increase but that is not a strict accounting journal entry.
DoubleDownPmt wrote: Executives are granted stock options - the ability to buy shares at a pre-determined price, at some point in the future - as part of their compensation/wage.
This way, the more the shares are worth, the more the executives can earn. Owners and Executives then have the same goal - to increase share price.
Usually the options to buy shares are granted at a pre-determined price, close to the current trading price. Not long ago the shares were less than 20 cents.
In the future (now) when executives exercise their rights to convert their options to buy shares (paying the company the pre-determined price per share)...if the shares are trading higher than the option conversion price, the company has to report the value difference in trading price to option conversion price as a loss.
This is because they "sold" a small amount of ownership of the company for less than they could have otherwise.
This is a very good thing for everybody, investors included.
So, in other words, RHT has performed so well that the executive's (and investors') earnings are very high, and the executives' earnings are, just like regular employee wages, a cost of running a business.
If RHT was still trading at 20 cents there would be no loss, and RHT would have a much smaller "loss" on paper. Again,as an investor, I want the execs to get paid when I get paid, and I much rather have shares worth $1.88, than shares worth 20 cent shares but lower share-based compensation.
You can imagine the payments as a commission or bonus for doing a good job.