Stock-based compensation
Financial Accounting glossary · The Accounting Cycle & Financial Statements
Definition
Expense recognized over vesting period for equity awards (options, RSUs, ESPPs) granted to employees; measured at grant-date fair value under ASC 718.
Stock-based compensation in plain English
Instead of paying employees only in cash, companies often hand them a piece of ownership in the company — like stock or the right to buy stock later (options) — usually as a reward for sticking around and doing well. Even though no cash changes hands, this is real pay, so accounting rules make the company record it as an expense. The trick is timing: you spread that expense out over the "vesting period," the waiting time before the employee truly earns the award (say, working there 4 years). The value used is what the award was worth on the day it was granted — like locking in the price tag the moment the gift was promised.
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