On 1/1/2013, a company grants 1,000 options to its CEO with an exercise price of $60 as compensation. The options vest after three years and expire after 10 years. The stock price is $60 on the grant date. The fair value of the options is $30 per share at the grant date.
The total amount to be expensed is the fair value times the number of options. Total Expense = $30 x 1,000 = $30,000. The total expense is amortized over the vesting period of three years. So, 2013 compensation expense = $30,000 / 3 = $10,000.
