The term “grant date” is often used in the context of stock options and other types of equity compensation. It refers to the date on which an employee receives a grant of stock options, restricted stock, or other types of equity awards.
The grant date is significant because it’s typically the date that determines when the clock starts ticking for vesting, which is the period of time the employee must wait before they have the right to exercise their stock options or sell their shares. It’s also the date at which the fair value of the equity award is often determined for accounting purposes.
For example, suppose a company grants an employee stock options on January 1, 2023. The grant date would be January 1, 2023. If the options have a four-year vesting schedule, the employee would typically earn the right to exercise 25% of the options on each anniversary of the grant date, starting January 1, 2024. The grant date may also be the date used to calculate the fair value of the options for financial reporting purposes.
In the context of grants from foundations or government agencies, the grant date refers to the date on which the grant agreement is entered into or the date on which the grantee is officially notified of the grant award. This date often determines when the grantee can start incurring expenses that can be covered by the grant funds.
Example of the Grant Date
Let’s consider an example of a grant date in the context of employee stock options:
Suppose John is an employee at TechCo, a technology company. On January 1, 2023, TechCo grants John 1,000 stock options as part of his compensation. The options give John the right to buy TechCo shares at a specified price (the “exercise price”) over a certain period of time.
The grant date for these stock options is January 1, 2023. This is the date on which John officially received the options, and it’s the date that typically starts the clock for the vesting period.
Let’s say the options have a four-year vesting schedule, with 25% of the options vesting each year on the anniversary of the grant date. This means that John earns the right to exercise 250 options on January 1, 2024, another 250 options on January 1, 2025, and so on, until all 1,000 options are vested on January 1, 2026.
The grant date can also be important for accounting purposes. The value of the options on the grant date is often used to determine the compensation expense that TechCo recognizes for the options over the vesting period.
So in this example, the grant date has significant implications for both John (in terms of when he can exercise his options) and TechCo (in terms of how it accounts for the options in its financial statements).