How to read the value of a grant

When a company grants units it has to put a value on them, once, on the grant date. That's the grant date fair value. For an ordinary RSU it's simply the share price that day.

That number then does one job for the next several years. The company charges it against profit gradually as the units vest. Grant $1,000 of value on a four year schedule and roughly $250 a year runs through the accounts, whatever the share price does afterwards.

Which leads to the figure worth knowing. At any moment a company is carrying value it has granted but not yet charged. That is unrecognised compensation cost. It's the bill for promises already made, waiting for the vesting to catch up.

Apple, for the year that ended September 30 2023.

Multiply the first two. 88,768 thousand units at $150.87 is about $13,392 million of value granted in a single year.

Now compare that with the expense. Apple granted about $13.4 billion of value and charged $10,833 million through the income statement. The two differ because the expense reflects vesting from every grant still running, not just this year's.

The last two lines are the part most people never look at. $18.6 billion has been promised and not yet charged, and it will arrive over about two and a half years. Divide it. Roughly $7.4 billion a year of expense is already locked in by grants that have been made, before Apple grants anything new.

For you as an employee the same figure has a personal meaning. Your own unvested balance is your share of that number. It is money already promised to you that the company has not finished paying.

The trap is thinking the expense follows the share price.

It doesn't. Grant date fair value is fixed on the grant date. If the share price triples the company keeps charging the original value, and if it collapses the company still charges the original value. The accounting does not chase the market.

So the expense line tells you what was promised. Your account balance tells you what it turned out to be worth. Those two numbers drift apart over time and they are both correct.

The second trap is comparing your grant with a colleague's by dollar value without checking the grant date. Two people with the same dollar grant, a year apart, hold very different unit counts, because the price that converted dollars into units was different. Compare units and vesting schedules. Dollars at grant are a snapshot of one day.