How to use the stock compensation expense schedule calculator
- Enter the number of units granted, which can be shares or options, and the fair value of each unit at the grant date.
- Enter the vesting period in whole years and choose straight line, graded or cliff vesting.
- Optionally open the advanced options to enter the share of units you expect to be forfeited before they vest.
- Read the total cost and the expense for each year, with a running total.
Formula
Total cost = units x fair value x (1 - expected forfeiture rate)
Straight line: each year = total / years
Cliff: the whole total in the final year
Graded: tranche k (a 1/years share of the total) is spread over its first k years
Rounding differences go to the last year so that the years add up to the total to the cent.
48,000 units valued at $3.25 over four years
The total cost is 48,000 x $3.25 = $156,000. Straight line gives $39,000 in each of the four years. A cliff over three years puts all $156,000 in year 3.
Graded vesting treats the award as four tranches of $39,000. The first vests in year 1, the second is spread over years 1 and 2, the third over years 1 to 3 and the fourth over years 1 to 4. The yearly expense is $81,250, $42,250, $22,750 and $9,750, which adds to $156,000. A 10% forfeiture estimate lowers the total to $140,400.
Why graded vesting front-loads the cost
When an award vests in tranches, each tranche is treated as its own award with its own vesting period. The first tranche is earned in one year, so all of its cost lands in year 1, while the last tranche is spread over the whole period. Adding them together puts the largest share of the expense in the first year. The cost in total is the same as with straight line, but the timing is different.
A cliff does the opposite and holds all of the expense to the end. If you are designing a plan, the Vesting Schedule Generator lays out the dates on which units vest, and the Equity Compensation Calculator looks at what the units may be worth to the employee.
What the fair value is
The fair value is the grant-date value of each unit, for example from a valuation or a pricing model. This tool takes it as given and does not compute it. Expected forfeitures reduce the total up front, and in practice the estimate is updated as people leave. How equity awards must be measured and recorded is set by your accounting framework, so use this as a planning view. For the cap table side of equity, see the Option Pool Shuffle Calculator and the Founder Equity Split Calculator.
Assumptions and limits
- The fair value is fixed at the grant date and does not change.
- Vesting is in whole years, and the graded tranches are equal.
- The forfeiture rate is applied once to the total. Later changes to the estimate are not modeled.
- Performance conditions, modifications and taxes are not modeled. The figures are examples.
Frequently asked questions
What is the difference between graded and straight line?
Straight line spreads the total evenly. Graded treats each vesting tranche as its own award, so more of the cost falls in the early years.
Does the total change with the vesting pattern?
No. The total is the same, and only the years in which it is recognized change.
How do forfeitures affect the schedule?
The expected forfeiture rate lowers the total at the start, and every year is reduced in proportion. The tool does not update the estimate over time.
Why does the last year hold a rounding amount?
Each year is rounded to the cent, so the last year takes the small difference to make the years add up to the total exactly.