Share-based Payment

Brief Definition

A share-based payment is a transaction in which an entity receives goods or services from suppliers or employees as consideration for equity instruments (such as shares or stock options) or incurs a liability to suppliers or employees that is based on the price of the entity’s shares.

Further Explanation

A share-based payment is a transaction in which an entity receives goods or services from suppliers or employees as consideration for equity instruments (such as shares or stock options) or incurs a liability to suppliers or employees that is based on the price of the entity’s shares. This form of payment is often used to incentivize employees by aligning their interests with the company’s performance, as they benefit directly from the company’s success.

Example:
A technology company offers its employees stock options as part of their compensation package. Each employee is given the option to buy a certain number of company shares at a fixed price after a specified period. If the company’s share price increases, employees can purchase shares at the lower, fixed price and potentially sell them at a profit, thus benefiting from the company’s success.