TripAdvisor 2013 Annual Report Download - page 71

Stock-Based Compensation
Stock Options
The exercise price for all stock options granted by us to date has been equal to the market price of the
underlying shares of common stock at the date of grant. In this regard, when making stock option awards, our
practice is to determine the applicable grant date and to specify that the exercise price shall be the closing price
of our common stock on the date of grant. Stock options granted during the year ended December 31, 2013 had a
term of ten years from the date of grant and generally vest over a four-year requisite service period.
During the year ended December 31, 2013, we issued 2,824,583 of primarily service based stock options
under the 2011 Incentive Plan with a weighted average grant-date fair value per option of $28.30. We will
amortize the fair value, net of estimated forfeitures, as stock-based compensation expense over the vesting term
on a straight-line basis, with the amount of compensation expense recognized at any date at least equaling the
portion of the grant-date fair value of the award that is vested at that date. We use historical data to estimate pre-
vesting option forfeitures and record share-based compensation expense only for those awards that are expected
to vest. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the
period of change and will also impact the amount of stock compensation expense to be recognized in future
periods.
The estimated fair value of the options granted under the 2011 Incentive Plan to date, have been calculated
using a Black-Scholes Merton option-pricing model (“Black-Scholes model”). The Black-Scholes model
incorporates assumptions to value stock-based awards, which includes the risk-free rate of return, expected
volatility, expected term and expected dividend yield.
Our risk-free interest rate is based on the rates currently available on zero-coupon U.S. Treasury issues, in
effect at the time of the grant, whose remaining maturity period most closely approximates the stock option’s
expected term assumption. We estimate volatility of our common stock by using an average of our historical
stock price volatility and of publicly traded companies that we consider peers based on daily price observations
over a period equivalent to or approximate to the expected term of the stock option grants. The decision to use a
weighted average volatility factor with our peer group was based upon the relatively short period of availability
of data on our common stock. We estimate our expected term using the simplified method for all stock options as
we do not have sufficient historical exercise data on our common stock. Our expected dividend yield is zero, as
we have not paid any dividends on our common stock to date and do not expect to pay any cash dividends for the
foreseeable future.
Restricted Stock Units (RSUs)
RSUs are stock awards that are granted to employees entitling the holder to shares of our common stock as
the award vests. RSUs are measured at fair value based on the number of shares granted and the quoted price of
our common stock at the date of grant. We amortize the fair value, net of estimated forfeitures, as stock-based
compensation expense over the vesting term on a straight-line basis, with the amount of compensation expense
recognized at any date at least equaling the portion of the grant-date fair value of the award that is vested at that
date.
Performance-based stock options and RSUs vest upon achievement of certain company-based performance
conditions and a requisite service period. On the date of grant, the fair value of performance-based awards is
determined, which is calculated using the same method as our service based stock options and RSUs described
above. We then assess whether it is probable that the performance targets would be achieved. If assessed as
probable, compensation expense will be recorded for these awards over the estimated performance period. At
each reporting period, we will reassess the probability of achieving the performance targets and the performance
period required to meet those targets. The estimation of whether the performance targets will be achieved and of
the performance period required to achieve the targets requires judgment, and to the extent actual results or
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