Enom 2012 Annual Report Download - page 60

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Stock-based Compensation
We measure and recognize compensation expense for all share-based payment awards made to employees and directors
based on the grant date fair values of the awards. For stock option awards to employees with service and/or performance based
vesting conditions, the fair value is estimated using the Black-Scholes option pricing model. The value of an award that is
ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated statements of
operations. We elected to treat share-based payment awards, other than performance awards, with graded vesting schedules and
time-based service conditions as a single award and recognize stock-based compensation expense on a straight-line basis (net
of estimated forfeitures) over the requisite service period. Stock-based compensation expenses are classified in the statement of
operations based on the department to which the related employee reports. Our stock-based awards are comprised principally of
stock options, restricted stock units, restricted stock awards and restricted stock purchase rights.
Some employee award grants contain certain performance and/or market conditions. We recognize compensation cost for
awards with performance conditions based upon the probability of the performance condition being met, net of an estimate of
pre-vesting forfeitures. Awards granted with performance and/or market conditions are amortized using the graded vesting
method. The effect of a market condition is reflected in the award's fair value on the grant date. We use a Monte Carlo
simulation model or a binomial lattice model to determine the grant date fair value of awards with market conditions. All
compensation expense for an award that has a market condition is recognized as the requisite service period is fulfilled, even if
the market condition is never satisfied.
We account for stock options issued to non-employees in accordance with the guidance for equity-based payments to
non-employees. Stock option awards to non-employees are accounted for at fair value using the Black-Scholes option pricing
model. Our management believes that the fair value of stock options is more reliably measured than the fair value of the
services received. The fair value of the unvested portion of the options granted to non-employees is re-measured each period.
The resulting increase in value, if any, is recognized as expense during the period the related services are rendered.
The Black-Scholes option pricing model requires management to make assumptions and to apply judgment in
determining the fair value of our awards. The most significant assumptions and judgments include estimating the fair value of
our underlying stock, the expected volatility and the expected term of the award. In addition, the recognition of stock-based
compensation expense is impacted by estimated forfeiture rates.
Because our common stock was not publicly traded since our inception through January 31, 2011, we estimated the
expected volatility of our awards from the historical volatility of selected public companies within the Internet and media
industry with comparable characteristics to us, including similarity in size, lines of business, market capitalization, revenue and
financial leverage. From our inception through December 31, 2008, the weighted average expected life of options was
calculated using the simplified method as prescribed under guidance by the SEC. This decision was based on the lack of
relevant historical data due to our limited experience and the lack of an active market for our common stock. Effective
January 1, 2009, we calculated the weighted average expected life of our options based upon our historical experience of option
exercises combined with estimates of the post-vesting holding period. The risk free interest rate is based on the implied yield
currently available on U.S. Treasury issues with terms approximately equal to the expected life of the option. The expected
dividend rate is zero based on the fact that we currently have no history or expectation of paying cash dividends on our
common stock. The forfeiture rate is established based on the historical average period of time that options were outstanding
and adjusted for expected changes in future exercise patterns.
Under the Company's Employee Stock Purchase Plan (the "ESPP"), eligible officers and employees may purchase a
limited amount of our common stock at a discount to the market price in accordance with the terms of the plan as described in
Note 11 (Share-based Compensation Plans and Awards) to our consolidated financial statements. The Company uses the
Black-Scholes option pricing model to determine the fair value of the ESPP awards granted which is recognized straight-line
over the total offering period.
Some equity awards granted by the Company contain certain performance and/or market conditions. The Company
recognizes compensation cost for awards with performance conditions based upon the probability of that performance
condition being met, net of an estimate of pre-vesting forfeitures. Awards granted with performance and/or market conditions
are amortized using the graded vesting method.
The effect of a market condition is reflected in the award’s fair value on the grant date. The Company uses a Monte Carlo
simulation model or binomial lattice model to determine the grant date fair value of awards with market conditions.
Compensation cost for an award that has a market condition is recognized as the requisite service period is fulfilled, even if the
market condition is never satisfied.