How does Burger King measure compensation expense related to the issuance of share-based awards to employees?
Burger_King Franchise · 2025 FDDAnswer from 2025 FDD Document
Compensation expense related to the issuance of share-based awards to our employees is measured at fair value on the grant date. The fair value of restricted stock units ("RSUs") is generally based on the closing price of RBI's common shares on the trading day preceding the date of grant. Our total shareholder return and if applicable our total shareholder return relative to our peer group is incorporated into the underlying assumptions using a Monte Carlo simulation valuation model to calculate grant date fair value for performance based awards with a market condition. Stock option awards are granted with an exercise price or market value equal to the closing price of RBI common shares on the trading day preceding the date of grant. The Black-Scholes option pricing model is used to value stock options. The compensation expense for awards that vest over a future service period is recognized over the requisite service period on a straight-line basis, adjusted for estimated forfeitures of awards that are not expected to vest. We use historical data to estimate forfeitures for share-based awards. The compensation expense for awards that contain performance conditions is recognized when it is probable that the performance conditions will be achieved.
As of December 31, 2024, total unrecognized compensation cost related to share-based compensation arrangements was $218 million and is expected to be recognized over a weighted-average period of approximately 2.5 years.
Source: Item 20 — OUTLETS AND FRANCHISEE INFORMATION (FDD pages 109–124)
What This Means (2025 FDD)
According to Burger King's 2025 Franchise Disclosure Document, the compensation expense related to share-based awards issued to employees is measured at fair value on the grant date. For restricted stock units (RSUs), the fair value is typically based on the closing price of RBI's common shares on the trading day preceding the grant date. For performance-based awards with a market condition, a Monte Carlo simulation valuation model is used to incorporate total shareholder return and relative performance against a peer group into the fair value calculation. Stock option awards are granted with an exercise price equal to the closing price of RBI common shares on the trading day before the grant, and the Black-Scholes option pricing model is used to value these options.
The compensation expense for awards that vest over a future service period is recognized over that period on a straight-line basis, adjusted for estimated forfeitures based on historical data. For awards with performance conditions, the expense is recognized when it becomes probable that those conditions will be achieved. As of December 31, 2024, the total unrecognized compensation cost related to share-based compensation arrangements was $218 million, which is expected to be recognized over approximately 2.5 years.
For a prospective Burger King franchisee, this information is relevant as it provides insight into how the parent company, RBI, manages and accounts for its employee compensation, which can affect the overall financial health and stability of the company. Understanding these practices can help franchisees assess the long-term sustainability and management quality of the Burger King brand. Additionally, the disclosure of unrecognized compensation costs and their expected recognition period can offer a glimpse into future expense trends that might impact the company's financial performance.