Question: Murray Compensation, Inc. (Murray), an SEC registrant that provides payroll processing and benefit administration services to other companies, granted 100,000 at-the-money employee share options on

Murray Compensation, Inc. (Murray), an SEC registrant that provides payroll processing and benefit administration services to other companies, granted 100,000 “at-the-money” employee share options on January 1, 2010 . The awards have a grant-date fair value of $6, vest at the end of the third year of service (cliff-vesting), and have an exercise price of $21. Subsequent to the awards being granted, the stock price has fallen significantly. On January 1, 2012 , Murray decreased the exercise price on the stock options to $12. This downward adjustment to the exercise price was made in order to ensure that the options continue to provide intended motivational benefit to employees. However, in addition to the reduction in the exercise price, Murray also changed the vesting terms, such that the employees must provide an additional two years of service (awards will now vest on January 1, 2015). Immediately prior to the reduction in the exercise price of the awards, the fair value was $1 per award. After considering the impact of the January 1, 2012, re-pricing, the fair value was $4 per award.

How much compensation expense should be record each year before 2012?

How does decreasing exercise price impact on the fair value of stock option?

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