"The estimated number of stock options exercised changes over time to reflect subsequent events not deemed probable at the grant date. Once stock options are issued, the entity has little control over the exercise of such options and the incurrence of the related economic cost. Options are exercised only when certain legal requirements, such as vesting, are met, as well as when certain favorable market conditions encourage the exercise of options. In other words, the employee’s value of such options, based on perceived market conditions, drives the ultimate cost to the reporting entity. At the grant date, the exercise price may exceed the market price of the stock, but the employee perceives the instrument as having future value contingent on future events. Employees will not exercise their “out of the money” instruments, which they perceive as having no current value; in fact, the employee may never exercise their options. Thus, market conditions will affect the number of exercised options and the amount of cash forgone upon exercise. These conditions are difficult, if not impossible, to predict. If no options are exercised, the entity does not forgo any cash proceeds and therefore has effectively received employee services at a lower cost than originally contemplated. As a rule, accounting does not require the recognition of an amount that the entity should have paid rather than what it actually paid."
A section in the previous accounting article that you should read.
