Expected Term Input for Re-Valuing Options for the Purposes of Pay vs. Performance
As part of the new Pay vs. Performance (PvP) disclosure requirement, companies must estimate the fair value of outstanding and unvested stock options held by Named Executive Officers (NEOs) as of the end of each fiscal year, as well as upon each vest date. The process and best practices for estimating the fair value of…
A New Way to Estimate Volatility
VWAP Volatility. Developing volatility assumptions is a common practice in the financial community, where many sophisticated techniques have been developed that go beyond simply calculating volatilities based on historical stock prices. The Black-Scholes, Monte Carlo, and lattice models all use a volatility input, which may come from a variety of sources. For example, the use…
“Cadillac” ESPP Considerations: What You Need to Know Before Adopting
Balance this exceptional employee benefit with compliance and administrative ease. Introduction Employee Stock Purchase Plans (ESPPs) are common among public companies, and it is easy to see why. On the participant side, ESPPs allow a large population of employees to build wealth through the purchase of company stock, typically at a discount to the market…
Harnessing the Magic of Elon for Everyone
The stock option package granted to the CEO of Tesla in early 2018 made significant headlines and waves in the compensation industry. It was decried for its size ($2.3B disclosed value), but it was also applauded for its extreme audaciousness. The first tranche of options could not vest until Tesla market cap grew to $100B…
Comparing Volatility Methods
Traditional historical vs. VWAP volatility Infinite Equity is introducing innovative new thought leadership on the financial theory around determining historical volatility for purposes of ASC718. Introduced in the Research Brief, A New Way to Estimate Historical Volatility, and published collectively at www.VWAPVolatility.com, the intent of this Research Brief is to compare actual historical volatility calculations…
Auto-Cancel Options
Options that cancel automatically upon a pre-determined price drop can save companies from the challenges of deeply underwater options.
Looking Out for Your Essential Workers
Introduction The COVID-19 pandemic has forced many companies to furlough workers and contemplate permanent layoffs, and has also driven share prices down. Consequently, companies are discussing ways to retain and motivate key executives by modifying performance awards or granting additional equity to reflect the current environment. But what about everyone in between, the “rank-and-file” employees that…
Indexed Stock Options
Time-based stock options are a main-stay of executive compensation, but with a few recent developments and uncertainty about the future, now is the right time to give Indexed options another look.
TSR Calculation: Accumulated Dividends
Infinite Equity laid out the preferred method for calculating Total Shareholder Return (TSR) here. However, the calculation of TSR ultimately must follow the definition outlined in the legal grant agreement. Some companies do not assume that dividends are reinvested in the underlying entity when they are issued; instead, the dividends are essentially treated as a…
The “Stub Period” Challenge
Relative Total Shareholder Return (RTSR) awards are the most prevalent type of performance awards in the global marketplace. The accounting fair value under ASC Topic 718 for RTSR awards is estimated using Monte Carlo simulation that reflects all known information as of the grant date, which often occurs several weeks or months into the TSR…
