The debate about how to account for corporate stock options given to employees and executives has been argued in the media, company boardrooms and even in the U.S. A Short History of the Stock Option as CompensationThe practice of giving out stock options to company employees is decades old. Pretty soon it wasn't just top executives receiving stock options, but rank-and-file employees as well.
It's Valuation TimeDespite having a good run, the "lottery" eventually ended - and abruptly.
Stock options granted to employees have key differences from those sold on the exchanges, such as vesting periods and lack of transferability (only the employee can ever use them).
Corporations are allowed to use their own discretion when choosing a valuation model, but it must also be agreed upon by their auditors. The slope of the graph is exaggerated because of depressed earnings during the bear market of 2001 and 2002, but the trend is still undeniable, not to mention dramatic. What Investors Should ExpectExact figures vary, but most estimates for the S&P expect a total reduction in net GAAP earnings due to stock options expensing of between 3 to 5% for 2006, the first year in which all companies will be reporting under the new guidelines.
A method is disclosed for indicating the value of an employee stock option issued by an employer to an employee. In 1972, the Accounting Principles Board (APB) issued opinion No.25, which called for companies to use an intrinsic value methodology for valuing the stock options granted to company employees. It is at this point that using stock options as a form of compensation really starts to take off. The stock option had gone from a back-room executive favor to a full-on competitive advantage for companies wishing to attract and motivate top talent, especially young talent that didn't mind getting a few options full of chance (in essence, lottery tickets) instead of extra cash come payday. The technology-fueled bubble in the stock market burst, and millions of options that were once profitable had become worthless, or "underwater." Corporate scandals dominated the media, as the overwhelming greed seen at companies like Enron, Worldcom and Tyco reinforced the need for investors and regulators to take back control of proper accounting and reporting. According to the FASB, no specific method of valuing options grants is being forced on companies, primarily because no "best method" has been determined. In their statement along with the resolution, the FASB will allow for any valuation method, so long as it incorporates the key variables that make up the most commonly used methods, such as Black Scholes and binomial. Still, there can be surprisingly large differences in ending valuations depending on the method used and the assumptions in place, especially the volatility assumptions.
We are now seeing new models of compensation and incentive-pay to managers and other employees through restricted stock awards, operational target bonuses and other creative methods. The method comprises the steps of issuing the employee stock option having employee stock option restrictions. The method for indicating the value of an employee stock option as set forth in claim 1, wherein the step of issuing the employee stock option includes the step of issuing the employee stock option having a vesting period during which the employee may not exercise the employee stock option. The method for indicating the value of an employee stock option as set forth in claim 1, wherein the step of issuing the employee stock option includes the step of issuing the employee stock option having an exercise period during which the employee may exercise the employee stock option. The method for indicating the value of an employee stock option as set forth in claim 1, wherein the step of issuing the employee stock option includes the step of issuing the employee stock option wherein the employee forfeits the stock option upon termination of employment prior to vesting. The method for indicating the value of an employee stock option as set forth in claim 1, wherein the step of issuing the employee stock option includes the step of issuing a non-transferable stock option to the employee. The method for indicating the value of an employee stock option as set forth in claim 1, wherein the step of establishing the secondary stock option includes the step of establishing an offering of the secondary stock options to a plurality of independent buyers. The method for indicating the value of an employee stock option as set forth in claim 1, wherein the step of establishing the secondary stock option includes the step of establishing the secondary stock option having secondary stock option restrictions similar to the employee stock option restrictions. The method for indicating the value of an employee stock option as set forth in claim 1, wherein the step of establishing the secondary stock option includes the step of establishing the secondary stock option having a vesting period during which the independent buyer may not exercise the secondary stock option.
The method for indicating the value of an employee stock option as set forth in claim 1, wherein the step of establishing the secondary stock option includes the step of establishing the secondary stock option having an exercise period during which the independent buyer may exercise the secondary stock option. The method for indicating the value of an employee stock option as set forth in claim 1, wherein the step of establishing the secondary stock option includes the step of establishing the secondary stock option that is non-transferable by the independent buyer. The method for indicating the value of an employee stock option as set forth in claim 1, wherein the step of establishing the secondary stock option includes the step of establishing the secondary stock options having a forfeiture rate related to the employee stock options forfeited within the employee stock option grant. The method for indicating the value of an employee stock option as set forth in claim 1, wherein the step of selling the secondary stock option to the independent buyer includes the step of selling the secondary stock option in a transaction at a market value. The method for indicating the value of an employee stock option as set forth in claim 1, wherein the step of selling the secondary stock option to the independent buyer includes the step of selling the secondary stock option at a market value in an open market.


The method for indicating the value of an employee stock option as set forth in claim 1, wherein the step of selling the secondary stock option to the independent buyer includes the step of selling the secondary stock option to a multiplicity of independent buyers.
The method for indicating the value of an employee stock option as set forth in claim 1, wherein the step of selling the secondary stock option to the independent buyer includes the step of selling the secondary stock option at a competitively generated market value. The method for indicating the value of an employee stock option as set forth in claim 1, wherein the step of deriving the value of the employee stock option includes the step of using the valuation paid by the independent buyer for the secondary stock option to determine the value of the employee stock option. The method for indicating the value of an employee stock option as set forth in claim 1, wherein the step of deriving the value of the employee stock option includes the step of using the market valuation paid by the independent buyer for the secondary stock option to establish the value of the employee stock option.
The method for indicating the value of an employee stock option as set forth in claim 1, wherein the step of deriving the value of the employee stock option includes the step of using the valuation paid by the independent buyer for the secondary stock option as a basis to estimate the value of the employee stock option.
The method for indicating the value of an employee stock option as set forth in claim 21, wherein the step of issuing the employee stock option includes the step of issuing the employee stock option having a vesting period during which the employee may not exercise the employee stock option. The method for indicating the value of an employee stock option as set forth in claim 21, wherein the step of issuing the employee stock option includes the step of issuing the employee stock option having an exercise period during which the employee may exercise the employee stock option. The method for indicating the value of an employee stock option as set forth in claim 21, wherein the step of issuing the employee stock option includes the step of issuing the employee stock option wherein the employee forfeits the stock option upon termination of employment prior to fulfillment of vesting requirement.
The method for indicating the value of an employee stock option as set forth in claim 21, wherein the step of issuing the employee stock option includes the step of issuing a non-transferable stock option to the employee. The method for indicating the value of an employee stock option as set forth in claim 21, wherein the step of establishing the secondary stock option includes the step of establishing an offering of the secondary stock options to the multiplicity of independent buyers.
The method for indicating the value of an employee stock option as set forth in claim 21, wherein the step of establishing the secondary stock option includes the step of establishing the secondary stock option having a vesting period during which the multiplicity of independent buyers may not exercise the secondary stock option. The method for indicating the value of an employee stock option as set forth in claim 21, wherein the step of establishing the secondary stock option includes the step of establishing the secondary stock option having an exercise period during which the multiplicity of independent buyers may exercise the secondary stock option. The method for indicating the value of an employee stock option as set forth in claim 21, wherein the step of establishing the secondary stock option includes the step of establishing the secondary stock option that is non-transferable by the multiplicity of independent buyers. The method for indicating the value of an employee stock option as set forth in claim 21, wherein the step of establishing the secondary stock option includes the step of establishing the secondary stock options having a forfeiture rate equal to a corresponding percentage of the employee stock option forfeitures within the employee stock option grant. The method for indicating the value of an employee stock option as set forth in claim 21, wherein the step of selling the secondary stock option to the multiplicity of independent buyers includes the step of selling the secondary stock option at market value. The method for indicating the value of an employee stock option as set forth in claim 21, wherein the step of selling the secondary stock option to the multiplicity of independent buyers includes the step of selling the secondary stock option at a market value in a transaction. The method for indicating the value of an employee stock option as set forth in claim 21, wherein the step of deriving the value of the employee stock option includes the step of using the valuation paid by the multiplicity of independent buyers for the secondary stock option to determine the value of the employee stock option. The method for indicating the value of an employee stock option as set forth in claim 21, wherein the step of deriving the value of the employee stock option includes the step of using the market valuation paid by the multiplicity of independent buyers for the secondary stock option to set the value of the employee stock option. The method for indicating the value of an employee stock option as set forth in claim 21, wherein the step of deriving the value of the employee stock option includes the step of using the valuation paid by the multiplicity of independent buyers for the secondary stock option as a basis to estimate the value of the employee stock option. An article as set forth in claim 38, wherein said secondary security is a secondary stock option. An article as set forth in claim 38, wherein said secondary security has substantially all of the restrictions of the employee stock option. An article as set forth in claim 38 wherein said valuation paid by said independent buyer of said secondary security is a market value indicating said value of said employee stock option.
An article for indicating the value of an employee stock option as set forth in claim 42, wherein said employee stock option has a vesting period during which an employee may not exercise said employee stock option.
An article for indicating the value of an employee stock option as set forth in claim 42, wherein said employee stock option has an exercise period during which an employee may exercise said employee stock option.
An article for indicating the value of an employee stock option as set forth in claim 42, wherein said employee stock option is forfeited upon termination of employment prior to the fulfillment of vesting requirements of the employee stock option. An article for indicating the value of an employee stock option as set forth in claim 42, wherein said employee stock option is a non-transferable stock option. An article for indicating the value of an employee stock option as set forth in claim 42, wherein said secondary stock option has substantially similar restrictions as imposed upon the employee stock option. An article for indicating the value of an employee stock option as set forth in claim 42, wherein said secondary stock option has a vesting period during which said independent buyer may not exercise said secondary stock option. An article for indicating the value of an employee stock option as set forth in claim 42, wherein said secondary stock option has an exercise period during which said independent buyer may exercise said secondary stock option.
An article for indicating the value of an employee stock option as set forth in claim 42, wherein said secondary stock option is non-transferable.


An article for indicating the value of an employee stock option as set forth in claim 42, wherein said secondary stock options has a forfeiture rate similar to a corresponding percentage of forfeitures within said employee stock option grant. An article for indicating the value of an employer stock option as set forth in claim 42, wherein said secondary stock option is sold in a transaction.
An article for indicating the value of an employee stock option as set forth in claim 42, wherein said independent buyer includes a multiplicity of independent buyers. An article for indicating the value of an employee stock option as set forth in claim 42, wherein the value of said employee stock option includes said valuation paid by said independent buyer to determine the value of said employee stock option. An article for indicating the value of an employee stock option as set forth in claim 42, wherein the value of said employee stock option includes the market valuation paid by said independent buyer to set the value of said employee stock option. An article for indicating the value of an employee stock option as set forth in claim 42, wherein the value of said employee stock option includes said valuation paid by said independent buyer as a basis to estimate the value of said employee stock option. Various types of deferred compensation plans, involving the direct or indirect use of the corporation's authorized but unissued shares of capital stock, were constructed. The most accurate indication of such expense will be the option's fair market valve on the grant date. Mathematical models such as Black-Scholes, the binomial model, the lattice model and other option pricing models attempt to determine the value of an employee stock option without considering any market driven factors. For the purpose of summarizing the invention, the invention relates to a method for indicating the value of an employee stock option issued by an employer to an employee comprising the steps of issuing the employee stock option having employee stock option restrictions. The employee stock option optionally has an exercise period between the vesting date and an expiration date during which the employee may exercise the employee stock option. After many years of squabbling, the Financial Accounting Standards Board, or FASB, issued FAS Statement 123 (R), which calls for the mandatory expensing of stock options beginning in the first company fiscal quarter after June 15, 2005. Under intrinsic value methods used at the time, companies could issue "at-the-money" stock options without recording any expense on their income statements, as the options were considered to have no initial intrinsic value. Coinciding with this increase in options granting is a raging bull market in equities, specifically in technology-related stocks, which benefits from innovations and heightened investor demand. But thanks to the booming stock market, instead of lottery tickets, the options granted to employees were as good as gold. Because both companies and investors are entering new territory here, valuations and methods are bound to change over time. A secondary stock option of the stock of the employer is established having secondary stock option restrictions. This Statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments, which includes stock options, based on the grant-date fair value of the award, and to recognize such cost over the period during which an employee is required to provide service in exchange for the award. 15, 2005, widespread mandatory expensing of the fair market value of stock option grants will shortly begin.
These mathematical models provide imprecise and generally inflated values which, if adopted by the option granting employer, will result in its periodic reporting of inaccurately reduced earnings. A secondary stock option is established of the stock of the employer having secondary stock option restrictions.
An employee optionally may forfeit the employee stock option upon termination of employment of the employee prior to the vesting of the employee stock option. This provided a key strategic advantage to smaller companies with shallower pockets, who could save their cash and simply issue more and more options, all the while not recording a penny of the transaction as an expense.
What is known is what has already occurred, and that is that many companies have reduced, adjusted or eliminated their existing stock options programs altogether. So, while the practice of not recording any costs for stock options began long ago, the number being handed out was so small that a lot of people ignored it. The value of the employee stock option is derived from a valuation paid by the independent buyer for the secondary stock option. Since, however, the incentive stock option is non-transferable by the employee holder, its fair value cannot be readily determined on the grant date in the manner contemplated by the referenced Concepts Statement.



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Comments

  1. PRESIDENT

    Market works, the right way to observe developments and.

    02.10.2014

  2. PrinceSSka_OF_Tears

    Picked a particular company, bear in mind that their.

    02.10.2014