Labor and Employment

Labor Employee Stock Option Valuation

Many firms object to the FAS 123 standard on grounds that employee stock options are “too hard to value.” The pervasive model—(modified) Black-Scholes—was never intended to value employee stock options. FASB has formed an Options Valuation Group, a small team of advisors that is advising the Board on more sophisticated method(s) and models for determining fair value. For the most accurate valuations, NERA advises firms on how best to customize their compensation structures to reflect such company-specific variables as employee turnover, option exercise patterns, and corporate philosophy on incentives, pay, and benefits. Our experts have also testified about the appropriate valuation of these options at the damages phase of trial.