May 23, 2012
Video Podcast: Valuation of Equity Compensation Awards
– Broc Romanek, CompensationStandards.com
Here is a 20-minute video podcast, featuring Daniel Abrams of FAS123 Solutions and Arthur Kohn of Cleary Gottlieb. The presentation covers:
1. The use, in connection with 2011 equity awards, of routine option valuation methods and historical measurements of volatility will, for many companies, overstate the value of option awards for compensation and disclosure purposes.
2. Volatility and other factors, including in particular the degree of difficulty of vesting conditions, affect the value of equity compensation awards other than options in ways that should be considered in the design of executive compensation programs that use a “portfolio approach” to long-term incentive grants.
3. Decomposing the value of equity compensation awards in a way that gives insight into the amount of value delivered in different factual scenarios will help to properly design such awards from an incentive and value perspective.