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Equity Compensation Education Brief |
About This Newsletter
Welcome to the first edition of the Equity Compensation Education News Brief. You are receiving this quarterly publication because you have either
subscribed online or because you have indicated an interest in this subject matter by visiting
our website or our booth at an
NASPP conference. If you do not want to receive this publication you can unsubscribe using the link at the bottom of the page.
As the industry leader in helping companies and individuals to maximize the value of equity compensation, we saw a need in the market for information on the topics of equity compensation education, employee communication and planning
assistance. This demand has been driven by mandatory stock option expensing under FAS-123 that has resulted in widespread program changes and increased scrutiny by shareholders.
Additional grant types (i.e. Restricted Stock Units & Stock Appreciation Rights) and performance vesting schedules have made it increasingly difficult for participants to understand the value of their holdings. This confusion diminishes
the motivation and retention power of equity compensation which in turn has an impact on shareholders. As a result, the cost of an equity compensation program in terms of sharehold dilution can surpass the benefit to them. Consequently,
it is imperative that employees are provided with personalized information that enables them to fully understand and appreciate the wealth building potential of their grants. Effective equity compensation education and communication can
help companies to achieve their financial goals which in turn rewards employees and shareholders alike.
There are lots of resources that help companies with stock plan design and administration, but there are precious few that address the issues of equity compensation education, communication, and planning. For this reason the focus of this
news brief is to provide readers with a variety of information and resources on these topics with the intent of helping companies to get the most out of their equity compensation programs. We invite you to share this publication with
anyone involved in the design or implementation of equity compensation programs. We also encourage you to
so that we can provide the best possible content moving forward. |
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Study of Employee Perceptions on Option Valuation
Net Worth Strategies has teamed with professors from the Universities of Illinois and Michigan State to examine how stock option recipients perceive the value of their options and to explore how an educational training program can effect
these perceptions. The data for this study came from the stock option training programs conducted at four different companies by Net Worth Strategies.
The study analyzes the value that employees would forfeit from their current stock option holdings if they terminated their employment (Forfeit Value®). The focus of the study is on the potential difference between an employee's perception
of the Forfeit Value® and the corresponding value as calculated using the Black-Scholes formula (Cost).
Based on the analysis to date, the following preliminary findings (subject to change) have been identified:
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Prior to training, the majority of stock option recipients in the study perceived the Forfeit Value® of their stock option holdings to be significantly less than the Cost.
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Completion of a personalized stock option education program explaining stock option fundamentals and including a valuation of the recipients' own option holdings significantly increases their perceived Forfeit Values®.
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After the education program, there is no longer any evidence of a difference between the recipients' perceived Forfeit Value® relative to the Cost which suggests that investments in certain types of employee training can significantly
decrease the cost-value gap and increase the incentive benefit of stock options.
Click here for the full summary of the preliminary results. |
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News, Tips and Resources
A recent
survey by Culpepper and Associates shows that stock options are still the most common form of equity compensation, but restricted and performance based awards are gaining popularity. This means that many employees now have a variety
of grant types to deal with which in turn complicates their decision process. In these situations employees will need assistance with questions such as: 1) "If I want to diversify, what grant/shares should I sell first?" or 2) "At what
company stock price do I achieve my financial goal?"
This year's
Annual NASPP Conference in Las Vegas (October 10-13) will include a panel devoted to the topic of employee education. A session entitled, "Getting Your Money's Worth: Enhancing Employee Education in a Post-123 World" will include
Bruce Brumberg, founder and Editor-in-Chief of myStockOptions.com,
Bill Briggs, CEO of Net Worth Strategies, Inc. and
John Barringer a Certified Financial Planner (CFP) and founding member of the Colorado chapter of the NASPP. The ideas and information shared in this session will help attendees to develop and deliver highly effective educational
programs with a minimum impact on company resources.
Equity Compensation Education Resources:
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If you have modified your program as a result of FAS-123 and need to communicate these changes to employees in a manner that allows them to fully understand and appreciate their current holdings, consider
StockOpter® Corporate Services. This personalized seminar program provides each attendee with a detailed analysis of their grants that shows them the
5 things they should know about their equity compensation. These 5 things serve to motivate and retain key employees by enabling them to make confident decisions. StockOpter® Corporate Services is offered by a number of leading
financial advisory firms across the country. To conduct a pilot at your firm to measure the effectiveness of your equity compensation program call Bill Dillhoefer at 877-728-5964.
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A general source of educational information on equity compensation can be found at
myStockOptions.com. This informative website contains articles, FAQs, quizzes and tools to help individuals to understand and maximize the wealth building potential of stock options, restricted stock, restricted stock units, stock
appreciation rights, and employee stock purchase plans.
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