Forfeiture Value
One of my clients recently told me that another company in Minneapolis was recruiting her. Although the courting company’s offer was quite attractive, she was rightfully concerned about walking away from a substantial number of stock options that were either underwater or had not vested.
I explained that two components determine the value of her options– intrinsic value and time value. Intrinsic value is the difference between the stock’s current value and the exercise price of the option. This is sometimes referred to as the bargain element.
Time value is the dollar value attached to potential profit derived from continuing to hold the option. The farther away the option is from expiration, the greater the time value.
Therefore, we calculated her forfeiture value by incorporating the time value of the vested options and the Black-Scholes value of her unvested options. She presented her prospective employer with our calculation of what she would be leaving on the table and they offered her a similar equity package if she joined the new company.
Equity Compensation Advisor’s Moral: Markets bounce around; all is not lost when your client leaves an employer and stock options behind.
Securities offered through LPL Financial Member FINRA/SIPC