Leveraging the Value Left Behind
Not long ago I was working with a client who was looking to leave her current employer for another company. She was rightfully concerned about restricted stock and stock options she had with her current employer. They had been worth significantly more the previous year and had lost value as the price of the stock dropped.
We discussed what forfeiture value meant and how much she would be “leaving on the table” if she left the company. The true forfeiture value is not the in-the-money value of the vested options, because she could exercise her options that had vested. In fact, the real forfeiture value is the potential upside value (time-value) of the vested options over time and the Black-Scholes value of the unvested options.
My client’s vested in-the-money options were worth $126,000, and the forfeiture value of her options was $282,000. This $282,000 is what she would be leaving on the table if she took the new job. I ran an analysis that calculated the forfeiture values, which was advantageous in negotiating comparable equity awards with her new prospective employer. In this client’s case, despite the drop in stock prices over the last couple of years, all was not lost. It’s a great example of how leaving an employer doesn’t have to mean leaving value behind.