UBS WMA introduces the UBS Equity Award Value Index

Thanks for sharing Ron.  This is some really interesting information.  Definitely shows that even after 20+ years of regular use, we have a long way to go in communicating the value of equity compensation.

Dan

Dan:

I agree with you. The question becomes why are the grantees so mis-informed, especially dealing with employee stock options and SARs.

I believe that the reason of such confusion, as to the values, is the people who are assigned the task of communication do not understand the values themselves.

The value of ESOs and SARs are not easy to understand in general and must be valued particular to each individual's situation. When you get into values dependent on volatility, interests rates, dividends, expected time to expiration, and questions of the model's assumptions of expected distributions, it is not an easy task to understand and communicate.

Then the question arises as to what is the best way to manage these grants. Most top executives hold to near expiration, unless there are substantial reasons for not doing so. But most advisers to less than "top executives", advise early exercises, sell and diversify, which benefits the company and the advisers and penalizes the grantees in the form of forfeited "time value" and early taxes.

And hedging is taboo and sometimes prohibited.

Where Restricted stock is concerned, the performance requirements add to the complexity relative to non-performance RS or RSUs.

Highly informed grantees raise the costs to the companies. So the companies have no real incentive to get highly informed grantees. However, some '"top executives" are highly informed and some are even abusive. That is why the stock of many companies under-perform the SPX shortly prior to the grants of ESOs and SARs to "top executives" and out-perform the SPX shortly after the grants. This is the case even today.

Merry Christmas

John Olagues

Dan,

It is my experience that stock plan managers rarely educate ESO recipients on concepts like leverage and time value due to the risks in providing info that borders on "guidance".  I think this has a lot to do with why employees with few vesting events view their options as lottery tickets and not a way to build wealth. 

Consequently, by default financial advisor are tasked with providing guidance and very few of them are trained to do so.

What are your thoughts on why employees don't value their equity compensation sufficiently?

Bill

For help with communicating to employees and executives related to year-end planning topics, see blog http://lnkd.in/dsPaSv6 .