Valuing Employee Stock Options for Closely Held Companies

Sponsored By Business Valuation Resources

Topics:

Banking & Capital Markets





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Equity

Employee Benefits & Human Capital





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Compensation

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Abstract:

While the valuation of employee stock options (ESOs) has been an issue
in numerous tax cases and matrimonial disputes, the level of
sophistication and accuracy of the models used by appraisers has not
historically received close scrutiny. However, with the release of SFAS
No.
123R by the FASB and regulations pertaining to IRC Section 409A by the
U.S. Treasury, the bar
has clearly been raised. The goal of this article is to alert business
appraisers to common
misconceptions related to the valuation of employee stock options.
Additionally, we demonstrate
that the incorrect application of popular option valuation models can
result in significant errors in
the valuation of not only ESOs, but the common stock of closely held
companies which grant
ESOs.