Valuation Of Employee Share Options

Valuation Of Employee Share Options

Fair Value of Employee Share Options: The fair value of employee share options is the price at which an employee may purchase shares during a vesting period. These are listed in the contract, and regardless of market prices, employees are required to pay the exercise price. Another important feature of employee share options is that they are not traded on the open market. This makes it difficult to determine their value using traditional valuation methods. In addition, these options are often illiquid, so they cannot be readily exercised by the employees.

Grant Date: The company grants the stock options to the employee. The vesting schedule outlines when the employee will exercise the options. The typical vesting schedule is four years, with a one-year cliff at the end of the first year of the option period. After that, the shares will vest every month. The expiration date is when the employee’s options will expire.