How are stock options, stock appreciation rights (SARS) and deferred compensation valued under IRC 409A or FASB 123R?
Stock options are generally valued using an accepted options pricing model, of which there are many, including the well known Black-Scholes option pricing model. These models determine either the econometric or theoretical value of the instrument – that is, the price at which the option should sell in the marketplace. Generally, the internal revenue service and SEC are concerned that although the issuer of a stock right intended to establish an exercise price not less than the fair market value of the stock at the time of grant, the issuer of the stock right may not be able to demonstrate that the exercise price of the stock right was determined using a reasonable valuation method. Accordingly, where a taxpayer can demonstrate that the exercise price of a stock right granted was not less than the fair market value of the stock at the date of grant and that the value of such stock was determined using a reasonable valuation method, then that valuation will meet the requirements. Option
Related Questions
- Is shareholder approval required to add stock-settled Stock Appreciation Rights ("SARs") to a plan that provides only for stock options?
- How are stock options, stock appreciation rights (SARS) and deferred compensation valued under IRC 409A or FASB 123R?
- Does all the stock option content on this website also apply to stock appreciation rights (SARs)?
