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Equity Compensation Values and Valuation
An NCEO Issue Brief
by Bo Brustkern, Takis Makridis, and Elizabeth Dodge
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Format: Photocopied, 46 pages
Publication date: December 2011
Status: In stock
Next Exit 100 Miles?
How Does It Work?
Company Valuations Through Time
Value Is Allocated According to the Capital Structure
Exit... Stage Left
Other Exits Not Available
The Role of Private Company Liquidity in the US Economy
SEC Simplified Method Transition Considerations
How to Transition Away from the SEC Simplified Method
Summary Academic Research Results
Annualized Forfeiture Rate vs. Flat Rates
Static vs. Dynamic Application of Forfeiture Rates
Rate Too High
Rate Too Low
ASC Topic 718-10-35-8
Forfeiture Rates and Monthly Vesting
Different Forfeiture Rates
From "Forfeiture Rates"Generally speaking, two different types of forfeiture rates can be estimated and applied to the accrual of share-based compensation expense:
- A flat rate or
- An annualized rate
An annualized rate is the average percent of forfeitures over a year-long period. When an annualized rate is applied to the accrual of expense, it is applied differently based on the vesting period. For example, if the annualized forfeiture rate is 5%, when this rate is applied to a grant or group of grants vesting over one year, the expense is reduced by the 5% amount. 95% of the expense is accrued. However, now consider a grant vesting over two years - if 5% of the awards will be forfeited in one year, then over a two-year vest period, some amount greater than 5% is likely to be forfeited. How is the 5% applied in order to reflect this fact?