FAQ

Most frequent questions and answers

Sharpe Valuation’s free report tool enables unbiased negotiations on compensation. Individuals or recruiters can use the report to get an instant, independent valuation of unvested stock awards. Using Sharpe Valuation for LTI valuations (RSUs, stock options etc) ensures the recruiter, hiring company and candidate can all have peace of mind that the valuation has been performed correctly and fairly.

Restricted Stock Units are typically valued by multiplying the number of units by the prevailing share price however it is important to understand what ‘Restrictions’ there are (vesting period, performance conditions etc) to understand the real value.

Once an employee stock award has vested it no longer has restrictions and it is then usually the employee’s to sell if they wish. Vesting period is the time from the award being granted to it vesting.

An unvested stock award still has restrictions so typically the employee cannot sell it and forfeits it when they resign. Hiring companies will often buy-out or compensate for the value of unvested stock awards.

LTI stands for long term incentive and is a form of pay or compensation that usually has a timespan greater than 1 year. It can be a stock award, stock options or cash and will usually have a vesting period which is designed to retain the employee and drive alignment with long term company performance and results.

No, not as income. Different countries have different taxable moments for RSUs – eg. at vesting or at point of sale but you will only pay income tax once on RSUs. Depending on the country you may also pay capital gains tax.

A vesting period is the time span that a LTI has before it becomes the employee’s without restrictions. Vesting periods can be 1 year or even less or as long as 7 years. A typical vesting period would be around 3 years although standard practice differs by geography, industry and seniority of the employees.

Executive compensation will usually be made up of a salary, a short term incentive (cash bonus) and a long term incentive (shares). Many companies will also provide additional differentiated executive benefits such as car or medical benefits.

Sharpe Valuation can help with constructing and deciphering executive compensation, contact us at support@sharpevaluation.com

RSUs, or Restricted stock units, are a form of employee compensation designed to mirror company stock. These RSUs are ‘restricted’ for a vesting period that often lasts for a few years, they cannot be sold during that time and will usually be forfeited if the employee resigns. Once vested, RSUs are usually converted to actual company stock and can therefore be sold at their underlying market value.

Stock options are different from RSUs as they are an ‘option to buy’ at a pre-determined fixed price. If that fixed price is less than the prevailing share price then options can be very valuable. However an ‘option’ to buy a stock unit will always be less valuable than the actual stock unit itself.

Here is an example, if an employee is given 1,000 RSUs of Apple to vest on 1st June 2020, then the employee can sell those shares at the price on the day of US$ 80.46 per share for total earnings of US$ 80,460. Alternatively, if an employee is given 1,000 stock options at the strike price of $80.00 then the employee can excercise their options and aquire the stock at a slight discount (0.46) then they can sell the stock but will only end up with a net gain of 0.46 x 1000 = $460.

A simple valuation of employee share awards is done by multiplying the number of units by the share price.

Restricted Stock Units are typically valued by multiplying the number of units by the prevailing share price however it is important to understand what ‘Restrictions’ there are (vesting period, performance conditions etc) to understand the real value.

A simple valuation can be done by multiplying the number of units by the prevailing share price less the option price however that does not take in to account many other critical variables required for a more complicated but more accurate valuation. For a more detailed answer to this question check out this blog: http://blog.sharpevaluation.com/blog/what-is-the-correct-way-to-value-employee-stock-options-esos-why-are-there-different-approaches/

An employee stock option is an option to buy shares in the company at a pre-agreed price within a pre-agreed time period. An example would be an option to buy BP shares at 3 GBP between 2023-2026.

Possibly – it depends on how much they want or need to hire you and how expensive it would be. This is a complicated question/topic – refer to our detailed blog on this subject – link.

Yes, if you resign voluntarily you will likely forfeit your unvested stock / LTI awards. If you retire or are terminated involuntarily then you may be allowed to keep the LTI awards, consult the plan rules.

You will need to multiply the number of shares you have by the share price if they are regular stock awards. If they are stock options or performance shares with complex vesting conditions then you can speak to HR or seek advice from sharpe valuation on how to get an accurate valuation.