a number of factors such as expected life, stock price volatility, etc.
I assume you are talking about placing a value on the employee stock option. The options are granted (sold for free) to the employee. A non-employee must buy an option. The FASB has actually already addressed this with SFAS 123 issued in October 1995.
Excerpt from SFAS 123:
"Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized [edit: amortized] over the service period, which is usually the vesting period. Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock. Most fixed stock option plans-the most common type of stock compensation plan-have no intrinsic value at grant date, and under Opinion 25 no compensation cost is recognized for them."
Unfortunately, while the FASB says the "fair value based method" is preferable, it also allows a company to choose between the the "fair value based method" and the "intrinsic value based method". Since the "fair value based method" would cause a charge to income, it does not require a genius to know which method any company would choose. To be fair, I have seen at least one company (either QCOM, CSCO, or MSFT) use the "fair value based method" in their pro-forma accounting .. but I won't go in the pro-forma direction any further.
Reference: accounting.rutgers.edu for a summary
Regards, Ron |
