Labor Relations Commons^™

Valuing Employee Stock Options, Kevin F. Hallock

Economics Faculty Publications

It helps to remember that employee options and market-traded options are quite different. The difference between them makes valuing employee options more complicated, but it also offers a lesson about how the employer's cost for a given piece of the total rewards package may not be the same as its value to a given employee. Organizations too often miss this and, as a result, can find themselves leaving money on the table. A stock option is the right to buy a share of stock at a specific price (called the strike or exercise price) at some point in the future. …