SEC Approves Stock Option Value Auctions
Published October 22nd, 2007
The Securities and Exchange Commission has approved a market-based method for valuing employee stock options, which could make the popular perks worth less and reduce the expense cost to companies.
Financial services company Zions Bancorp said Monday the SEC’s chief accountant had given final approval to its auction system for calculating market values of stock options.
Salt Lake City-based Zions said it intends to market its system to other public companies.
Under accounting rules that took effect last year, public companies must count the value of stock options they award executives and employees against profits. Stock options allow employees to buy shares of their company’s stock in the future at a set “strike” price.
High-tech companies, especially startups that might be short on cash and profits, opposed the mandate because they traditionally used stock options that might be worth more in the future to reward employees.
Several companies, notably networking equipment maker Cisco Systems Inc., and Zions had urged the SEC to allow market-based methods for valuing options, as opposed to the widely used theoretical mathematic models.
“For the first time, companies have a market-based alternative to employee stock-option valuation models,” James Livingston, a Zions vice president, said in a statement. “When sophisticated and informed investors compete for a properly designed instrument in a fair and open auction, the market-clearing price represents a fair market value.”
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