Share:

Stock Options: Worth more for women and senior execs than male employees  

 

Dave Jensen
Prominent Maven Moderator
Joined: 6 months ago
Posts: 872
January 7, 2019 8:39 pm  

The Haas business school at UC Berkeley has written today about a novel way of determining the value of employee stock options, and reports that it has yielded some surprising insights: Options granted to woman and senior managers are worth more because they hold them longer. (And options that vest annually rather than monthly are worth more for the same reason.)

Employee stock options are a key part of biotechnology compensation, and if you're in the biotech sector as most readers are, you'll get these sooner rather than later. Perhaps the way you deal with them can take on an approach which, according to the study, is used by more women than men.

The new valuation method, which combines standard option theory with real-world observations of what employees actually do with their grants, gets at a knotty problem: Even though stock options are one of the most common forms of compensation, companies don’t really know how much granting options costs them.

“We’ve come up with a practical method of valuing stock options that takes into account actual behavior of employees,” says Richard Stanton, a Berkeley Haas professor of finance and real estate who holds the Kingsford Capital Management Chair in Business.

The new approach is laid out in a forthcoming article in the Journal of Finance (co-authored by Berkeley Haas Prof. Nancy Wallace and New York University Assoc. Prof. Jennifer N. Carpenter). Their analysis also draws on the study of behavioral economics, which considers the effects of psychology on financial decisions.

Among their original findings: Options awarded to women cost companies 2 to 4 percent more than those granted to men, who tend to exercise their options faster. And awards to the most senior employees cost 2 to 7 percent more than grants to their lower-ranking colleagues—again, because the execs hold onto them. In addition, options cost companies significantly more when they are set up to vest less frequently—that is, reach the threshold date when they become eligible to be exercised. A shift from an annual to a monthly vesting date reduces option value by as much as 16 percent because people exercise the options earlier and more often.

It sounds like men are the ones who are hitting the "cash in" button on options more frequently than women!

 

Dave Jensen

Dave Jensen, Founder and Moderator
Bio Careers Forum


Quote
Topic Tags
DX
Honorable Maven Registered
Joined: 6 months ago
Posts: 558
January 8, 2019 8:38 am  

for my family has been true.  I'm the risk-adverse seller, the wife is the holder.  Go figure.

 

 

 

 

 


ReplyQuote
Dave Jensen
Prominent Maven Moderator
Joined: 6 months ago
Posts: 872
January 8, 2019 6:54 pm  

Glad we can back up something in academic research with a real world example here on the Forum, DX! Thanks,

Dave

Dave Jensen, Founder and Moderator
Bio Careers Forum


ReplyQuote