Equity Compensation Value Calculator

Equity arrives on a different clock from salary, which is why comparing the two needs one of them converted. On the defaults, 200,000 of restricted stock, 50,000 of option intrinsic value and 10,000 of share plan discount total 260,000, and across a four-year vesting period that is 65,000 a year. Set against a 150,000 salary, the package is worth 215,000 a year rather than 150,000.

Annualising is the whole point, and the trap

The vesting period is the sharpest lever precisely because it is a divisor. Stretching the same 260,000 from four years to five drops the annual figure from 65,000 to 52,000, a fall of a fifth, without a single component changing. The restricted stock line carries most of the weight in the other direction: at 200,000 it is 76.9% of the total, options 19.2% and the share plan discount 3.8%, so a percentage moved on the stock line shifts the answer roughly four times as far as the same percentage on the discount.

The three components are not the same kind of number

The calculation treats them as though they were. Restricted stock has a value at grant that is known and a value at vest that is not. Option intrinsic value is the gap between the current price and the strike at one moment: if the share price falls back to the strike, that 50,000 becomes zero and the annual figure drops from 65,000 to 52,500. A share plan discount is a benefit earned by buying, at a price set by the plan, and it only becomes money when the shares are sold. Adding them gives one number; it does not make them one thing.

What the research says about these grants

Hall and Murphy argued that options are granted far more widely than their cost justifies, in part because boards perceive them as inexpensive. Oyer and Schaefer, comparing option-based pay with hypothetical cash and restricted-stock plans below the executive ranks, found the choice hard to justify on standard grounds alone. The common thread is that an employee holding undiversified exposure to a single employer does not value that exposure at the number written on the grant letter, which is the number this calculator adds up.

The share plan line is the one most often entered wrong

A plan discount recurs every year, while restricted stock and options are one grant spread over several. Entering a 10,000 annual benefit as though it were a four-year total divides it by four and contributes 2,500 a year instead of 10,000. The figure the field wants is the total across the vesting period, so a recurring 10,000 goes in as 40,000, which takes the package to 290,000 and the annual figure to 72,500 rather than 65,000. These plans go by different names and rules in different countries, and the discount, the contribution ceiling and the tax treatment are all set locally.

What sits outside

Tax at vest, at exercise and at sale, which differs by instrument and by country; the strike price that has to be paid to turn options into shares; forfeiture if employment ends before vesting; refresh grants that arrive in later years; and every movement in the share price between the grant and the day the shares are sold.