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Dynamic restricted stock, employee stock options,

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A new form of Restricted stock called Dynamic Restricted StockDynamic Restricted Stock… An improvement on Traditional Restricted Stock ...

A new form of Restricted stock called Dynamic Restricted StockDynamic Restricted Stock… An improvement on Traditional Restricted Stock

http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470471921.html

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    Dynamic restricted stock, employee stock options, Dynamic restricted stock, employee stock options, Document Transcript

    • Dynamic Restricted Stock… An improvement on TraditionalRestricted StockQuestions?Is a grant of restricted stock a performance award or is it morea deferred cash salary or bonus where the salary or bonus ispaid in the form of shares of stock after being delayed to whenthe Restricted Stock vests. How is the grant value dependent onthe employee/executive’s performance or even the stockperformance. If the stock goes down 30 % when the vestingperiod expires the employee still receives the same amount ofstock, although it is worth 30% less. How can that beconsidered a performance payment?It is true that if the stock goes up 40%, the employee receivesmore value but the same number of shares and that 40%increase may be a true performance payment.So in order to make the Restricted Stock a true performancepayment, I have created a new type of restricted stock calledDynamic Restricted Stock.The number of shares that the employee receives at the grantare tied to the value of the stock at vesting.
    • For example:If 5,000 shares are granted on the grant day, that numbereither increases or decreased depending on the price of thestock on the vesting day. If the stock is trading at $50 on thegrant day and is trading at $24.99 or less on the vesting day, theemployee receives no vested shares and the original grant iscancelled. If the shares are trading at $50 on the vesting day,the employee receives 5000 shares and the rest are cancelled.If the stock is trading at $75 or higher, the employee receives10,000 shares.
    • The Matrix below shows the amount of stockreceived at vesting for various prices of the stock;Stock price….Stock price…..# of Shares...# of SharesGrant day…..Vesting day……..Granted…...Vesting$50……………….$80……………….5,000……….10,000$50……………....$75………….……5,000……….10,000$50……………….$70………….……5,000……..….9,000$50……………....$65……………….5,000………...8,000$50….……………$60………………..5,000……..…7,000$50……………….$55……………..…5,000………..6,000$50……….……..$50………………..5,000…….…..5,000$50……………....$45……………….5,000…………4,000$50….……………$40………………..5,000……..…3,000$50……………….$30……………..…5,000………..2,000$50…………...….$25………………..5,000………..1,000$50…………below $25…………….5,000………………0
    • If the company wished to continue the alignment beyond thevesting day, the value of the shares that vest above 7,000 couldbe granted as ESOs with current market exercise prices and 10maximum years to expiration. Below is the MatrixStock price….Stock price…..# of Shares...# of Shares……Val..ofGrant day…..Vesting day……..Granted…...Vesting………New ESOs$50……………….$80……………..….5,000…………7,000………$300,000$50……………....$75 ……………..…5,000…..…….7,000………$250,000$50……………….$70………….… .…5,000…………7,000……….$200,000$50……………....$65…………….…..5,000…….....7,000….……$150,000$50….……………$60………………...5,000……..…7,000…….…$100,000$50……………….$55……………...…5,000………..6,000……...…$50,000$50……….……..$50…………….……5,000…….….5,000 0$50……………....$45…………………5000…………4,000 0$50….……………$40………………...5,000……..…3,000 0$50……………….$30……………..….5,000………..2,000 0$50…………...….$25………………...5,000…….....1,000 0$50…………below $25……………..5,000………………0 0