Page 470 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

456 The Complete Guide to Executive Compensation

Grant Vest Exercise Sell

Time Lapse Today Three years Five years Eight years
Stock price
• Fair market value $100 $130 $160 $210
• Option price $100 $100 $100 $100

Individual
• Ordinary income — — $60 —
• Long-term capital gains — — — $50

Company
• Tax deduction — — $60 —
• Expense* $30 — —

* Accrued over predicted period of performance
Table 8-37. Nonstatutory, performance-vested option
A nonstatutory performance-accelerated vested stock option is highlighted in Table 8-38. This
example is similar to that shown in Table 8-37 except that the grant is not dependent on
attaining prescribed financial goals. The option is exercisable on the earliest of the vesting
date or attainment of the financial goals. Again, the option expense is determined at date of
grant using either an open or closed option pricing model.

Grant Vest Exercise Sell
Time Lapse Today Four years Five years Eight years

Stock price
• Fair market value $100 $145 $160 $210
• Option price $100 $100 $125 $100

Individual
• Ordinary income — — $60 —
• Long-term capital gains — — — $50
Company
• Tax deduction — — $60 —
• Expense* — $35 — —
* Accrued over predicted period of vesting
Table 8-38. Nonstatutory performance-accelerated vested stock option

An indexed vested nonstatutory stock option is similar to a performance-accelerated stock
option if the index increase is used to shorten the vesting period. It could also be used to
lengthen the vesting period.