Market approach to valuing share-based payment
21 Feb 2007
Because employee stock options and other share-based payment awards do not trade in a market, most companies use pricing models, such as the Black-Scholes-Merton model, to measure an award's grant date fair value for accounting purposes under IFRS 2 Share-based Payment and under the comparable US standard FAS 123(R).
In the United States, Zions Bancorporation believes, and the SEC concurs, that it has sufficiently designed an instrument to serve as a market-based approach to valuing employee share-based payment awards, including employee stock options. Based on a test auction, Zions's approach suggests a value of 68-72 percent of the value of the same stock option as determined by the Black-Scholes-Merton model. Deloitte (United States) has prepared a Special Issue of the Heads Up Newsletter (PDF 78k) explaining Zions's model, the SEC's views about it, and how it could be applied for accounting purposes. There are hyperlinks to Zions's report and related SEC reports and commentary.
