Berkeley Haas Professors Nancy Wallace and Richard Stanton developed a novel new way of determining the value of employee stock options that 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.

The new valuation method combines standard option theory with real-world observations of what employees actually do with their grants. It 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.

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