The NASPP Blog

July 27, 2011

Perceived Value

I recently attended a great presentation on perceived value at the Silicon Valley NASPP Chapter All-Day. The panel was moderated by Emily Cervino of the CEP Institute and included Fred Whittlesey of Compensation Venture Group, Keith Pearce of Intel, and Jason LeBovidge of Fidelity Investments. In today’s blog entry, I summarize some of the points they discussed.

Perceived Value ≠ Fair Value
Perceived value is the value employees assign to the grants they receive. This value is often completely different than the fair value of the award or even the cash value of it. For example, employees often have a higher perceived value of at-the-money stock options with a low exercise price than those with a high exercise price–the exact opposite of how the fair values for those options would come out.

Perceived value is different than fair value because, as Keith explained during the presentation, the formulas for the two values are different: 

  • Perceived value = signal value + cash value
  • Fair value = time value + intrinsic value

At-the-money stock options have no intrinsic, or cash, value, so all of their fair value is derived from time value. Yet when employees consider their stock options, they don’t include any time value in the equation. 

Signal Value

The good news, however, is that employees will consider the signal value of their options and awards and, unlike time value, this value is something that you can influence.

Signal value is what the option/award signifies to the employee.  It’s an intangible quantity that represents how valued the grant makes the employee feel and how meaningful the grant is to the employee. The information you provide to employees about their grants and how you deliver the message can increase signal value.

A Few Ways to Increase Signal Value

  • Make a big deal out of the grant.  For example,you might include a letter from the CEO in the grant package and have the CEO discuss the stock program at company meetings.
  • Promote the stock program using a variety of media: email, company intranet, HR blog, employee newsletter, posters around the office, benefits statements, etc.
  • Make things personal.  Meet with employees in person about their grants. If your company is too large for you to do this, have managers or local HR reps hold these meetings.
  • Have employees provide testimonials about what the program means to them. 
  • Make sure employees understand the stock program. 
  • Don’t oversell the program; disappointment has a devastating impact on perceived value.

If you missed the Silicon Valley NASPP All-Day Conference, we have another great presentation on perceived value planned for the 19th Annual NASPP Conference. Don’t miss “Maximizing Perceived Value of Equity Compensation,” moderated by Renee Trotta of Charles Schwab.

It’s Not Too Late to Enroll in the NASPP’s Financial Reporting Course
The NASPP’s newest online program, “Financial Reporting for Equity Compensation” started on Thursday, July 14, but it’s not too late to get into the course. All webcasts have been archived for you to listen to at your convenience. 

Designed for non-accounting professionals, this course will help you become literate in all aspects of stock plan accounting, from expense measurement and recognition, to EPS and tax accounting.  Register today so you don’t miss any more webcasts.

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 

– Barbara