LTIs are a company’s most effective retention and performance tool … but only if their expected value is KNOWN. Although the present value of Executive LTIs is usually know, Executives will find it difficult to calculate the realisable value of their LTI at any given time.
LTI Valuator calculates the realisable value of Long Term Incentives – that is, the value of the unvested Long Term Incentives that they would forfeit should they leave the organisation.
- It calculates the Value at Risk or Realisable Value of your share award
- It compares the value to a peer group of listed companies that can be selected by you.
- The rate of return on the stock follows a lognormal distribution.
This means that the logarithm of 1 plus the rate of return follows the normal, or bell-shaped, curve.
(The assumption ensures continuous trading – the stock rate of return distribution is continuous)
- The risk-free rate and variance of the return on the stock are constant throughout the share allocation’s life.
(The two variables are non-stochastic)
- There are no taxes or transaction costs.
- Dividend flows are factored into the value.
(This assumption ensures no jumps in the stock price. It is well known that the stock price falls by approximately the amount of the dividend on the ex-dividend date.)
- The calls are European
(This does not allow for early exercise)