The formula of exercise price in employee stock options – testing of the proposed approach
The formula of exercise price in employee stock options – testing of the proposed approach

Summary/Abstract: The exercise price in ESO determines the size of the remuneration of an employee according to the market price of a stock. The literature survey of the American experience shows that usually the strike price is equal to the stock’s market value at the time the option is granted. The pricing mechanism of ESO in Poland usually is based on the fixed value, mostly corresponding to the nominal price. The author’s formula of the exercise price is presented in this article. The aim of the research is the verification of the proposed approach. The data from Warsaw Stock Exchange will be used in the paper. The analysis will particularly use the data from ESO programmes of Polish companies, which were enacted from 1999 to 2014. The research confirms that the variable exercise price should be used in the incentive programmes based on the employee stock options. Tests of the proposed formula have shown that in the majority of ESO programmes the exercise price does not differ much from the market price.

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