October 31, 2017 Executive Compensation Executive & Director Pay Design Articles

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Executive & Director Pay Design

Is Black-Scholes Always the Right Option?

Published October 31, 2017
Published October 31, 2017

After years of falling out of favor — due to both the financial crisis and proxy advisers considering them non-performance based — companies are once again considering the use of stock options to motivate and reward their executives and employees.

Stock options are one of the best long-term incentives to encourage growth and create a longer-term orientation to executive compensation programs. Stock options also fill a hole in contemporary long-term incentive designs and can be effective in creating additional alignment with shareholders. However, stock option values can be volatile, and companies need to be thoughtful about how awards are calibrated.

In most contexts, the Black-Scholes model, which is the most common model used to determine the fair price or theoretical value of a stock option for accounting purposes, appears to work well for determining how many stock options to award to individual recipients as part of an incentive compensation package. Using the Black-Scholes value also makes sense on the surface: The value of the options is aligned with the accounting cost and the option awards can be calibrated on an apples-to-apples basis across companies. Indeed, the majority of compensation surveys rely on Black-Scholes to value options and nearly all publicly traded companies use the model to report the value of equity that they are granting to their senior executives. What’s not to like?

View the full article as it was originally published.

Blair Jones

Blair Jones

Managing Director

Blair Jones has 30 years of executive compensation consulting experience. She has worked extensively across industries and has deep expertise in advising boards on company transitions, significant investor concerns, and an expanding human capital management mandate. Before joining Semler Brossy, Blair was the practice leader in Leadership Performance and Rewards at Sibson and an Associate Consultant at Bain & Company.

Blair holds the designations of Certified Benefits Professional (CBP), Certified Compensation Professional (CCP), and Certified Executive Compensation Professional (CECP). Blair has been named to the D100, NACD Directorship Magazine’s annual list of the most influential people in the boardroom for 10 consecutive years (2013–2022). Blair serves on the Mohawk Valley Healthcare System’s foundation board and is the Women’s Giving Circle leader. She also serves on the advisory board for M3 Placement & Partnership.

Of Interest

Named to the D100, NACD Directorship Magazine’s annual list of the most influential people in the boardroom community, including directors, corporate governance experts, regulators, and advisors, for eight consecutive years (2013–2020).

Industry Experience

  • Retail
  • Automotive
  • Companies Undergoing Transformation
  • Aerospace and Defense
  • Healthcare
  • Fortune 100 Companies
  • Turnarounds
  • Consumer Products

Featured In

  • The Corporate Board
  • Harvard Business Review
  • Bloomberg
  • Directors & Boards
  • The Conference Board
  • NASPP
  • Workspan
  • Harvard Law School Forum on Corporate Governance
  • NACD/Directorship
  • Equilar C-Suite
  • Corporate Board Member
  • Agenda

Authored Insights

John Borneman

John Borneman

Managing Director

John has nearly 25 years of experience as an executive compensation advisor, with broad expertise in consulting to boards of directors and senior management on compensation and related governance issues. His clients range in size from Fortune 100 enterprises to small- and mid-sized companies. John is a thought leader in helping companies manage the pay-for-performance relationship and navigate emerging trends in environmental, social, and governance (ESG) issues related to executive pay. 

He has extensive experience working with companies in transition (e.g., M&A, IPO, spinoffs, turnarounds, leadership changes). John is a graduate of the University of Chicago’s Booth School of Business and the University of Michigan. He is a Certified Executive Compensation Professional (CECP). 

Of Interest

John is a lecturer for the WorldatWork Faculty, teaching Executive Compensation and Business Acumen for HR Professionals.

Industry Experience

  • A Range of Industries
  • Manufacturing/Industrials
  • Real Estate
  • Technology
  • Healthcare

Featured In

  • Equilar
  • Directors & Boards
  • Harvard Law School Forum on Corporate Governance
  • NACD/Directorship

Authored Insights

Jason Oney

Jason Oney

Senior Consultant

Jason is a trusted advisor to senior management and boards of private and public companies, providing guidance on executive and broad-based compensation, governance, and related matters. He has experience across many industries with a particular focus on Fortune 100 and high-growth technology companies. Jason has also supported numerous high-growth platform technology companies through their IPO and post-IPO journey.

Jason partners with leaders to enhance their compensation strategies, optimize business performance, and drive long-term success through a versatile and innovative approach.  His clients appreciate his intellectual curiosity, critical thinking, and ability to bring creative solutions to complex compensation and governance topics through an engaging and hands-on approach.

Jason graduated from Concordia University, St. Paul with a BA in Mathematics.

Of Interest

Behavioral economics and statistics

Industry Experience

  • Technology
  • Insurance
  • Consumer Products

Authored Insights

This article was originally published in WorldAtWork.

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