Institutional Shareholder Services has introduced an options expensing alert that allows investors to evaluate companies' option valuation disclosures by comparing them with ISS' numbers, according to a statement from ISS.
Companies are disclosing option expenses that are 29% lower on average than the levels calculated by ISS' method, according to Patrick McGurn, ISS executive vice president and special counsel. Options can be difficult to value precisely, ISS found. "We're seeing ISS-adjusted values that range from 84% higher than reported to 7% lower than reported," Mr. McGurn said in the statement.
The model used in ISS' calculation methodology is the Hull-White lattice pricing model, "which explicitly accounts for employee behavior in exercising their options," the statement said.
