Intended Value Vs FMV: should you Care?
When the Comp Committee approves an RSU grant, the number of shares is typically based on an intended value divided by a price formula, such as the 20-trading-day average closing price. But when the grant is recorded, the fair market value ("FMV") reflects the closing price that day.
As a result, the intended value set by the compensation team varies from the fair market value recorded.
Should you care?
Most comp leaders would say yes - we should stick to intended value because that methodology aligns with how we set targets.
But how much does it really vary, and when does it matter?
I experimented with analyzing stock data from 10 public companies to find out. And the answer is, as every consultant says, it depends:
- SBC expense and RSU budgets - yes, you should care, especially for the annual refresh grants
- Employee expectations - yes, if your stock is highly volatile
- Market data methodology - no, the variance is de minimis
Analysis of 10 companies in 2024 YTD
I looked at 10 tech companies in the data security industry to see how big the gap gets:
- Cloudflare, Crowdstrike, Datadog, F5, Fortinet, Okta, SentinelOne, Snowflake, Twilio, and ZScaler
I picked this group of stocks because they were highly volatile in 2024, maximizing differences between FMV and intended value:
Using historical stock price data from NASDAQ, I built an analysis of year-to-date (through November 20th) variance in the 20-day average closing price (Intended) and actual closing price (FMV) for each company, then assumed a grant date on the start of each month.
Here are the results:
This analysis shows that most of the time the variance between FMV and intended value was minimal - 70% of all observations were less than +/-5%.
The average variance for all events was -0.76%, and in absolute terms was 4.50%.
When the Comp Committee approves an RSU grant, the number of shares is typically based on an intended value divided by a price formula, such as the 20-trading-day average closing price. But when the grant is recorded, the fair market value ("FMV") reflects the closing price that day.
As a result, the intended value set by the compensation team varies from the fair market value recorded.
Should you care?
Most comp leaders would say yes - we should stick to intended value because that methodology aligns with how we set targets.
But how much does it really vary, and when does it matter?
I experimented with analyzing stock data from 10 public companies to find out. And the answer is, as every consultant says, it depends:
- SBC expense and RSU budgets - yes, you should care, especially for the annual refresh grants
- Employee expectations - yes, if your stock is highly volatile
- Market data methodology - no, the variance is de minimis
Analysis of 10 companies in 2024 YTD
I looked at 10 tech companies in the data security industry to see how big the gap gets:
- Cloudflare, Crowdstrike, Datadog, F5, Fortinet, Okta, SentinelOne, Snowflake, Twilio, and ZScaler
I picked this group of stocks because they were highly volatile in 2024, maximizing differences between FMV and intended value:
Using historical stock price data from NASDAQ, I built an analysis of year-to-date (through November 20th) variance in the 20-day average closing price (Intended) and actual closing price (FMV) for each company, then assumed a grant date on the start of each month.
Here are the results:
This analysis shows that most of the time the variance between FMV and intended value was minimal - 70% of all observations were less than +/-5%.
The average variance for all events was -0.76%, and in absolute terms was 4.50%.