Valuing Stock Compensation Under Sect. 409A

Reaching the Best Decisions in Allocating Value to Stock Options and Stock Appreciation Rights

Recording of a 110-minute CPE webinar with Q&A

Conducted on Tuesday, November 24, 2009

Recorded event now available

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Course Materials

This seminar will analyze scenarios that frequently arise in valuing and allocating value among common and preferred stock options and rights. The panel will offer new approaches to making optimal valuation decisions for employee stock compensation.


IRC Sect. 409A and its 2007 final regulations are broad enough to apply to many arrangements that weren't traditionally considered deferred compensation, such as stock options and stock appreciation rights (SARs). As a result, valuation specialists continue to wrestle with many difficult decisions.

Is a company's process for determining fair market value sufficient to exempt stock option grants from Sect. 409A? How should value be allocated among different categories of common and preferred stock compensation? Is the process used consistently, and does it consider all facts and circumstances?

While holders of stock options and rights could face taxes and non-compliance penalties, the 409A regulations have gaps, and on-point guidance from any source is skimpy. Advisors must understand how Sect. 409A affects clients' future option grants and whether to modify outstanding options.

Listen as our panel of valuation and accounting veterans addresses the common challenges in making accurate stock compensation valuation decisions under Sect. 409A.



  1. Background of issue
    1. 2004 passage of Sect. 409A to set rules for deferred compensation plans
    2. April 2007 passage of final IRS interpretive regs
    3. 2004 AICPA guidance
  2. Rules for exempting stock options from 409A at issuance
    1. Exempt if issued by qualified issuer, exercisable for issuer’s common stock
  3. Determining fair value of stock compensation
    1. For pre-Jan. 1, 2005 options
    2. For options issued between Jan. 1, 2005 and Jan. 1, 2009
    3. For post-Jan. 1, 2009 options
      1. Reasonable valuation method that considers all facts and circumstances
  4. Practical difficulties in stock valuation decisions
    1. Allocating value among different categories of stock/options/rights
    2. Evaluating all outstanding options vs. evaluating only newly issued options


The panel will arm you to make better valuation decisions in these and other relevant areas:

  • Structuring exempt stock compensation: Finding specific exemptions under Sect. 409A or structuring options in a way that complies.
  • Determining fair market value: Navigating different standards, depending on the issuance date, for options granted before Jan. 1, 2009.
  • Making solid valuation decisions now: Deciding if a current valuation method is reasonable.


Jeff Faust
Jeff Faust

Director of Business Valuations
Greenstein Rogoff Olsen & Co.

He has more than 19 years of experience in finance and accounting, and 14 years in business valuations. He previously...  |  Read More

Jeffery Banish
Jeffery Banish

Partner, Compensation and Employee Benefits Group
Troutman Sanders

His practice covers executive and stock-based compensation, ESOP plans, benefit issues in M&A, pension and welfare...  |  Read More

Robert Webb
Robert Webb
Partner, Manager of Labor, Employment and Benefits Group
Nutter McClennen & Fish

He works with corporate clients on design, amendment and compliance projects related to retirement and deferred...  |  Read More

Michael Frank
Michael Frank

Morrison & Foerster

His practice specializes in executive compensation and employee benefits, regularly advising companies on all aspects...  |  Read More

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