A market driven way to value unmarketable employee stock options

Zions Bancorp Auctions Market-Valued Employee Stock Options

Here is a Dow Jones article about the offering:

"An innovative Internet securities auction by Zions Bancorporation (ZION), set for Wednesday and Thursday, may provide an attractive opportunity to investors, but if it does, that could undermine the entire purpose of the auction. Bidding opens at 9:30 a.m. EDT for an offering of “Esoars,” a derivative security designed to mimic the value of employee stock options. Zions isn’t making the offering in order to profit directly, but instead hopes to create an accounting tool that will allow companies to reduce their reported expense for granting stock options. Zions intends to profit by selling that tool.

The Securities and Exchange Commission, which will ultimately decide the validity of Zions’ proposed accounting technique, has said that a market-based method may be preferable to traditional options accounting models. “The SEC suggested they wanted a market price, and we are giving them the opportunity to see a market price,”

The valuation of ESO using the market based method can vary significantly from the standard Black-Schole method. For the Zoins ESOs that the price will fall somewhere in a range of about $5 to the low teens versus $16 using Black-Scholes.