Valuation

Forfeiture Rate Analysis

Nearly two decades after the release of FAS 123R (now ASC 718), the concept of forfeiture rates is widely known and understood in the industry. In practice, though, finding the right forfeiture rate to apply is a real challenge. Bad estimates of the forfeiture rate lead to large true-ups no matter what expense model you use, causing unexpected income statement volatility. Worse yet, in today’s analytics-driven business environment, the wrong estimated forfeiture rate renders stock comp forecasts and budgets useless.

Services

We can help you in the following areas:

  • Evaluate your data to isolate the impact of special grants, reductions in force, acquisitions or spin-offs, and other unique circumstances that can bias your forfeiture rates
  • Analyze your historical forfeiture patterns to determine the effect of changing granting practices and how the forfeiture rates change over time
  • Identify different groups within your organization that tend to exhibit different forfeiture behavior
  • Use our bottom-up, actuarial approach to calculating forfeiture rates to avoid the systematic biases of the more simplified calculations performed by common software tools
  • Perform hypothetical or backtest analyses to measure forecast variances under different forfeiture rate application techniques (static, dynamic, and versions of each)
  • Correlate forfeiture patterns to other organizational variables to link equity compensation to turnover and other business metrics

Avoid constant true-ups and minimize your budget-to-actual variances with forfeiture rates that are historically sound and representationally faithful.

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Meet Our Experts

Nathan O’Connor

Managing Director

David Outlaw, CEP

Managing Director, Valuation & HR Advisory Services

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