Consider an employee (perhaps a CEO or another high-ranking employee) that has received compensation in the form of the firm's stock. The stock must be held for at least 3 years before selling. How to value such a stock? Is its value any different than that of another stock without a restriction on selling?

  • $\begingroup$ The stock price is publicly observed and each stock is equivalent in terms of what it represents (as long as it's the same class). $\endgroup$
    – AKdemy
    Apr 14, 2023 at 5:20
  • $\begingroup$ @AKdemy, I wonder if the observed price is a good proxy for value, given that the restricted stock cannot change hands for any price until 3 hears have passed. So the price does not apply to the restricted stock. $\endgroup$ Apr 14, 2023 at 6:55
  • $\begingroup$ Well, you can either assess zero value (it cannot be traded after all, and they have no tangible value) or use the market value. The latter is what shows up in all statements and accounting. as well as in the calculation of the market value of the company. How do you value a fixed term deposit? You also have your money tied for a certan period, yet its value is the face value (plus interest). $\endgroup$
    – AKdemy
    Apr 14, 2023 at 7:05
  • $\begingroup$ @AKdemy, zero is certainly an extreme and unreasonable assessment. The market value is undefined for a stock that is not and cannot be traded on the market. We can proxy it by the market value of the tradable stocks, of course. I just wonder if anyone in their sane mind would choose a restricted stock over an unrestricted one for the exact same price. The price is determined by the marginal guy, not the majority, so probably (?) there would be one, but they should realize that for most actors the value of the restricted stock is less and act accordingly. So I would expect a (slight?) discount. $\endgroup$ Apr 14, 2023 at 7:15
  • $\begingroup$ There is no discount. I own company stocks from bonus payments of which some are still restricted. It's the full market value. You cannot choose. If you are restricted to sell, no one can buy them. All such stocks also count normally in accounting and market value calculations. After all, they are still normal stocks. Market capitalization is including all restricted shared (see FINRA for example). $\endgroup$
    – AKdemy
    Apr 14, 2023 at 7:22


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