The difference between the face and fair value of a share option
Produced in partnership with Renu Birla
The difference between the face and fair value of a share option

The following Share Incentives practice note produced in partnership with Renu Birla provides comprehensive and up to date legal information covering:

  • The difference between the face and fair value of a share option
  • Face value
  • Example
  • When is face value used?
  • Determining market value of a share for the purpose of calculating the face value of an option
  • Fair value
  • When is fair value used?

The difference between the face and fair value of a share option

Company accounts, institutional shareholder guidelines and HMRC guidance all refer to the ‘face value’ and ‘fair value’ of share options. The two terms have very different meanings and understanding each is essential in comparing consistently the size or value of the grants made and reviewing the impact from a company accounting perspective.

This Practice Note gives a high level overview of the differences between the face and fair value of a share option and details how the face and fair values are used to compare different remuneration packages.

Face value

The face value of an option is the amount by which the value of the shares under the option on a particular date exceeds the aggregate price to be paid for them.

Example

If the shares have a:

  1. current market value of £3.50

  2. the exercise price is £1.00 per share, and

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